Simplified Issue Requires A Different Mindset
Simplified issue life insurance products always have been sold in the U.S. and always have aroused the keen interest of the industry. Because of their ease of issue and speed of sale, they form an important part of the industrys efforts to reach out to the middle class market.
Furthermore, many marketing situations (e.g., many types of group sales) exist where full underwriting is simply not an option. Thus, it is generally recognized that simplified issue products will remain a salient part of the life insurance environment.
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Companies wishing to succeed in this marketplace, their marketing staffs, and their agents as well, need to understand the significant impact of this revised “delivery mechanism” on the entire product cycle. The extent to which the relative lack of underwriting transforms the entire product cycle is not adequately recognized.
From new types of pricing assumptions to retraining of the claims staff, from new mathematical models to fraud detection units, qualitatively different approaches are required for a properly managed simplified issue line of business.
That this fact is not always appreciated is proved by the revolving door nature of many simplified issue markets. Companies enter hopefully, lose lots of money and then exitsadder, but unfortunately, often not much wiser.
Frequently, the cause of the debacle is a failure to employ fundamental risk management tools customized to the simplified issue market. With that in mind, here is a high-level outline of various considerations with simplified issue, with an emphasis on process building.
Marketing Channels: Simplified issue products are sold through direct markets (mail or Internet), through a group market situation, or through agents at institutions, at a work site or at the prospective clients home.
The venue can have important consequences. For instance, the involvement of a well trained and dedicated agency force can be a significant help in the underwritinghelp reflected in the actual mortality margins used. On the other hand, a poorly controlled agency force can be worse than useless, and provide clients with guidance on avoiding appropriate underwriting classification.
The marketing situation needs to be well understood in advance.
Direct market channels: If the scale is sufficient, the direct market channels may be suited to analysis by modeling techniques such as multi-linear regression, neural networks, or mathematical programming. While these procedures could be useful even with fully underwritten products, it is most likely that simplified issue products will provide the scale necessary for these techniques to be employed successfully.
Applications: In the simplified issue market, the importance of the policy application is enormous. There will be a desired balance point between conciseness and thoroughness, but it must be remembered that there is no medical backup when pressures come to tradeoff the latter for the former.