How Well Does Accelerated Life Underwriting Really Work?

An NAIC task force has proposed an experience reporting update

(Image: Thinkstock) (Image: Thinkstock)

Actuaries want more information about what happens when life insurers sell coverage with some information about the applicants' health, but without a full medical underwriting process.

A group of state insurance regulators at the National Association of Insurance Commissioners is working with actuarial groups to get insurers to provide detailed information about the performance of their "accelerated underwriting" programs, or "simplified issue" programs.

The NAIC's Life Actuarial Task Force is asking for public comments on a proposal to add accelerated underwriting data element boxes to the standard life insurance company experience reporting forms.

(Related: LexisNexis Shifts Life Insurance Underwriting Into High Gear)

The task force, which is part of the NAIC's Life Insurance Committee, agreed last week in Philadelphia, during a session at the NAIC's summer meeting, to put the proposal through an official public comment process. A copy of the proposal is available here.

Comments on the proposal are due Nov. 7.

Life Underwriting

Traditionally, life insurers have asked applicants for individual life insurance detailed questions about their health; required consumers applying for significant amount of coverage to go through paramedical exams, or medical exams; and asked for medical records from applicants' own physicians.

In other cases, life insurers have offered more expensive coverage to consumers through a "guaranteed issue" underwriting process. Consumers can get coverage sold on that basis without answering any medical questions.

Today, many life insurers are trying accelerated underwriting (AUW) strategies, or efforts to use automated systems to draw a limited amount of applicant medical data from databases, such as online prescription databases.

Three actuaries — Jean-Marc Fix, Tony Litterer and Mary Bahna-Nolan — told the Life Actuarial Task Force in July that actuaries also need information about the performance of policies sold through AUW systems, rather than with no underwriting, or with full underwriting.

Given the current lack of information about how policies sold through AUW programs compare with policies sold through guaranteed-issue programs, or full underwriting programs, "using the existing mortality tables for the valuation of business may not be appropriate," the actuaries wrote in a letter to the task force.

Nuts and Bolts

Fix and Litterer are members of the Accelerated Underwriting Project Oversight Group, a joint effort of the American Academy of Actuaries (AAA) and the Society of Actuaries (SOA).

Bahna-Nolan is a member of the AAA's Life Experience Committee and the SOA's Preferred Mortality Oversight Group.

The NAIC is a trade group for state and territorial insurance regulators.

The NAIC does not have any direct ability to change member jurisdictions' experience reporting rules, but many jurisdictions routinely adopt NAIC experience reporting rules, and changes to the NAIC's reporting rules. 

AUW Report

The Life Actuarial Task Force included a slidedeck on the AUW issue from the SOA and the AAA in its document packet for the Philadelphia meeting. 

The actuaries who prepared the slidedeck included a list of AUW questions they would like to address.

One is how much margin for error actuaries should leave when looking at policies written using the new AUW techniques.

Another question is whether there's some way actuaries can use insurers' old, pre-AUW policy performance data when pricing and analyzing the new AUW policies.

--- Read State Regulators Eye Life Accelerated Underwriting Programs on ThinkAdvisor.

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