The concept of electronic underwriting, or tele-underwriting, has gradually developed over the past three decades and the majority of the progress has taken place a result of the practices and experiences of the US and UK life and health assurance industries. This article briefly explores the use of electronic underwriting systems in today’s environment and identifies the benefits that these systems bring to the South African Life Assurance market.
In a traditional life assurance environment, the process of applying for a policy and being accepted for cover, is often time-consuming and is dependent on a number of distinct stages. These stages include: an intermediary (a broker or an agent) advising the potential policyholder in applying for a suitable policy; completing the application form that elicits details relating to the applicant’s lifestyle and medical history; the insurer’s underwriters assessing the application; arranging for the applicant to undergo a medical investigation according to standard requirements or as a result of the answers on the application; the insurer making an offer for cover based results of the medical test.
Tele-underwriting, in contrast, is the use of a telephone to gather information that relates to the risk of an applicant seeking life assurance. A sequential process (driven by an automated electronic underwriting engine) comprising questions relating to the lifestyle and medical attributes of the applicant is completed electronically by a “call-centre consultant” and the system then producing an automatic “outcome”, indicating the terms on which an applicant is accepted for cover. The systems are constructed in such a way as to allow for the multiple in-depth “drill down” questions to be asked on a very specific medical condition. This enables the gathering of more information and details relevant to insurability so that a decision can be reached without the involvement of a human underwriter.
As an example, if an applicant states that he/she had previously suffered a heart-attack, the drill-down questions will expand on this condition and may ask how long ago the heart attack was; was there more than one heart attack; have there been any further symptoms; is there a family history of heart attack and any other questions that will help to determine the severity and stability of a condition. The goal here is simply to make as many decisions as possible without resorting to further evidence and to minimise (and preferable negate) the use of medical tests and doctors’ records.
Part of the product development process will involve the insurer setting the questions deemed necessary for their products and sales channel. The number of questions and the level of “drill down” are key competitive factors and will be determined by the insurer’s tolerance for risk and position in the market; for example, a simple life product with a sum assured of R1 million will require less underwriting than a product that has a higher sum assured and the option to have rider benefits included.
Why use an electronic underwriting system?
The life assurance market has evolved into a sophisticated and competitive environment and, with the increase in regulations and focus on “treating customers fairly”, there is a need to make the process of applying and being accepted for a policy more effective and efficient.
Electronic underwriting systems are based on the principle that they speed up the risk evaluation process and cut costs by reducing reliance on traditional forms of medical evidence. To this end, there are some compelling reasons why electronic underwriting systems are considered as essential for any life assurer:
· They reduce underwriting costs
· The improve the total process time from application to policy issue
· They make it easier for intermediaries and customers to do business with the insurer
· They gather better quality information on the various risks
· They open up new distribution channels
· They offer consistency of decisions reached
However, the benefits are not always obvious and consideration needs to be given to some obstacles that exist in adopting an electronic underwriting approach. Traditional thinking leads us to believe that there is no substitute for medical-based evidence. This frame of mind is, however, changing, and the South African insurance industry is adapting to idea that expensive medical tests and reports can be replaced by much less costly alternatives.
Insurance companies are often large by nature and their new-business process can be cumbersome and admin-intensive. Such organisations often find it difficult to change their current processes and mind-set efficiently. This, along with legacy IT platforms and administration systems that exist, are perhaps the biggest obstacles South African insurers face in fully adopting an electronic underwriting approach.
The South African environment
Our market is known for being innovative and embracing new technologies that make products easier to sell and the processes involved more consumer-friendly. Companies, such as 1Lifedirect, have had significant impact in marketing their products successfully through targeted advertising via all forms of media. 1Lifedirect makes use of well-trained call-centre consultants, an intelligent underwriting system and seamless integration of the system into its administration environment, resulting in a near-perfect straight-through-processing score.
Electronic underwriting systems have opened up the internet sales channel where consumers can apply for and get accepted for life cover through an online application and underwriting process that produces instantaneous results. A potential applicant simply navigates to a website, fills in some details, answers a few medical and lifestyle questions and his/her cover (along with an automatic debit order to pay the premiums) is granted and completed on-online. Several such companies have been opening for business in our market and one of the first was Instant Life, who has invested substantially in a state-of-the art website that guides customers effortlessly through the underwriting and application process.
Larger insurers, who predominantly rely on intermediaries to sell policies, are also using electronic underwriting systems. Here, the system is used within their underwriting department as a tool that aids in the underwriting decisions being made, particularly for applicants with complicated medical histories. The system also serves as a “database” of cases they have assessed and a training tool for less experienced underwriters.
Most of the systems in the South African market are made available through one of the re-assurers and are supported by them. The systems are relatively expensive to acquire and they require specialist knowledge to calibrate them and maintain the underwriting rules and outcomes.
A new approach to electronic underwriting systems
Building on our experience locally and knowledge of other worldwide markets and the electronic underwriting systems in use, we were convinced that there was a different approach that could be taken to such systems. An approach that would provide significantly enhanced flexibility and would enable each client to develop a “bespoke” system that would fit their own individual requirements. We believe that this would have significant appeal to users of such systems and hence, we embarked on a project to develop an underwriting system that would cater for the very specific needs of our clients in South Africa and beyond. After extensive research and development, QUIRC has been launched!
QUIRC has a dynamic underwriting question set that can be customized, based on the specific area of use, product features and the relevant sales channel. A natural consequence of this is that the answers and outcomes to questions can be tailor-made to suit your specific needs.
As part of our complete service offering, QUIRC would be supported in your existing environment by our team of experienced actuaries, medical doctors, underwriters and claims experts. In a consultative process, we will work with you to identify the ideal question and outcome set for your products and sales channels.
By virtue of QUIRC being developed and maintained by Hannover Life Re Africa, any changes to questions and outcomes, as well as the inclusion of additional functionality, are inexpensive and can be implemented quickly. This combination of full flexibility, customisation and the ease with which any changes are implemented, gives QUIRC a distinct advantage over other underwriting engines that exist.
(Some information and ideas for this article are related to the SelectX tele-underwriting report as published by SelectX in 2003.)