POST COVID-19 UW PLAYBOOK: Accelerating the inevitable
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The COVID-19 pandemic has created a confluence of events. Consumers are becoming more aware of their need for protection, while at the same time, circumstances are pushing life insurers to adopt new approaches to underwriting. Many of these changes are more consumer-centric and have been under consideration for decades. In many ways, the pandemic is "accelerating the inevitable."
The purpose of this Post COVID-19 Playbook is to help insurance carriers think through what underwriting could look like on the other side of the pandemic. The goal is to find ways of maintaining the positive momentum that has been created toward more consumer-centric and less invasive ways to responsibly underwrite life insurance.
While it has long been said that life insurance is "sold not bought," our industry has a significant opportunity to shrink the $25 trillion protection gap1 by helping turn consumers' awareness of their need for protection into the actual purchase of protection.
Consumer attitudes toward life insurance during COVID-19
Early data indicates that the pandemic has resulted in increased consumer awareness of the need for life insurance protection. But, as discussed in the next section, it is far less clear as to whether that increased awareness will translate into completed sales that help close the protection gap.
A recent LIMRA survey2 found that two-thirds of consumers feel a heightened need for life insurance. It revealed that 26% of Americans were overwhelmed and anxious about their financial futures; and, since the outbreak of COVID-19 began, over 58% of respondents who have life insurance worried about having adequate coverage.
Amongst life insurance carriers who reported an increase in sales3 in May of 2020, a majority attributed the sales increase to an uptick in consumers' interest in life insurance.
While awareness of life insurance appears to have increased, that has not necessarily translated into a greater understanding of how it works. Alarmingly, a Swiss Re study found4 that 33% of US life insurance policy owners said "no" or were "not sure" when asked if their existing life insurance would pay out if a policy-holder died of Coronavirus. A lack of understanding was also found in a Swiss Re study conducted in Asia,5 where among those who reviewed their policies, half discovered unknown benefits.
Early indication around sales volumes
Despite reporting of "consumers panic shopping for life insurance in the face of coronavirus,"6 or general statements like "the demand for life Insurance is up,"7 the data reveals a mixed bag.
Application volumes have fluctuated this year, and the future trend is unclear. According to MIB, application volume was up (in comparison to last year) until the end of March, at which time there was a significant decline. The decline continued through mid-April, but stabilized by the end of the month. Application volumes in May bounced back up to the levels seen pre-COVID-19, and they are up on a year-over-year basis8.
In terms of distribution and product mix, online sales have held steady or increased, while traditional face-to-face sales have been hard hit.9 Distributors focused on the ultra-high-net-worth market and niche markets niche markets (i.e. foreign nationals and company-owned life insurance (COLI) ) have seen the biggest decline.10 The product mix has shifted toward term products at lower face amounts.11
Some segments of the business have reported significant increases. According to the same LIMRA survey,12 while 46% of companies surveyed experienced decreased sales in March, 24% reported that online applications either increased or remained unchanged.
In the most recent LIMRA survey13, of insurance carriers who experienced a decrease in sales in May, a majority attributed the decrease to the inability to hold face-to-face meetings.
While there are exceptions, most carriers, regardless of the impact on overall volumes, have seen a shift in mix toward term sales. Among 42 life insurers surveyed by LIMRA, sales volumes in all product categories were down in May, except for term. But even with term volumes up in May, term premiums were down. So, while more term policies are being sold, total premium levels decreased.
In the aggregate, even a significant increase in online direct sales cannot make-up for a modest decrease in face-to-face sales; as, according to LIMRA, direct sales only represented 6% of premiums in 2019.14
Underwriting changes implemented in response to COVID-19
As the pandemic hit and social distancing guidelines were implemented, carriers faced challenges in underwriting. In response, many, if not most, carriers implemented changes in two areas:
- Expansion of "fluidless" accelerated underwriting (AUW) programs, and
- Leveraging alternative data sources.
Expansion of Fluidless AUW programs
Many carriers with existing fluidless AUW programs expanded their age and amount guidelines to support more business through these processes. While some carriers expanded their programs "as is," others amended the programs by limiting eligibility and the classes offered.
While some carriers have chosen to limit their risk by limiting the offered classes to standard or better, other carriers have eliminated their preferred best class to offset some of the mortality cost associated with the program expansion. Still, others have added a table to all offers to make the program cost-neutral. While these expansions have been viewed favorably by distribution, anecdotal evidence suggests there have not been a lot of policies issued through the expanded programs. This is especially true of programs that were expanded above $1M. It is unclear why this is the case, but potential factors could be:
- Less business is written between $1M and $3M, which corresponds to a significant part of the fluidless AUW expansion
- Brokerage General Agencies (BGAs) and agents prefer to build the file on larger cases, ordering requirements themselves and packaging the case for consideration at multiple carriers
- Fewer policies of larger size make it through the AUW process due to additional medical or required financial underwriting requirements
In instances where a table was added, or best class removed from these programs, it has been reported that agents chose to delay or deploy full underwriting to deliver a better rate class.
Expanding fluidless AUW programs has a cost and limiting tables to make up for this cost hinders the effectiveness of the programs. In addition, expansion of these programs has resulted in a relatively small number of sales.
These reasons suggest that simply expanding fluidless AUW programs may not be the most effective path forward to closing the protection gap.
Leveraging alternative data sources
Many carriers have also accelerated their use of alternative data sources. These data sources are used either within AUW programs, to support fully underwritten programs, or both. Examples of how new data sources are being used include:
- Serving as a replacement for traditional non-electronic medical records, such as Attending Physician Statement (APS)
- Serving as a replacement for insurance paramedical exams and insurance labs
Most carriers are using these alternative data sources in combination with Medical Information Bureau (MIB), Motor Vehicle Records (MVR), and prescription databases (Rx) data. Others are also using smoking propensity models and risk scores to determine what additional information may be warranted.
The chart below is a summary of alternative data sources and the benefits and challenges associated with each of them.
The use of alternative data sources is a promising development that has been accelerated by the pandemic. Leveraging these data sources has the potential of creating a much closer match to the information contained in a traditional APS. Therefore, it is not hard to envision leveraging these sources instead of an APS without experiencing significant mortality impact. Of course, use of (or requests to use) these additional data sources must be done in accordance with applicable law and regulation.
Currently, the challenges associated with leveraging these data sources in lieu of a traditional APS are:
- Low hit rates
- Multiple data sources — which are usually necessary to generate the same information contained in a traditional APS
- Information takes on multiple forms, which can make it challenging to integrate into systems and difficult for underwriters to navigate
Leveraging these alternative data sources in lieu of traditional paramedical exams and insurance lab testing is more complicated and poses other challenges, including:
- Missing tests for conditions and substance use that are not generally self-reported
- Potentially missing standard and non-standard insurance tests that are generally not completed in a routine medical exam.
- Outdated vital records
Swiss Re stands ready to help our clients determine the mortality impact from using non-traditional test results and are prepared to discuss ways to mitigate any related mortality slippage.
Note: Replacing a traditional paramedical exam and lab tests with alternative data sources could have loss of sentinel effect. Mechanisms such as e-Applications with reflexive Part Two questions and transparency around information accessed during the underwriting process can help mitigate the impact.
Charting a path forward
The life insurance industry should continue the movement toward more consumer-centric processes that have been created in response to the COVID-19 pandemic. Below are a few thoughts on how this could be accomplished.
The term "fluidless" underwriting is a misnomer. Our goal should not be to underwrite without fluids, but rather to determine when fluid test results will provide significant protective value. In cases where fluids are required, we should aim to get those test results in the least invasive, most consumer-centric way possible. The goal should not be to avoid fluids, but instead to avoid the need for exams, labs, and traditional APS.
To accomplish this, two major advances are necessary.
Underwriting based on the applicant, not the age and amount chart
We need to underwrite the individual and determine what information is needed based on the information we have. This means potentially moving away from "age and amount" grids and toward methods that better indicate when and what additional information is needed.
Robust data collection at the time of application is key. Leveraging e-Applications with reflexive Part Two questions, MIB, MVR, Rx, and other available and appropriate risk scores, can provide a solid starting point to determine what additional requirements are warranted. The goal at this point is to make as many offers as prudently possible with this baseline information.
When additional information is needed, alternative data sources should be leveraged wherever possible. For example:
- Medical claims data may provide an overview of existing conditions and therapies. This could act as a baseline to help determine what records exist and could be helpful.
- Personal Health Records may make sense when specific test results (e.g. colonoscopy for age) or basic information around a minor condition are necessary.
- Existing clinical Lab Records may provide the necessary information instead of requiring a medical exam and lab.
- EHRs are often a cheaper and quicker way to get needed information on a specific impairment.
Over time, insurers and reinsurers will get better at pinpointing sources which deliver the highest probability of returning the specific information needed. In the meantime, multiple data sources may be required to complete the picture.
For certain impairments, or where insufficient information is available, full medical records are generally needed. This includes, but is not limited to, Multiple Sclerosis, Diabetes, Sarcoidosis, Asthma, CAD, Stroke, and some mental illnesses. In these cases, EHRs or traditional APSs are generally necessary.
Blurring the line between Accelerated Underwriting (AUW) and Full Underwriting (FUW)
We have seen that simply expanding fluidless AUW programs "as-is" has not yielded a large increase in consumer protection, and we know that these programs have a mortality cost. Therefore, the answer may not be expanding these programs "as-is," while maintaining a distinction between AUW and FUW. Instead, the answer may be to blur (or eliminate) the lines between these two approaches. When the concept of acceleration is approached as the ability to underwrite quickly, inexpensively, non-invasively, and without APS, inflexible limits on ages and amounts of coverage that qualify become unnecessary – assuming that all of the information currently required is obtained using reliable alternative data sources. There are examples of applicants at the highest of ages applying for the largest of policies where complete medical information is available digitally and immediately.
For this vision to become a scalable reality, insurance carriers will need the ability to access these alternative data sources in a consistent, cost-effective manner, with the data structured in a way that can be easily integrated into their systems. Rules engines will also need to be enhanced to make use of this data and able to make automated decisions to determine the appropriate next steps without labor intensive efforts from highly skilled underwriters.
Finally, agents will need to adopt these processes, including the use of e-Applications. As data becomes more democratized and readily accessible, BGAs will need to pivot away from "building the file," and define their value by helping navigate a convoluted and complicated process.
It is said that "necessity is the mother of invention," and this is proving to be true in the life insurance industry's response to COVID-19. The pandemic has accelerated the inevitable advancements that our industry has been slow to adopt. These advancements benefit both the industry and the consumers it serves. As we emerge from the pandemic, we should not roll back some of the prudent changes we have adopted.
The path forward could be marked by moving away from age and amount charts, and toward underwriting the individual and determining what additional information is needed based on available information. Instead of expanding existing fluidless programs, it may make more sense to blur the lines between AUW and FUW, leveraging less-invasive, more consumer-centric methods of obtaining fluids only if they add significant protective value.
Our ultimate success will allow us to effectively and cost-efficiently access and use these alternative data sources, building rule sets that can analyze and act on the data, and generating agent and BGA adoption of processes, including e-Applications.
There is still much work to do, and our industry's time is now. It's time to lean in to these innovations and create a more consumer-focused approach to make our products more accessible – especially at a time when more consumers are aware of the value of the protections we offer.
1Swiss Re. (2018, September) Bridging the US mortality protection gap. https://www.swissre.com/institute/research/topics-and-risk-dialogues/insurance-markets-and-risk-management/Bridging-the-US-mortality-protection-gap.html
2 LIMRA. (2020, June). Consumer Sentiment in the Time of COVID-19 (Douglas, pp 10, 16). Retrieved from: https://www.limra.com/globalassets/limra/research/research-abstracts/2020/consumer-sentiment-in-the-time-of-covid-19--may-2020/2020_consumersentimentinthetimeofcovid-19_may-2020.pdf
3LIMRA. (2020, June). LIMRA: U.S. Individual Life Insurance Premium Rises Slightly in First Quarter 2020 (Press release). Retrieved from: https://www.limra.com/en/newsroom/news-releases/2020/limra-u.s.-individual-life-insurance-premium-rise-slightly-in-first-quarter-2020
4 Swiss Re. Online survey, unpublished. 383 US participants, March 26, 2020
5 Swiss Re. (2020, April) Swiss Re COVID-19 Consumer Survey: Financial anxiety, demand for insurance products accelerates across APAC. https://www.swissre.com/risk-knowledge/building-societal-resilience/covid-19/market-announcement-covid19-consumer-survey.html
6 Consumers Panic Shopping For Life Insurance In The Face Of Coronavirus. Article posted March 12, 2020. Retrieved from: https://www.forbes.com/sites/advisor/2020/03/12/consumers-panic-shopping-for-life-insurance-in-the-face-of-coronavirus/#4df025e76a6f
7 Answers to Common Questions About Coronavirus and Life Insurance. Article posted April 14, 2020. Retrieved from: https://money.usnews.com/money/personal-finance/family-finance/articles/how-coronavirus-affects-life-insurance
8 U.S. Life Insurance Activity Soars 5.2% in May Reports the MIB Life Index. Article posted June 9, 2020. https://www.mibgroup.com/riskanalytics/life_index_pr.html
9 LIMRA. (2020, June). COVID-19: April U.S. Individual Life Sales, Applications, Products, and Electronic Services. (Terry, 7). Retrieved from https://www.limra.com/en/research/research-abstracts/2020/the-impact-of-covid-19-on-april-individual-life-sales-products-and-electronic-processing/
10 LIMRA. (2020, June). COVID-19: April U.S. Individual Life Sales, Applications, Products, and Electronic Services. (Terry, 9). Retrieved from https://www.limra.com/en/research/research-abstracts/2020/the-impact-of-covid-19-on-april-individual-life-sales-products-and-electronic-processing/
11 LIMRA. (2020, June). COVID-19: April U.S. Individual Life Sales, Applications, Products, and Electronic Services. (Terry, 8). Retrieved from https://www.limra.com/en/research/research-abstracts/2020/the-impact-of-covid-19-on-april-individual-life-sales-products-and-electronic-processing/
12 LIMRA. (2020, April). The Impact of COVID-19 on Individual Life Sales and Applications. Retrieved from https://www.limra.com/en/research/research-abstracts-public/2020/the-impact-of-covid-19-on-individual-life-insurance-sales-and-applications-in-the-u.s/
13 LIMRA. (2020, June). May Individual Life Sales and Applications. Retrieved from www.limra.com
14 LIMRA. (2020) 4Q 2019 U.S. Retail Individual Life Insurance Sales. Retrieved from https://www.limra.com/globalassets/limra/research/research-benchmarks/u.s.-retail-individual-life-insurance-sales/quarterly/2019-data/2019_4q_u.s.-retail-individual-life-insurance-sales-survey.pdf