Strategy, good stats, and the instincts of an
ace pitcher are a winning combo.
I love baseball. Even when using the best statistics, the unexpected—triple plays, stolen bases and home runs that save the day—keeps us in our seats from spring through early October. In underwriting, leaders also rely on statistics and try to cover all of our bases by ordering the right tests so we can pitch the perfect offer. Yet, we still deal with the surprise plays and the occasion foul ball.
Like baseball, underwriting has a history that shaped how we play the game today. For example, it may seem sacrosanct that blood testing be part of obtaining life insurance. However, old timers will remember that, prior to the mid-80s, the use of labs was relatively rare—saved mainly for very large cases.
The Acquired Immune Deficiency Syndrome (AIDS) crisis changed the game with very low life expectancies for those diagnosed with the disease. By the late 80s lab testing was the norm, and to counter the cost of this testing carriers began to find additional uses for lab results beyond Human Immunodeficiency Virus (HIV) detection. As the result of lab testing, insurers had insight into important aspects of an individual’s life expectancy—the risk of diabetes, heart disease, alcoholism and many others.
With this knowledge insurers began to segment risk into multiple preferred categories, going far beyond simply smoker and nonsmoker. The importance of the underwriting function skyrocketed. In baseball terms, underwriters are now the pitchers—the very heart of the life insurance game.
Like all good pitchers, a good underwriting leader keeps an eye on all the bases and is always working on new and better ways to pitch the best offers. Innovation is what keeps an ace pitcher on the mound.
Much has changed since the 80s and underwriting must adapt to the new world of data analytics and, most of all, the hesitation of many potential buyers to accept the inconvenience and pain of blood draws.
At present underwriting leaders wishing to stay in the game have two alternatives—to seek substitutes for fluids, or find ways of obtaining the results of fluids from other sources.
Around 2014, underwriters began experimenting with substitutes for fluids through accelerated underwriting (AU) programs—combinations of predictive models, better designed applications, and tele-underwriting. Success of these models was based on the ever-increasing ability to uncover important data on applicants beyond the traditional Rx, Medical Information Bureau (MIB), and Motor Vehicle Report (MVR) databases.
This “new” data included credit and clinical lab data, criminal records, and electronic inspection reports. For now most companies using substitutes for fluids have seen a relatively low percentage of instant offers, rather they use their programs more as triage for applicants to move to approval or more likely full underwriting. This variability in outcome can lead to customer dissatisfaction. In addition, most of these programs are limited to young age applicants in the standard or better classes. There are significant positives to these programs as they offer the potential of much faster and convenient service over traditional underwriting.
For obtaining fluids from an alternate source the key is the Attending Physician Statement (APS). Like those using predictive analytics, underwriters using alternative methods of fluid procurement use the traditional data such as Rx, MIB, and tele-underwriting. Added to these sources is an APS containing up to date medical information from the applicant’s personal physician along with the results of blood testing conducted.
Unlike AU, underwriters using alternative means of obtaining fluids can offer guaranteed access to their fluidless program as long as the conditions set forth are met—usually the ability to obtain medical records indicating doctor visits with blood work within specified time periods. As an added benefit, the producer can obtain traditional justification for negative actions taken by the carrier.
The disadvantage of these programs is the time it takes to obtain medical records. While the fluid substitution method is fast and painless, it is unpredictable. The alternate method of obtaining fluid can be slower but is very predictable. With the coming reality of electronic health records it is anticipated that both methods will merge, presenting the opportunity to obtain life insurance at competitive rates with little hassle.
Today’s consumer demands a faster pace, so much so that major league baseball is researching ways to speed up the game to suit shorter attention spans. Underwriters must also adjust our game to the new reality that a growing number of potential buyers will not endure the pain or inconvenience of exams and labs.
To stay on the mound, underwriting pitchers must adapt to these changes. But one must be cautious when innovating because some prefer the past. Innovation must be conducted with the appropriate research and preparation so that your underwriting teams can more easily adapt to change.
There will always be a place for traditional underwriting, but to meet the needs of a growing uninsured population alternatives to fluids must be found so we can serve up faster pitches—not with the intent of striking out the consumer, but by helping them find the sweet spot as they take a swing at financial security for their families and businesses.
This article is intended for Financial Professional Use Only. If you are not a Financial Professional, please visit our public website at www.PacificLife.com.
Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. Insurance products and their guarantees, including optional benefits and any crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, insurance agency, or their affiliates from which products are purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the life insurance company.
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