Articles

Delivering on the Promise of
Tele-Underwriting by Using Experienced
Underwriters to Conduct Interviews

By Lincoln Tedeschi, President, IBU, Inc.,
and Lynn Dreist, FLMI, Director of Underwriting Research, IBU, Inc.

Executive Summary

With the insurance industry becoming increasingly competitive, Home Offices are under tremendous pressure to issue policies more quickly, at the lowest cost while maintaining or improving mortality and morbidity. Executives and managers have optimized internal underwriting operations and streamlined processes to achieve the highest possible levels of efficiency. Companies have tried everything from downsizing and outsourcing to off-shoring and expert systems in attempts to save time and reduce costs. Now, a new model has emerged that is delivering the bottom line results Home Offices are looking for. It is based on utilizing the talents of experienced underwriters to conduct telephone interviews with applicants to improve the data collection process, speed time service and reduce the need for attending physician statements (APS). 

Bringing Tele-Underwriting to the Next Level

Tele-underwriting is not a new concept in the life/health insurance industry. The model, introduced nearly ten years ago, was based on using customer service call center interviewers to gather medical history information from applicants. Following a strict script and drill down questions, interviewers gathered the necessary background and provided the information back to Home Office underwriters. The promise, as prognosticated by a host of gurus and consulting firms, was that tele-underwriting would dramatically reduce cycle times and eliminate the need for ordering unnecessary APS’s.

The problem is that tele-underwriting has not been able to consistently deliver on its promise. Over the past ten years, many companies have implemented tele-underwriting programs and found mixed results at best. The question for the underwriting industry is, why is there a disconnect between the promise and the reality?

As everyone in the underwriting industry knows, telephone interviews with life insurance applicants are rarely straightforward. Until now, the model for conducting calls has focused on creating a near-infinite number of drill down questions to cover every possible scenario associated with risk assessment. Today, a better solution is at hand. Rather than refining the questions, the new model for tele-underwriting looks at who is doing the asking.

In the traditional approach to tele-underwriting, the people conducting the interviews rarely, if ever, had any specific underwriting experience and didn’t possess the knowledge required to derive relevant risk selection information from the applicant. This is why the results from this model have remained between fairly good and very poor.

The new model for tele-underwriting is based on using the talent and intuition of experienced, professional underwriters to conduct phone interviews with applicants. Developed by IBU, Inc., an outsourcing partner to the life and health insurance industry, the new model is already proving its ability to deliver more reliable and comprehensive reports, better risk classification, and faster time service. 

Tele-Underwriting With Real Results

To date, over 30 insurance companies in the United States and the United Kingdom are utilizing the new tele-underwriting model. By large measure, all are experiencing extremely positive results.

ERIE Family Life, a mid-sized individual and group life insurance company based in Pennsylvania and operating in 11 states, started using the “interviews by underwriters” model in September 2003. Since that time, ERIE has ordered more than 2,000 interviews by underwriters. The result: ERIE has been able to confidently eliminate the need for APS’s in seven out of nine cases where they would have been necessary under the old tele-underwriting model.

“With the interviews by underwriters tele-underwriting model, we’re getting much more thorough and detailed reports,” according to Jay Mauri, VP of Underwriting at ERIE Family Life. “You can tell it’s a seasoned underwriter conducting the interview. They don’t stick nearly as closely to the script. They listen to the interviewee and mold their questions based on the responses given. The result is that the information is far more what we’re looking for.”

In terms of reducing cost and improving time service, the interviews by underwriters model is proving its value. According to Mauri, in the seven out of nine cases where they no longer have to order an APS, their time service is typically under five days as opposed to three weeks or more. And, they’re saving around $80 per application in raw costs by not ordering the APS. Though the program is still young, Mauri is already confident that it works. “We’re saving probably $50 per application and, if we can do that 2,000 times a year, that goes right to the bottom line. And, if I’m able to do it without cutting into my mortality, that’s operating savings.”

Rick Gordon, VP of Underwriting at Midland National Life, started using the interviews by underwriters model in June 2003 and has experienced similar results. Midland’s Home Office underwriters process about 4,000 applications per month. Their goal was to reduce their number of APS’s by 20 percent. “Before we started using IBU, we required APS’s in about 30 percent of our cases. In just nine months, we’ve been able to drop that number down to 23 percent, which is very substantial,” said Gordon.

An equally important benefit of the interviews by underwriters model, according to Gordon, is its protective value. “An interview by an underwriter not only reduces the need for an APS in a lot of cases, but it identifies the potential higher risk cases where we absolutely need an APS. Now, when we do order one, we know that we’re getting it for the right reasons. We’re getting the protective value that justifies the time and expense.”

Another benefit of the new tele-undewriting model is improved productivity. “Reviewing an interview by an underwriter typically takes considerably less time than reviewing an APS. Not only do you have the time service savings in retrieving the information, but also when the information is received it is in an easy format for reviewing and making a decision,” said Gordon.

Agents and underwriters alike are embracing the new tele-underwriting model to use experienced underwriters to conduct medical history interviews with applicants. Both ERIE Family Life and Midland National have found nearly unanimous and immediate support from the Home Office and the field. “Our agents have bought into this very readily because they see us turning their cases around much more quickly,” said Mauri.