Articles

Technology & Underwriting:
The Invisible Productivity Revolution

By Lincoln Tedeschi, President, IBU, Inc.

Our country has experienced a recession, a brutal three-year bear market, 9-11, and war in Iraq. Meanwhile, the life insurance industry has experienced increased competition, margin contraction, capital surplus losses, and decreased investment income.

On the surface, one would think that the life insurance stocks and the economy in general would be just muddling along. Despite these conditions, however, the economy is rebounding and the bulls have returned to the stock market. Earnings for life insurance companies have been robust with stocks of life insurers performing extremely well over the last 18 months.

What is going on here? To put it simply, the surge in the economy and the upturn in stock prices can be attributed to two words: increased productivity. With technology as the enabling force, life insurance companies are continually finding new and innovative ways to do more with less and in less time.

One productivity tool introduced in the early 1990s was teleunderwriting services. The premise was to use call center representatives to conduct telephone interviews with insurance applicants as a cost and time saving alternative to ordering medical records. As a concept, teleunderwriting is great idea with the potential to not only provide considerable savings but also make agents happy and increase close ratios.

However, over the past 10 years, many companies that implemented have found mixed results at best. With such clear benefits, why has teleunderwriting fallen short of its promise? The answer lies in looking at the model of how the interviews are conducted.

In the traditional approach call center representatives with no specific underwriting experience are used to conduct telephone interviews. Hence, they don’t possess the knowledge required to derive relevant risk selection information from the applicant. This is why results from this model have remained between fairly good and very poor.

Today, a new model for teleunderwriting has emerged that is successfully delivering true productivity gains. It leverages Internet technologies to engage the talent of experienced underwriters in conducting telephone interviews with applicants.

When an underwriter conducts an interview, the focus is on obtaining the specific details necessary to take final action on a case. Their knowledge about health-related matters creates a sense of trust with the applicant, which fosters a conversational tone that is comfortable and encourages the applicant to open up. This is especially true when a medical history presented by the proposed insured requires further discussion. For example, if the applicant reveals that he or she is taking a medication inconsistent with the disclosed health history, an experienced underwriter can pick up on the cue and probe further to determine the level of risk. In many cases, this allows the application to be issued or declined without an APS.

Life insurance companies throughout the US and UK have started using this new model for conducting teleunderwriting interviews. By large measure, all are experiencing extremely positive results including reduced cycle time, cost savings, increased close ratios, and improved service to agents and customers alike.

In the US, an APS typically costs around $50. In the UK, the average cost for a General Practitioner report (GP) is £60. In contrast, the cost for an interview by an underwriter is around $26 US and £18 UK. This represents a savings of about $24 per application in raw costs for most insurers. In terms of cycle time, an interview by an underwriter is generally completed in three days as opposed to three weeks or more for an APS or GP report.

An equally important benefit is its ability to add protective value. An interview by an underwriter can quickly identify potential higher risk cases where additionally medical records would be required. It allows insurers to know that when they order an APS, they’re getting it for the right reasons and the protective value justifies the time and expense.

Engage the Right Talent for the Right Job

The Internet has emerged as the enabling technology behind the new teleunderwriting model. Thanks to secure networks and remote access, insurance companies can benefit from the talent of experienced underwriters at a fraction of the cost of hiring them. No recruiting fees, no relocation costs. Underwriters are able to work out of their homes while they apply their expertise to conduct telephone interviews with applicants.

Since geography is no longer a barrier to engage the best talent, the model can be applied for any insurance company regardless of where it’s located. In fact, there can be significant benefits to global outsourcing. For example, two factors give US-based call centers a competitive advantage over UK-based centers. First, the time difference allows US underwriters to phone UK applicants in the evening after they have returned from work and are most likely to be at home. Second, the cost of calling the UK from the US is surprisingly inexpensive. Competition among long distance providers in the US has driven down rates making it cheaper to call from the US than within the UK using British Telecom.

Over the last four years, companies that have used the interviews by underwriters model to conduct telephone interviews have experienced measurable bottom line impact on time service and underwriting capacity. Good risks get on the books faster – before the inevitable buyer’s remorse that life insurance applicants experience if the case is pending too long.

Of course, faster time service also means happier agents. Companies are competing for distribution with faster time service and commissions to provide an edge over the competition. With fewer medical reports to read, Home Office underwriting departments can increase their underwriting capacity without the difficulty and expense of hiring experienced underwriters.

For more information about IBU's teleunderwriting programs view a demo
of the IBU/APS Reduction Guideline.