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.

Why the Interviews by Underwriters Model Works

Co-author, Lynn Dreist, FLMI, has experience both as a Home Office Underwriter and as a tele-underwriting interviewer and has found the interviews by underwriters model to be an extremely effective tool. Having come from over nine years in a Home Office setting, my exposure to phone interviews had been with in-house inspection units and vendors that utilize non-underwriter personnel. While the inspections provided occasional “hits” that changed the course of my underwriting, my overall experience was that the details provided in these interviews had little impact on my underwriting decision.

If a new health history was noted, it was often not developed completely enough to take final action, which meant ordering an APS to rule out any concerns. Conversely, the interviews by underwriters model approaches phone interviews from a risk assessment perspective, rather than an information gathering one.

The focus in the interviews by underwriters model is on obtaining the specific details necessary to take final action on a case. This is especially true when a new medical history is presented by the proposed insured. An underwriter conducting the interview can obtain critical details, which in turn allows the Home Office underwriter to accurately assess the risk, in many cases without an APS.

“When experienced underwriters conduct the phone interviews, they know what’s important,” said Jonathon Kuhar, underwriter II at ERIE Family Life. “Their knowledge about health-related matters creates a sense of trust, which allows them to establish a conversational tone that is comfortable and encourages the applicant to open up.”

According to Rick Gordon at Midland National, this comfort level increases customer satisfaction with the underwriting process, something that is sometimes overlooked in the quest for greater productivity and cost reduction. “In the traditional tele-underwriting model, interviewers go through all the required drill downs without considering the relevance of the questions,” said Gordon. “We’ve received complaints from applicants that the drill downs go into effect regardless of what the medical history is. The interviewer isn’t able to differentiate between when they need the added detail and when they don’t.”

The flip side is that experienced underwriters also detect early on in the interview whether or not a case is going to require an APS. For instance, if an applicant has multiple impairments, the underwriter conducting the interview can quickly determine which physicians to order an APS from that would have the most bearing on the underwriting decision. Or, if an applicant provides a medication history that is inconsistent with the disclosed impairment, the underwriter can pick up on it and go off-script very comfortably to probe more deeply.

When To Use an Interview By an Underwriter

Dreist’s role in both conducting more than 3,500 phone interviews with applicants and reviewing completed cases from other IBU underwriters has revealed that Home Office underwriters are shifting from ordering an APS to using an interview by an underwriter for common impairments, such as hypertension, psychiatric and gastrointestinal disorders, and asthma.

As a tool, interviews by underwriters are most effective when used appropriately. The question is when to use an interview by an underwriter versus when to order an APS without compromising the protective value.

There are obvious medical impairments that will always require an APS. However, if on initial review an underwriter anticipates declining a case, an interview by an underwriter is often a good first step. This is especially true for informal applications. An interview by an underwriter can help a Home Office underwriter make a tentative offer. If at that point the agent feels a rated case cannot be placed, the file can be closed without incurring the additional expense of obtaining medical records.

To assist Home Office Underwriters in using interviews by underwriters most effectively, a comprehensive guideline was developed based on 15 human body classifications and 216 impairment-specific subcategories. By combining a guideline along with the gut instincts of the Home Office Underwriter, the Home Office Underwriting department can begin to utilize the model of using an interview by an underwriter in lieu of ordering an APS.

For example, in most cases of hypertension, Dreist suggests ordering an interview by an underwriter on initial review. Most proposed applicants are able to provide a date of diagnosis, frequency of follow-ups, pre-treatment and average blood pressure readings, current medication, and any medication adjustments necessary to control blood pressure. This information, in conjunction with current readings gathered from the paramedical exam, allows Home Office Underwriters to accurately assess the risk and take final action. There are, of course, hypertension cases where we would recommend ordering an APS on initial review. For example, such cases include when hypertension is combined with a disclosed history of renal or peripheral vascular disease, diabetes or significant CV factors on exam.

The following chart outlines how the guidelines would apply to for case involving the impairment of hypertension.

Classification	Sub-category	Recommendation
Cardiology	Hypertension	Order an interview by an underwriter unless any of the following are disclosed: Known renal disease Currently pregnant with significant BP elevation on exam History of significant cardiac or vascular disease Smoker age >50 with recent or sudden onset Age >60 with recent or sudden onset Individual >40 with several significant CV risk factors present on exam

In addition to impairment guidelines, individual companies are developing their own internal guidelines based on the age of the applicant and the face amount of the policy. “If you’re dealing with the 65 plus market, the APS is more likely to be asked for more often,” said to Jay Mauri at ERIE. “We have a fairly young group that we insure with moderate sized policies, which makes it appropriate for us to use interviews by underwriters. In addition, doctors today are treating more quickly than they used to. They are prescribing medications more readily. If someone has blood pressure barely into high normal, they’ll prescribe a blood pressure pill. What the interview by an underwriter does is to help us weed out those people who have received treatment but don’t have a serious impairment.”

Midland National initially established a guideline to use interviews by underwriters for cases involving applicants aged 20-45 with $500,000 face amount, and for ages 46-60 with $250,000 face amount. “At this point based on our experience with the interviews by underwriters model, we see opportunities to expand these parameters,” said Gordon. “We’re now looking at using it for the 61-65 group with $100,000 face value. The feedback from our underwriters has been absolutely positive because of the high level of detail that we’re getting.”

The bottom line in determining how best to apply the interviews by underwriters model, according to Mauri, is to first understand the business you have. “The thing a VP of Underwriting should ask himself is, where are you ordering APS’s now? Of those that came in, how many were examined and what were the results? What’s your distribution source? What’s your mortality right now? What’s your age and product distribution? You have to look at all of these things in order to establish an effective process for underwriting.”

Conclusion

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. Most interviews are completed in less than three days, versus an average 20 days for an APS. 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 APS’s to read, the Home Office underwriting department is able to increase it’s underwriting capacity without the difficulty and expense of hiring experienced underwriters.

Companies using underwriters to conduct telephone interviews also gain the benefit of reducing their new business acquisition cost. With an average cost of an interview by an underwriter at $26, the cost advantage is significant over the average cost of an APS.

Whether Home Offices use in-house underwriters or they outsource to a vendor that uses experienced underwriters to conduct telephone interviews, it offers a win-win solution, according to Mauri. “We’re spending less time on the cases that don’t need it, which allows us to spend more time on the cases that do. All the way around, it’s saving us time and money.”

About the Authors

Lincoln Tedeschi is founder and president of Interviews by Underwriters (IBU) Inc. An innovative concept in life and health underwriting, IBU has established the model for using experienced, professional underwriters to conduct phone interviews with insurance applicants. Lincoln is a well-known and respected leader in the utilization of life/health insurance underwriting talent. He began his career in 1986 as a District Agent for Prudential Life, where after just one year he was promoted to Sales Manager responsible for recruiting and staffing five agencies. The role gave Lincoln broad experience that, in 1992, led him to become a recruiter with RJS Associates. There, he specialized in recruiting professionals from line underwriters to vice presidents for life and health insurance companies throughout the country. In 1999, Lincoln conceived of and established IBU with the vision to tap into the talent of underwriters who wanted to work from home to conduct telephone interviews for Home Office Underwriting departments. Lincoln is a Certified Personnel Consultant and holds a BA in Economics at the University of Connecticut.

Lynn Dreist, FLMI, is the director of underwriting research at IBU, Inc. In her two years at IBU, Lynn has personally conducted over 3,500 telephone interviews with insurance applicants. In her role with the company, she is responsible for both completing interviews and reviewing completed cases from other IBU underwriters. Recently, she finished a research effort to compile a comprehensive guideline to assist underwriters on when to order an interview by an underwriter versus when to order an APS. Lynn joined IBU with over nine years underwriting experience after working with major national carriers including Northwestern Mutual Life, American General and Milwaukee Life in Milwaukee, WI. Lynn holds a BA degree in English from the University of Wisconsin-Madison.

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