Life and annuity insurance companies are seeking any and all means to improve business performance in a time of rapid change. Advancements in data and analytics promise to deliver significant improvements in the speed and reliability of decision-making and offer insurers a competitive advantage. Forward-looking insurers are working to update underwriting and pricing technologies and processes through internal change initiatives or collaborating with external service providers.
There are five distinct ways insurers are seeking to increase profitability and generate business value.
(1) Real-time becomes the rule
Real-time underwriting, quoting and pricing at the point of sale and e-applications have become essential to streamline the new business process. Open data exchange standards, such as ACORD enable carriers to quickly and simply integrate with external partners and internal systems. More consistent outcomes are also a part of the story.
With the elimination of individual or subjective underwriting criteria and process automation, insurers can codify and systematically deliver superior underwriting performance and expect, among other things, an increase in agent adoption rates and shorter policy issuance cycles.
2. Data and analytics becomes predictive
Predictive analytics capabilities can provide decision data to rules-based systems. For life products, this can eliminate the need for blood tests and medical exams, which makes the application process slower and more expensive. For annuity products, point-of-sale systems enhanced with predictive data will help avoid fraudulent submissions, offer alternative products or re-direct sales that may otherwise be lost.
Further, wearables that capture and transmit information to a central repository have a transformative impact on underwriting, such as enabling accuracy in niche underwriting for dangerous jobs (policing, for example) and tracking the behaviors of applicants or insureds. The data also offers a powerful tool for promoting behavioral adjustments through incentive pricing (e.g., premium reductions based on taking 10,000 steps per day).
3. Reducing risk with rules-based systems
Rules-based systems have supported new business processes for decades. However, insurers continue to operate with legacy systems or are not taking full advantage of the features their updated systems offer to support risk-based decision-making.
Rules-based systems can bring greater speed and efficiency to the new business process and help reduce fraud. Such systems can review a portion or the entirety of a case and can forward decisions for manual review and approval.
New workflow tools can drive assignments to the appropriately skilled resources and balance workloads to reduce volume and time-pressure errors. Fewer errors in first-line reviews further reduce operational costs by eliminating the need for senior management involvement.
Taking risk out of operations can allow insurers to consider raising the risk tolerance for certain products, such as term life policies. In this case, total risk exposure stays the same, but more business is generated.
4. Getting personal with millennials
Leading insurers are adjusting their operations to suit the buying habits of the largest impending market-millennials. Millennials are achieving significant spending power, while exhibiting behaviors different from previous generations.
Insurers hoping to serve this market must provide simple, intuitive an tailored offerings with flexible features such as return of premium and real-time decisions. Further, insurers should recognize the opportunities presented by the adoption of wearables by this group, as well as their strong preference for digital communication channels.
5. Distribution goes digital
Industry research indicates that in the next five years the majority of individual life products will be sold based on simplified issue.1 Insurers who make greater use of rules-based systems will be able to expand their product offerings with simplified issue.
The distribution force and end-customers demand a level of digital engagement with personalized content within the digital communication channels, and tailored offerings. While “doing digital better” will require considerable investment, as well as cultural change, the potential upside is a resulting increase in the generation of systemic, repeatable and consistent underwriting outcomes, plus increased consumer engagement.
The way forward
Market expectations for the buying experience are changing fast. Leading insurers must work to develop new and enhanced capabilities for assessing and pricing insurance risk — or risk losing their leadership positions. The ability to respond and manage the new business opportunities are essential to continued success.