Speed Underwriting: At Least 10 New Ideas in 90 Minutes
Speed Underwriting: At Least 10 New Ideas in 90 Minutes
By Jay M. Jaffe, FSA, MAAA
During the planning for the 2007 Life Spring SOA meeting, there was a request for sessions that would present new ideas. Recognizing that sessions at SOA meetings have a tendency to be highly technical, the MaD section coordinated a session titled: Speed Underwriting: At Least 10 New Ideas in 90 Minutes. The session was jointly sponsored by MaD and four other sections (Technology, Reinsurance, Actuary of the Future, and Product Development.)
The goal was to create a session that would provide the audience with thought provoking ideas rather than facts. The session's concept was to present ways to improve a company's operations but not necessarily specific "takeaways." Some of the ideas were to be concepts for current application while others were to be less developed and futuristic.
The title of the session has more than one meaning. First, the title was selected to stress the search for new ideas for improving the underwriting of life and health insurance products. But, second, it also was intended to refer to the presentation format which was a play on "speed dating." Each presenter was only allocated five minutes to present his or her concept. Anyone overstaying the allotted five minutes was to be (figuratively) yanked from the podium.
What we discovered was:
- Although it was a bit difficult, it was possible for speakers to condense their salient points into a five minute presentation;
- The session provided "one–stop shopping" for anyone seeking an overview of new technologies and ideas;
- The audience was kept alert because it didn't have time to lose focus during a long presentation; and
- Most importantly, there are people and companies who want to tell the world about their new ideas–some of which were not yet commercially available–and they were willing to do this in front of a group of actuaries.
The session accomplished all of its objectives in front of a large and enthusiastic audience. The speakers provided positive feedback at having the opportunity to participate in a creative session.
Additionally, only two of the presenters were SOA members. Since one of the goals of the SOA is to expose our members to a wider group of non–members, the session also accomplished this added dimension.
The presentations included a few ideas that were not necessarily new, but have not yet been seriously considered by some insurance companies. Some of the ideas presented probably won't be useful immediately, but have definite value for future implementation. And, there were even ideas "about ideas and perspectives" mixed into the presentations.
The companies participating in the program1 were:
- AIG–American General
- ATSET Consulting Group, Inc.
- Clinical Reference Laboratory
- Hank George, Inc.
- Hannover Life Re (Merica–US)
- Realtime Solutions Group, Inc.
- Resonant Software, Inc.
- Trans Union Insurance Division
- Transamerica Reinsurance (Velogica)
- Underwriting Solutions LLC
While the ideas cannot necessarily be pigeon–holed into categories, several of the concepts presented had common themes. Each of the presentations is briefly recapped according to one of the general themes:
The initial comments from some of the speakers were that the insurance industry needs to talk not only about new products and techniques to improve underwriting, but also it must have more and more discussions around process. Of course, faster and more accurate processing that also can be done for either a lower cost or a better defined cost is probably the end objective. Lower and/or more predictable cost levels will result when the process of buying an insurance policy is improved.
Hannover Life Re (Jeff Burt) and Velogica (David Holton) discussed their automated underwriting decision systems. Realtime (Rich Veed) presented its company's Web–based system that could be used to facilitate the new business process. Resonant Software (Bill Frank) reported that it has designed a system for tracking and improving the underwriting process.
ATSET Solutions (Ernie Testa) started his presentation with the following: What can be changed is easy; what should be changed is not! This is an important observation about how businesses (including insurance companies) operate. Ernie concluded by reminding the audience that customers will demand processes that delight them. Clearly, if there's a better mousetrap to be used, customers will gravitate to the organization that makes their lives simpler and more efficient.
Middle Market Expansion
The "middle market" seemed to be the focus of many speakers. Improving the new business process has direct application for all those companies and producers who are interested in finding better ways for marketing coverages to the middle market. The profitability of middle market products is particularly sensitive to reductions in cost. In turn, achieving certain cost levels is going to be dependent on reaching critical mass in order to effectively take advantage of some of the newer approaches to processing applications.
The new processing systems are based on architecture that enables them to introduce new products faster and more easily incorporate new underwriting protocols. In fact, this may turn out to be the largest advantage of these new systems because it will be much easier for companies to react to new market needs and trends.
Improved Value of Underwriting Information
Underwriting is now a rapidly changing activity. The theme for several presentations was to challenge the accepted underwriting standards in current use.
Dr. Bob Stout of Clinical Reference Laboratory quickly set the bar for new ideas when he made the statement that underwriting should be done to evaluate risk rather than be based on rigid rules. The Ingenix presentation described the opportunity to use prescription drug records as an integral part of the underwriting process.
Al Klein from AIG made the case for the value of dietary information as a new area of underwriting inquiry. His key phrase was "we are what we eat." While dietary data is not an element of current underwriting activity, using this information would be non–invasive and could be applied at many levels of underwriting.
Dr. Richard Braun of ExamOne described research he has done (but has never published) on the potential for using multivariate analysis to improve underwriting effectiveness. As a result of his research, Dr. Braun now questions whether life insurance underwriting, for example, relies too heavily on cholesterol levels when there may be other factors that have more influence on mortality. The use of multivariate decision models could be a more accurate approach when multiple risk factors are present. The SOA should encourage Dr. Braun to complete his research and publish his findings.
Hank George2 challenged the audience to reconsider ECG's, treadmill tests and chest x–rays because such tests are expensive, slow and customer–unfriendly. In other words, there's "no bang for the buck" from these tests. Instead, he offers that three comparatively inexpensive blood tests (NT–proBNP, Hb A1–c, and ApoB/A–I ratio) can replace the three old tests with no attrition in protective value, reduce underwriting turnaround time, and provide the data at lower cost (estimated to be $60 for all three tests). Interested readers should refer to Appendix B for a more detailed explanation of the tests described by Hank.
Strategizing of Operational Issues
While Underwriting Solutions (Gary Lee's firm) can provide outsourced underwriting talent, Gary's major contribution was to start thinking of operational matters not just in terms of how to cut costs, but also as a strategic issue. There are multiple dimensions to evaluating any operation. The underwriting function in a company is more than just staffing; it involves how to operate with both an experienced and an intellectually growing staff.
When companies review the underwriting function, their analyses should include those issues that relate to the company's long–term goals and strategy. With a broader perspective it will then be possible to think in strategic terms and develop comprehensive plans for underwriting or any other company function. (If companies start looking at the underwriting area in this manner, could the same type of thinking be extended to the actuarial department? If so, should we be looking at ourselves differently?)
Improving the Customer Experience
As described in earlier sections, speakers delved into techniques for improving the customer experience. In one of the last presentations Mike Gaughan (Trans Union) discussed that improving the customer experience might be possible through the use of consumer credit based behavioral models. Such models are already in use in the personal lines auto market and not only provide objective data for the prediction of insurance behavior, but also provide an objective evaluation tool and reduce the cost and time required to issue a policy. Whether, or to what extent, such models could be applied to life and health insurance is not yet known, but this is another area of research that once it is further developed may be used to evaluate applicants in the not too distant future.
It probably wouldn't be efficient or sufficiently interesting to repeat this type of program at every SOA meeting. On the other hand, periodically having a program that promises no detailed technical focus or concrete ideas makes sense. A thought provoking session is beneficial for both the speakers, who have to be prepared to defend their ideas, and the audience, who have to be prepared to think creatively rather than technically.
Maybe a couple of years from now there could be a reunion of the panelists at another SOA meeting. At that point we could find out whether any of their concepts has gained traction in the market place as well as invite a group of new speakers to present the next group of new concepts for the future.
For anyone interested in contacting one of the speakers, their contact information is provided below:
- AIG–American General: Al Klein, 224.659.8806
- ATSET Consulting: Ernie Testa, 732.706.7766
- Clinical Reference Lab: Bob Stout, 800.445.6917
- ExamOne: Dr. Richard Braun, 913.577.1883
- Hank George, Inc.: Hank George, 414.423.0967
- Hannover Life Re: Jeff Burt, 407.649.8411
- Ingenix: Angel Bolduc, 207.284.8982
- Realtime: Rich Veed, 312.845.2353
- Resonant Software: Bill Frank, 914.220.5875
- Transamerica Reinsurance: David Holton, 704.330.7822
- TransUnion: Mike Gaughan, 312.466.7736
- Underwriting Solutions: Gary Lee, 405.285.6435
Hank George has provided the following additional information:
- NT–proBNP [N–terminal pro–brain natriuretic peptide)–a substance produced in response to pathological stretching of the heart muscle, which occurs in heart failure and as a direct consequence of most major cardiac disorders. It has just been introduced for use in underwriting. Hank believes it is the best test ever for screening for and underwriting cardiovascular risk in persons ages 40 and over.
- HbA1–c [hemoglobin A1–c]–the portion of blood hemoglobin (pigmented protein in blood that binds and carries oxygen) that has glucose adducted (attached) to it. This is the universally–recognized marker of choice for control of high blood sugar in diabetics. It has also been shown to be a marker for coronary disease in both diabetics and non–diabetics. It is currently widely used in underwriting.
- APO A–I/B Ratio–Apolipoproteins A–I and B are the carrier proteins for components of total cholesterol. A–1 carries high density lipoprotein cholesterol (HDL–C), also known as "good cholesterol." Apolipoprotein B carries low density lipoprotein cholesterol, also dubbed "bad cholesterol." The ratio has been shown to be superior to conventional lipid tests (total cholesterol, LDL–C, HDL–C and triglycerides) as a marker for the risk of coronary disease. This test has been accessible to insurers for years but rarely used because of the belief that the underwriting data was already good enough and also because this would cost extra money!