Simplification isn't simple. But it's also not impossible.
A look at ways to simplify the insurance journey beyond automation
A colleague once said to me, life insurance is the only product in the world, where you actually have to pay with blood. Even without the blood test, buying insurance isn't easy, so how can we change this? How can we make buying our hugely valuable protection products less complex?
In their quest to compress the customer journey, insurers understandably focus on automation. However, there are many other ways we can make buying our products easier.
Especially outside the highly segmented or preferred markets, even after extensive underwriting, 70% to 95% of applicants wind up getting the same price as quoted for others their age (before all that underwriting). So can we reduce the extensive underwriting and shorten that journey for many of those people?
Typically when insurers want to compress the underwriting process, they increase the price to compensate for the lost ratings. However, this also means agents steer higher risk business toward insurers with less restrictive criteria. And those who carry the lowest risk will be put off by the increased price and go where they can find a better deal. The key to successful simplification is therefore, to figure out how to do it without increasing the price.
Form AND function: a better approach to application forms
The application form is the basis of the insurance contract, and because it must reflect the huge number of potential significant medical and non-medical risks, it tends to be quite long. Sales people are generally good at helping the customer negotiate this extensive set of questions, but as we move into more non-advised sales scenarios, a simpler application becomes increasingly essential.
Most attempts to shorten an insurance application, fall into the trap of looking only at the number of questions. This is misleading, and often results in the underwriter simply combining questions, making them extremely complex.
Here's a better approach:
- Identify the questions which add no value. Then discard them.
- Focus less on disease, and more on proxies for severity of disease. For example, a question about hospitalisation or time off work, is often effective for several diseases.
- Segment the forms based on profile. Younger lives typically have lower disease prevalence than older lives, so can we waive some of the questions for younger applicants with little or no cost impact?
- Use the risk-relevant information we already have. As an example, we know white collar workers have a much better mortality than blue collar workers so can we use this to get a head start on our risk selection? This segment might require fewer medical questions in order to get the same fully underwritten price.
Once the customer has persevered and negotiated the application form, they must submit to medical exams, blood tests and potential other requirements. These are costly both in terms of fees paid, but especially in the hidden price of lost business. Can we better triage the applicants and limit extra examination to cases where it truly offers protective value?
Medical evidence limits (sometimes confusingly called non-medical limits), vary enormously. However, there is one thing they do have in common: none match very well to the theoretical cost-benefit tipping point -- where the value of each test actually makes mathematical sense. The most common error when defining these limits is failure to use pre-test probability of disease. This usually means insurers test too early on younger lives, where disease prevalence is low. The result is more "cost" than "benefit".
Similarly the term of the policy is considered a variable in the value of tests, but I'm not aware of any company that uses this information systematically. The preference is to keep it simple and focus only on age and sum assured. Now, if we add disclosed medical factors from the application as an additional indicator of test value, you start to see huge areas where we can decrease the spend on medical evidence, and still retain the tests that add real value.
Underwriting is only one of the complexities faced by someone trying to buy our products, but it arguably plays one of the most important roles in determining how easy and fast the process is for the end consumer. The more we can speed decision making and provide immediate answers at the point of sale, the more we create satisfied – and protected – consumers.
By extension, this combination of speed and simplification is essential to facilitate business growth. Simplification is not simple, but it is also not impossible. It requires a fresh and informed mind-set and a willingness to challenge the status quo. Swiss Re is eager to work with you on this challenge. We want to help create solutions based on your particular market and sales strategy to help you simplify in an intelligent manner.