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From Resource,
March 2005
Copyright by LOMA
Risk
Revisited
One of the world’s leading underwriting experts revisits life and health,
risk management practices, processes and prospective innovations.
By Hank George, FLMI, FALU, CLU
Hank George, Inc.
In
the March 2003 issue of Resource, this underwriter reported on
developments in life and health risk management ushered in with the
millennium. The length and breadth of these enhancements continues to escalate.
This is an update on the direction and velocity of these changes.Diverse forces
have motivated carriers to examine faster, less costly and more effective ways
of getting new business approved and issued. Among them are:
*Controlling
business acquisition costs
*Reducing
cycle time from application to issue
*Realizing
optimal mortality and morbidity experience
*Maximizing
the potential of new technologies
*Making
it easier for producers to write and deliver more business
*Enhancing
the perceptions of customers as regards the risk selection process
The
driving force accommodating these priorities has been a radical transformation
of the risk management process known as teleunderwriting.
Teleunderwriting Trends
The
roots of what we now call teleunderwriting extend back to the late 1980s, when a
handful of proactive companies began using the telephone interview as a novel
means of gathering risk-related information. Not long thereafter, “drilldown
questioning” was added, expanding the positive impact of these interviews to
create, quite literally, a portrait of the proposed insured as an insurance
risk.
Throughout
the ‘90s and into this century, more and more companies have adopted
teleunderwriting as their primary mode of risk management. A recent survey of 45
prominent North American insurers reveals that 31 now actively employ
teleinterviews with drilldowns, while many others are actively studying this
approach.
Will
this trend continue? Jon Crumiller, chief operating officer of Princeton
Consultants, believes it will, observing how “trends within the insurance
industry can only be sustained when a new approach demonstrates significant
business benefits over an extended period of time.” Teleunderwriting,
Crumiller emphasizes, “has done that, and hence its adoption rate should
continue.”
According
to Crumiller, it is imperative for insurers to realize that “the
teleunderwriting process starts at point-of-sale and finishes with confirmation
of policy delivery.” He makes this point because he has observed that some
carriers, eager to accrue the benefits of this new approach to risk management,
contemplate forcing the teleinterview into an existing workflow model. When this
happens, chaos often ensues as the components no longer mesh fluidly.
The
fact is, says Crumiller, that there are four main components that need to be
brought to bear to make teleunderwriting a success: workflow reconfiguration,
efficient use of imaging, sophisticated telephony and careful interview
scripting.
Because
of the considerable start-up costs—and delays—associated with in-house
teleinterviews, there has been, in the words of Darren Dombrosky of LabOne
Insurance Services Group, “a strong movement toward outsourcing solutions.”
Dombrosky,
who oversees the teleunderwriting services offered by his employer, calls the
applicant’s level of preparation “a key to the success” of the interview
process. The preparatory process is often undertaken by the agent, who explains
that someone representing the insurer will be calling to ask questions that will
determine whether the sought-after insurance can be issued.
When
the client is properly prepared for the interview, the vast majority are
completed in one to three days. Barely five percent, in LabOne’s experience
doing more than 80,000 calls a month, result in an ultimate failure to connect.
This
success rate can be maximized, Dombrosky observes, if the ideal workflow process
is in place to accommodate success. It begins with the agent completing a
short-form application that gathers basic facts needed to initiate the
transaction but has no risk-related questions. This triggers an electronic order
to the outsourced provider for a teleinterview, while also scheduling completion
of whatever additional requirements are needed to approve the policy.
In
the system his company has developed and Dombrosky oversees, requirement
acquisition proceeds while an image of the complete application is sent
electronically to the paramedical examiner. This allows for all necessary
signatures. Thus, delays are sidestepped and the result, in the vast majority of
cases, is an approved policy, ready for delivery, in a fraction of the time this
process consumed in the past.
The
number one “culprit,” if you will, in delaying the application-to-approval
process is the attending physician’s statement. Insurers that have
successfully implemented teleunderwriting report anywhere from a 25 to 60+
percent reduction in their dependence on such reports. How is this possible? By
reaping the bounty of information disclosed on the teleinterview and using it to
triage risks, thus ordering reports only when the medical history cannot be
reconciled with what is at hand in a matter of days.
This
process, of course, is aided and abetted by novel underwriting requirements that
have come into prominence with the advent of teleunderwriting.
In
the March 2003 report, we focused on such things as oral fluid testing, motor
vehicle records and pharmaceutical database profiles. In each case, these
relatively new assets have helped make teleunderwriting thrive, largely by
offsetting any perceived loss of protective information inherent in reducing
dependence on the ways of the past.
One
innovation that has had a major impact on larger face amounts of coverage is the
specialized financial inspection report. Ali Jalali, whose firm First Financial
has been a pioneer in this field, advises that these detailed reports have
enabled case approvals that would otherwise have bogged down for want of crucial
financial details.
Some
examples of 20th century requirements whose use has declined significantly, as
mentioned above, are the physician’s report as well as chest x-rays, treadmill
stress tests, examinations by doctors and traditional inspection reports. While
the protective value of some of these is questionable, a very good case was made
recently for the value of the treadmill stress test.
Indeed,
this long-appreciated medical test is a classic example of where the past
collides with the imperatives of the present. This is underscored by the average
out-of-pocket cost of having this test done—estimated by one provider to be in
excess of $400—as well as hidden costs like customer inconvenience and delay
and post-issue correspondence with insureds’ own physicians who take exception
to adverse decisions based on stress test findings.
Is
the payback from treadmill testing sufficient to justify these downsides?
Probably not any longer, especially given newer laboratory testing options that
take a fraction of the time at a fraction of the cost while assuring equivalent
if not superior value to the insurer. A number of such innovations are under
scrutiny, including oral fluid hepatitis C screening, second generation blood
lipid tests, a potential new indicator of advanced liver damage from hepatitis,
and, most intriguingly, a skin cholesterol test.
Skin
Cholesterol
One
of the stalwarts of blood testing is cholesterol. It provides a well-accepted
clue to the risk of obstructive plaque in major arteries.
Now,
a new test for cholesterol has come on the scene. It offers exciting
possibilities, especially in tandem with oral fluid. The test is undertaken
using a rapid pain-free technique that gathers skin cells from the palm of the
hand. These cells are embedded with skin sterol, which one might think of as
equivalent to blood cholesterol. But, in fact, this analogy does not hold up,
because skin sterol is actually superior to blood cholesterol as a marker for
circulatory disease risk.
According
to Jim Swann, M.D. of McNeil Consumer Healthcare in
Waterloo
,
Ontario
, “skin tissue cholesterol and serum cholesterol are totally unrelated
entities.” Skin tissue cholesterol (or skin sterol), Swann says, “is an
independent predictor of coronary disease risk.” In other words, the risks
associated with blood cholesterol and skin tissue cholesterol are additive for
predicting the risk of the leading cause of excess mortality and morbidity in
North America
.
After
further research, this underwriter discovered that skin tissue cholesterol has
been shown to directly correlate with the extent of heart artery obstructions.
This was revealed when test results were matched against findings on the
coronary artery angiograms in a major medical study.
Skin
tissue cholesterol testing is a good fit with oral fluid screening because both
may be collected by the agent, at point of sale. Indeed, the only caveat with
testing the skin of the palm is that the proposed insured must wash his hands!
Except when very severe dermatitis is present, the sample may be collected and
sent off for analysis without undue concern for false-positives that can plague
other forms of testing.
Studies
are now underway with a number of insurers to assess the potential for this new
test. If it works, it could add tremendously to the impact of teleunderwriting
by further offsetting worries about adequate protective information to enable
the risk appraisal process.
Health
Carriers
Just
as teleunderwriting and other innovations have forever changed the face of life
risk management, they have had an ever-increasing impact among health carriers
as well. This is particularly true for individual health insurance.
Kathy
Thomas is a prominent adviser to health insurers as well as the executive
director of LOMA’s health underwriting study group. In these roles, she has a
unique perspective on the impact of change in health insurance risk management.
Her observations demonstrate the importance of innovation in this domain.
According
to Thomas, a recent survey of 24 individual health carriers reveals that more
than 80 percent use teleunderwriting on some basis. Roughly one in five now uses
teleunderwriting on all new business. In others, the success of teleinterviews
is leading to a gradual phasing out of traditional information-gathering. And,
Thomas hastens to add, most firms not yet doing tele-interviews are—just like
their life company peers—investigating the merits of adopting this
revolutionary strategy.
Several
major health companies have literally reinvented the application-taking process
through teleunderwriting. These new processes have translated into a decisive
competitive advantage. Thomas reports that those who have adopted
teleunderwriting now order only a fraction of the medical records they once did,
making decisions on a majority of new applications within three to five days.
They also have experienced reductions in tedious policy rescission and
reformation activities, and, most significantly, now conclude they do a better
job at assessing the risk.
Unlike
life companies, many health carriers ask their underwriters to conduct
teleinterviews. This underwriter confesses he was dubious about the likely
effectiveness of this approach, having seen similar—and strikingly
inefficient—use of underwriters in this role on the life side. However, after
having had the privilege of observing this approach in action, skepticism has
given way to a huge “thumbs up”.
Thomas
finds similar concerns are also the rule among health underwriters who have
never interviewed an applicant. However, experience has shown they soon come to
say they will never issue another piece of business without first talking
directly with the applicant.
The
impact of teleunderwriting in morbidity risk analysis has not been confined
solely to health carriers. Many disability, long term care and, most recently,
critical illness carriers have been lured by its advantages. While they may
still have to ferret out medical records more often than their life and health
peers, the bounty of teleinterview information has allowed them to selectively
reduce the incidence of this bottleneck.
Producer
Response
What
has the response been from producers to this radical reconfiguration of the
gathering of risk information? Have initial concerns for loss of control over
their clients polarized them against the teleinterview? Has teleunderwriting
caused a rift between the home office and the field force?
Emphatically
no on all counts.
After
interfacing intensely with leading North American producers at major
conferences, including the Million Dollar Round Table and Top of the Table, I
have come away with the impression that most producers now appreciate that it is
they who are among the biggest beneficiaries of this process.
It
is no exaggeration to say that underwriting has been a perceived nemesis of
field forces since the early years of the industry. Losing a client after long
hours of hard work simply because of a protracted delay incited by a tardy M.D.
response to a routine request for medical history has been a bitter pill for
many producers to swallow.
These
concerns have intensified in the new age of computer-based technology. What one
reasons should be happening was not. Until, that is,the advent of
teleunderwriting ushered in sweeping reductions in application-to-approval time
while allowing underwriters to do their job better than ever without having to
indulge many traditional imperatives.
At
the 50th anniversary of the
Banff
School
for agents and brokers in
Alberta
last August, it was apparent from the response of hundreds of delegates that
teleunderwriting had come of age in
Canada
. This was testified to by prolonged applause at the recounting of the paybacks
afforded to them by teleunderwriting.
These
were no longer just promises. They were now realities that these agents and
brokers had experienced for themselves on many of their biggest cases.
Unlike
the somewhat cooler reception afforded the author in the late ‘90s when
lecturing in Edmonton on what teleunder-writing was going to accomplish, this
experience was an exhilarating testimonial to what teleun-derwriting had indeed
achieved in the intervening few years.
The
key to success, in terms of field perception of teleunderwriting, has been shown
time and again to begin with the involvement of both home office sales/marketing
executives and leading producers in the design phrase of tele-underwriting. One
prominent Midwestern life carrier that writes hundreds of thousands of new lives
each year used this strategy to get an early buy-in from those who might
otherwise have been skeptical if not openly defiant about tele-underwriting
within ear shot of top management. Today, three years after rolling out
teleunderwriting, its chief underwriter confesses privately that he would have
had to “go into hiding” if he had dared to retract the very innovation many
of his peers were at first reluctant to advance.
Outsourcing/Telecommuting
A
sober reality of life and health underwriting in 2005 is the insidious shortage
of well-trained and experienced underwriters to infuse into the ranks of
carriers whose sales are climbing. There are many reasons why this difficult
reality has come to pass, but the bottom line is that veteran underwriters for
hire are now scarce in our industry.
Two
solutions have been implemented to at least partially compensate for this
prevailing shortfall. They are outsourcing of underwriting and telecommuting of
underwriters.
While
underwriting outsourcing remains in its infancy in
North America
, the pace is said to be accelerating. This is punctuated by the entry of a
number of new firms that are outsourced underwriting service providers.
Initial
concerns about the practicality and wisdom of telecommuting underwriters have
given way to growing enthusiasm for this remedy to a local shortage of talent.
With the rapid pace of industry mergers and consolidations in recent years, many
communities have seen the number of indigenous carriers shrink, while others—
Charlotte
,
N.C.
, for example—have seen a huge increase in the number of resident underwriting
professionals.
The
net effect of mergers and consolidations has been the displacement of hundreds
of skilled risk managers. Most of these veterans seek to continue their careers
in their chosen field, but are hampered by a lack of local options and unable,
because of partner and family obligations, to conveniently relocate.
Enter
telecommuting. At the November 2004 meeting of The Underwriting Vision Group,
two major life companies reported on their huge success with telecommuting. This
group is a biennial gathering of a dozen or so chief underwriters from prominent
U.S.
life insurers. Both of these life companies are represented in this elite group
and both tell of having key senior underwriters living thousands of miles from
the home office. Despite such distances, these telecommuters carry full loads of
pending cases and get the job done with the same expedience as their in-house
peers. Both life companies were quick to point out that the productivity of
their telecommuters often exceeds that of the other underwriters, which, of
course, is understandable, considering the advantages inherent in being allowed
to do one’s job without the sometimes insurmountable burdens imposed by
relocation.
International
Impact
Susie
Cour-Palais, co-director of the
U.K.
consulting firm SelectX, is well positioned to observe change brought about
internationally by teleunderwriting. In fact, she spoke on this at both the
last LOMA International Underwriting Congress in
Singapore
(November 2003) as well as the International Congress of Life Assurance
Medicine in
Venice
(April 2004).
“During
the last two years,” says Cour-Palais, “every major
U.K.
life insurer has either started teleunderwriting or is considering embracing
the process. In
Britain
, many companies have invested heavily in costly underwriting engines [and] it
is essential that tele-underwriting works with this process, further improving
underwriting efficiency.”
According
to Cour-Palais, “out-sourcing of case underwriting is now big business in the
UK
,” fueled in large measure by the same problem facing
US
insurers—that is, “the dearth of experienced underwriters in the market.”
Several new firms also have begun to offer outsourced teleinterviewing services,
under the watchful eye of reinsurers who take on over 90 percent of the risk on
life business.
A
few companies have even taken the concept of outsourced underwriting to the
point of using offshore firms to actually assess risk. This, of course, follows
in the wake of extensive outsourcing of IT and customer service functions by
many global financial services firms. Raising a caution about potential
drawbacks in this regard, Cour-Palais notes that “thus far, offshore
underwriting in
India
has been restricted to simple initial underwriting and new business
administration.” She also tells us that a new term has arisen to identify the
idea of offshore teleunderwriting. That catchy term is Delhi-underwriting no
less!
One
way to measure the impact of change in
U.K.
risk management is to observe the growth in participation at an annual
London
event known as BUGS (short for “better underwriting, greater sales”).
Organized by ex-Swiss Re executive Peter LeBeau, BUGS has seen a 250 percent
increase in attendance during the past three years, confirming what Cour-Palais
has said about more and more
U.K.
companies embracing change.
Another
major testimonial in this regard is reflected in the program of the 2005 LOMA
International Underwriting Congress, which will be held in
Geneva
,
Switzerland
on April 17 to 20. Teleunderwriting, outsourcing, tele-commuting, workflow
management and other cutting-edge practices dominate the Congress’s 27-segment
program, to be presented by 55 experts from 14 countries on five continents.
Clearly,
and at an ever accelerating pace, the new age of life and health risk management
is upon us. And our future has never looked brighter.
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