Life Insurance Automated Underwriting – A 25 Year Journey

Automated underwriting has come a long way in the last 25 years. It may be surprising that there was automated underwriting 25 years ago. At that time, it was called ‘expert’ underwriting. The idea was right, but the timing was wrong. The underwriting engines were black box algorithms; there was no user interface; data was fed from a file to the system; programming was required to write rules; and specialized hardware was necessary to run the systems. Not surprisingly, this attempt at automating underwriting was dead on arrival.

The next major iteration occurred about ten years later. Automated underwriting systems included a user interface; rules were exposed (some programming was still required to change the rules); data interfaces were introduced to collect evidence from labs and the medical inquiry board; underwriting decisions could be overridden by the human underwriter; and workflow was provided. Some insurers chose to take a chance on this new technology, but it was not widely adopted. There were two strikes against it: cost and trust. The systems were expensive to purchase, and the time and costs involved in integrating and tailoring the systems to a specific company’s underwriting practice could not be outweighed by the benefits. The lack of benefits was partially because the underwriters did not trust the results. Many times this caused double work for the underwriters. The underwriters reviewed the automated underwriting results and then evaluated the case using manual procedures to ensure the automated risk class matched the manual results.

Moving ahead fifteen years to today, changes in the underwriting environment place greater demands on staff and management. Staff members are working from home, and contractors are floating in and out of the landscape, all while reinsurers are knocking on the insurer’s door. There are now state-of-the-art new business and underwriting (NBUW) systems that address the challenges associated with the new demands. The solutions do not just assess the risk but provide workflow, audit, and analytics capabilities that aid in the management process. Rules can be added and modified by the business users; evidence is provided as data so that the rules engine can evaluate the results and provide the exceptions for human review. Subjective manual random audits of hundreds of cases evolve into objective, data-driven perspectives from thousands of cases. Analytics provide insights on specific conditions and impairments over the spectrum of underwritten cases to provide a portfolio view of risk management. Underwriting inconsistencies become easy to find and specific training can be provided to improve quality.

.In our report, Underwriting Investments that Pay Off, Karen Monks and I found that the differences between insurers who are minimally automated and those that are moderately to highly automated are substantial.  For minimally automated insurers, the not in good order (NIGO) rates are four times higher, the cycle times are 30% longer, and the case manager to underwriter ratio is almost double compared to the metrics for the moderately to highly automated insurers. This outcome may not reflect your specific circumstances, but it is worth preparing a business case to understand the benefits. With the advances in the systems and the advantages provided for new business acquistion, there are few justifications for any company not to seek greater automation in their underwriting.  

To learn more about the adoption of current NBUW systems and the functionality offered in them, please read our new report, What’s Hot and What’s Not, Deal and Functionality Trends and Projections in the Life NBUW Market or join our webinar on this topic on Thursday, September 29.  You can sign up here.

 

 

The 2017 Model Insurer Nominations Start Now

It’s been five months since we awarded Zurich with our top distinguished award, Model Insurer of the Year, during our Innovation & Insight Day (I&I Day) on April 13. I&I Day has been growing and gaining recognition since its inception over 10 years ago. Over last two years, more than 250 financial services professionals joined us in New York City at Carnegie Hall in 2015 and at The Museum of American Finance in 2016 to celebrate the Model Insurer winners.

From September 15, we will be accepting Model Insurer nominations. The window for new entries will close on November 30. We are looking forward to receiving your best IT initiatives. You may be announced as a Model Insurer at our I&I Day in 2017. The Model Insurer award program recognizes projects that essentially answer the question: What would it look like for an insurance company to do everything right with today’s technology? It awards insurance companies which have successfully implemented a technology project in five categories:

  • Data mastery and analytics.
  • Digital and omnichannel technology.
  • Innovation and emerging technologies.
  • Legacy transformation.
  • Operational excellence.

Some examples of initiatives that we awarded early this year are:

Model Insurer of the Year   

Zurich Insurance: Zurich developed Zurich Risk Panorama, an app that allows market-facing employees to navigate through Zurich’s large volumes of data, tools and capabilities in only a few clicks to offer customers a succinct overview of how to make their business more resilient. Zurich Risk Panorama provides dashboards that collate the knowledge, expertise and insights of Zurich experts via the data presented.

Data Mastery & Analytics

Asteron Life: Asteron Life created a new approach to underwriting audits called End-to-End Insights. It provides a portfolio level overview of risk management, creates the ability to identify trends, opportunities and pain points in real-time and identifies inefficiencies and inconsistencies in the underwriting process. 

Celina Insurance Group: Celina wanted to appoint agents in underdeveloped areas. To find areas with the highest potential for success, they created an analytics based agency prospecting tool. Using machine learning, multiple models were developed that scored over 4,000 zip codes to identify the best locations.

Farm Bureau Financial Services: FBFS decoupled its infrastructure by replacing point to point integration patterns with hub and spoke architecture. They utilized the ACORD Reference Architecture Data Model and developed near real time event-based messages.

Digital and Omnichannel

Sagicor Life Inc.: Sagicor designed and developed Accelewriting® , an eApp integrated with a rules engine; which uses analytic tools and databases to provide a final underwriting decision within one to two minutes on average for simplified issue products.

Gore Mutual Insurance Company: Gore created uBiz, the first complete ecommerce commercial insurance platform in Canada by leveraging a host of technology advancements to simplify the buying experience of small business customers.

Innovation and Emerging Technologies

Desjardins General Insurance Group: Ajusto, a smart phone mobile app for telematics auto insurance, was launched by Desjardins in March 2015. Driving is scored based on four criteria. The cumulative score can be converted into savings on the auto insurance premium at renewal.

John Hancock Financial Services: John Hancock developed the John Hancock Vitality solution. As part of the program, John Hancock Vitality members receive personalized health goals. The healthier their lifestyle, the more points they can accumulate to earn valuable rewards and discounts from leading retailers. Additionally, they can save as much as much as 15 percent off their annual premium.

Promutuel Assurance: Promutuel Insurance created a new change management strategy and built a global e-learning application, Campus, which uses a web-based approach that leverages self-service capabilities and gamificaton to make training easier, quicker, less costly and more convenient.

Legacy Transformation

GuideOne Insurance: GuideOne undertook a transformation project to reverse declines in its personal lines business. They launched new premier auto, standard auto, and non-standard auto products, as well as home, renter and umbrella products on a new policy administration system and a new agent portal.

Westchester, a Chubb Company: Chubb Solutions Fast Track™, a robust and flexible solution covering core business functionality, was built to support Chubb’s microbusiness unit’s core mission of establishing a “Producer First,” low-touch mindset through speed, accessibility, value, ease-of-use and relationships.

Teachers Life: Teachers Life has achieved a seamless, end-to-end online process for application, underwriting, policy issue and delivery for a variety of life products. Policyholders with a healthy lifestyle and basic financial needs can get coverage fast, in the privacy of their own homes, and pay premiums online in as little as 15 minutes.

Operational Excellence

Markerstudy Group: Markerstudy implemented the M-Powered IT Transformation Program which created an eco-system of best in class monitoring and infrastructure visualization tools to accelerate cross-functional collaboration and remove key-man dependencies.

Guarantee Insurance Company: In order to focus on their core competency of underwriting and managing a large book of workers compensation business, Guarantee Insurance outsourced its entire IT infrastructure.

Pacific Specialty Insurance Company: Complying with their vision is to become a virtual carrier, meaning all critical business applications will be housed in a cloud-based infrastructure, PSIC implemented their core systems in a cloud while upgrading infrastructure to accommodate growth in bandwidth demands.

If you have completed a project during the last two years that you feel is a role model for the industry, don’t hesitate to send us your initiative here. You may be the next Model Insurer of the year.

For more information about the Model Insurer program click here, leave a comment, or email me directly at lchipana@celent.com. I’d be more than happy to talk with you. The Celent team and I are looking forward to hearing from you and meeting you in person at the 2017 Innovation & Insight Day.

See you there!

Predicting the Future – Illustration Systems to the Rescue

Life insurers continue to strive to increase growth and point of sale tools used by producers continue to evolve. Illustrations are becoming a key factor in keeping producers happy by improving the probability of the life insurance sale. Modern illustration systems provide the ability for agents to illustrate a variety of “what if” life events such as college education, retirement or purchasing a home to show how life insurance can be used to plan for the future events. Quality illustrations can move a “nice-to- have” to a “must-have” for a prospective client.

Functionality changes such as more emphasis on the illustration output, the use of mobile devices, user-level configuration, and full integration with other point of sale tools are just a few of the changes Celent has seen in vendor based illustrations solutions.

In Celent’s new report, Predicting the Future, 2016 North American Illustration Solution Spectrum, 11 vendors providing illustration systems to North American insurers are profiled.  The following trends in North American illustration systems were observed:

• Regulatory changes including NAIC model regulation and Department of Labor fiduciary rule driving increased transparency.
• Disconnected mode of operating with automatic synchronization upon reconnection.
• Increased security with role-based authentication and single sign-on capability.
• Ability to limit the products displayed to those that the agent is licensed to sell and the potential insured is eligible to purchase.
• Configuration has replaced coding for calculation engines but still requires IT involvement.
• Standardization of transactions for third party interfaces.
• Improved user experience with prefilled data, fewer forms, and conversational English-like labels for data entry. Output provides graphs and charts in addition to tabular data.
• Omnidevice support for phone, tablet, laptop, and desktop. An agent can start the quote or illustration on one device and complete it on another.

Today, an insurer can manage what used to be myriad of POS tools that included needs analysis, advanced sales support, suitability, illustrations, and e-applications, which were provided by a combination of vendors and in-house systems, through one interoperable, integrated vendor system.

Insurers also have the choice in the level of system development and maintenance in which they want to partake. Today’s vendor systems offer a spectrum from full vendor maintenance to user-level tools for the insurer to maintain its own systems.

Although homegrown illustration systems are still being developed and used, Celent believes that most carriers looking to invest in a new illustration system should consider vendor systems for core functionality and tools that can help them produce illustration systems more quickly and at a lower cost.

A companion report of 14 illustration vendors selling in EMEA, APAC and LATAM is coming soon!

Complexities, Capabilities and Budgets

I've just published a new report called Complexities, Capabilities, and Budgets.   Here's a quick overview – ping me if you'd like to chat in more detail aboaut it.

Insurance is being transformed by rapid changes in information technology, skyrocketing customer expectations, rapidly evolving distribution models, and radical changes in underwriting and claims. How are IT organizations changing to accommodate the new capabilities they’re delivering, and how are budgets shifting to accommodate this transformation?

In this environment, IT leaders have had to become very smart about how to run, grow, and transform the business with relatively stagnant budgets. The most effective IT leaders have assumed a strategic role in guiding their companies.  

A growing number of leaders have made understanding and maximizing the value of IT a critical part of their missions. Insurers that have moved toward an outcome-based measure of IT value are increasing, and CIOs using value-based metrics are increasingly seen as more strategic members of the teams.

Most carriers have not increased IT resources significantly to meet these challenges.  Insurer IT budgets have stayed fairly flat as a percentage of premium over the past 10 years, although the percentage spent on maintenance is shrinking as carriers invest more in new capabilities. 

Looking out for the next two to five years, Celent believes that carriers will continue to rapidly deploy new technologies. Measurements of IT value will continue to mature and shift toward value metrics (those looking at the outcomes of cost, time, and value improvements) to rate the performance of IT. This will enable a more informed debate over where to spend scarce IT dollars. 

For many insurers, the approach toward IT budget construction and the measurement of value remains rooted in a traditional approach of centrally planned budgets and top-down portfolio metrics which can mask where IT value is being delivered,  IT organizations that are seen as more strategic are more likely to measure the overall financial impact of technology delivered.

Apax Partners adds Agencyport to its growing property/casualty technology investment portfolio

Today’s announcement of Apax Partners’ acquisition of Agencyport makes sense. This deal is a further commitment by Apax to the property/casualty software sector—following shortly after Apax’s announcement of its equity investment in the soon to be independent Duck Creek.

Insurers want the internal and external users of their systems to have seamless mobile access to new business and other functionality. Agencyport has developed one of the leading solutions for agents, brokers, and policyholders find information and execute transactions with insurers’ core systems.

As is true for any technology acquisition, the soon to be combined management teams of Agencyport and Duck Creek will need to focus on communicating the benefits of their new relationship to current and prospective customers—sending a “good before, better now” message. Providing “vendor neutral” support to Agencyport customers who do not use Duck Creek solutions and Duck Creek customer who do not use AgencyPort solutions will also be crucial.

How life insurers can make underwriting investments that pay off

There is much to automate in the new business process but where should automation dollars be spent to provide the best returns? The new Celent report, Making Life Insurance Underwriting Investments That Pay Off, provides a framework for answering this question. Celent’s analysis divides the new business and underwriting process into 22 logical components of work. Each component is subdivided into potential levels of automation ranging from minimal automation to highly automated. Through an online survey insurers graded themselves in each of the processes according to their level of automation.  The results were not surprising; however they highlighted how far behind the life insurance industry lags in this area.

Automation blog graphic

Automated new business and underwriting processes carry the promise of improved results, but can come at a significant cost, including the hard costs of purchasing technology as well as the softer costs of implementing it and changing processes.  Celent’s analysis showed that automation does indeed improve key measures related to productivity, accuracy and time which can help offset the costs.

One of the keys to reaping the rewards of the investment is to define the strategic goals prior to the automation. Some life insurers have a strategy to be a low cost provider and may achieve low cost through significant investment in rules automation. Others want to provide a high level of service and may focus on the customer experience by automating the customer-facing processes. 

Key questions to ask when deciding where to automate:

  • What is the strategic focus?
  • What tasks are being done, and by whom? Does that actor have to do them?
  • Where can automation create capacity to grow the book of business?
  • Where can automation create a better decision?
  • Where can automation create a better customer experience?
  • Which level of automation will result in the best key metric results?

Are your investments paying off? Insurers can use Celent’s latest report to compare their level of automation to the underwriting capabilities framework and their peers to ascertain if they are making the most of their underwriting automation investments.

Who has the best life insurance new business and underwriting system?

Celent has published a new report, North American LHA New Business and Underwriting Systems: 2016 ABCD Vendor View, in which Celent profiles fourteen providers of new business and underwriting systems. Each vendor responded to a request for information. Seven vendors met the criteria for inclusion as a potential Xcelent winner. The seven vendors eligible for the awards provided a demonstration and briefing of their billing solution.

Due to the ongoing economic conditions that continue to have an adverse impact on life insurance application volumes, insurers have strong interest in reducing the cost of acquisition, processing and issuing life insurance applications. Automating the new business and underwriting functions are critical components in reaching a level of straight-through processing (STP) for new business. Insurers hope that these systems will help reduce unit costs and improve margins. Celent believes that these initiatives are necessary to help the insurers address growth, service, and distribution mandates, in addition to reducing the cost per policy issued.

After years of development that started almost 30 years ago, automated underwriting systems have become highly flexible in allowing insurers to define and configure underwriting rules and workflow. Most systems include or integrate into eApplications. Data from the applications drive reflexive questioning and identify risk classes associated with application data. They offer high levels of automation when gathering third party medical requirements and flag risks when the third party data results are outside of the ranges set by the rules. They also can deliver decisions to the point of data entry or to an underwriter.

New business image

The interest in new business and underwriting systems is on the upswing. Deciding the best new business and underwriting system is unique to each insurer. The goal of the report is to provide detailed information so that an insurer will be able to make an informed decision on which systems may be the best for them.

Internet of Things – NBA edition, round 2

For those of you that follow our blog, you may have read my post from April 8th, entitled Internet of Things – NBA edition. If not, then I’d suggest you click the title and read that post first.

Given we’re in round 1 of the playoffs, this post feels even more timely. The basic premise of the first post revolved around the use of wearables in sports, more specifically during games. As it turns out, there was recently a follow-up article on ESPN.com:

NBA union, wearable tech company Whoop to meet Tuesday

As I mentioned, the use of wearables goes well beyond just the technology, particularly to the ownership of the data.

I particularly liked the quote from the Whoop CEO, Will Ahmed: "…let's not deprive athletes of in game analysis. It's their careers at stake and data is not steroids."

As wearables get to be more and more ubiquitous, it will be interesting to follow their use. We see the benefit in insurance programs, such as Hancock’s Vitality, but the ultimate use of the information shows so much opportunity to truly change our lives. It will be fun to follow.

A golden day for insurance: Celent 2016 Model Insurer winners

In the historic Museum of American Finance, surrounded by golden exhibits including gold bars, a gold Monopoly game and even a gold toilet(!), the 2016 Celent Model Insurers were announced yesterday.  Part of our annual Innovation and Insight Day, we had over 150 insurance professionals in attendance (and over 300 in total), it was a great day for networking, idea sharing, learning about award winning initiatives and hearing inspiring speakers talk about the future of financial services. 

Yaron Ben-Zvi, CEO and co-founder of Haven Life, was the Model Insurer key note speaker. He discussed how Haven is using technology to reach a younger, digital-savvy customer with a life insurance experience that meets their expectations. He spoke about the journey from ideation to reality for their term insurance products which can be purchased online in only 20 minutes. He encouraged the audience to “think big but start small” and to apply the learnings along the way.

The Haven Life presentation was followed by the main event, the announcement of the 2016 Model Insurer winners. Every year, Celent recognizes the effective use of technology projects in five categories across multiple business functions.  We produced our annual Model Insurer Case Study report which clients may download here.  This year there were fifteen insurers recognized including Zurich Insurance, the Model Insurer of the Year.  Here are the winners: 

Model Insurer of the Year   

Zurich Insurance: Zurich developed Zurich Risk Panorama, an app that allows market-facing employees to navigate through Zurich’s large volumes of data, tools and capabilities in only a few clicks to offer customers a succinct overview of how to make their business more resilient. Zurich Risk Panorama provides dashboards that collate the knowledge, expertise and insights of Zurich experts via the data presented.

Data Mastery & Analytics

Asteron Life: Asteron Life created a new approach to underwriting audits called End-to-End Insights. It provides a portfolio level overview of risk management, creates the ability to identify trends, opportunities and pain points in real-time and identifies inefficiencies and inconsistencies in the underwriting process. 

Celina Insurance Group: Celina wanted to appoint agents in underdeveloped areas. To find areas with the highest potential for success, they created an analytics based agency prospecting tool. Using machine learning, multiple models were developed that scored over 4,000 zip codes to identify the best locations.

Farm Bureau Financial Services: FBFS decoupled its infrastructure by replacing point to point integration patterns with hub and spoke architecture. They utilized the ACORD Reference Architecture Data Model and developed near real time event-based messages.

Innovation and Emerging Technologies

Desjardins General Insurance Group: Ajusto, a smart phone mobile app for telematics auto insurance, was launched by Desjardins in March 2015. Driving is scored based on four criteria. The cumulative score can be converted into savings on the auto insurance premium at renewal.

John Hancock Financial Services: John Hancock developed the John Hancock Vitality solution. As part of the program, John Hancock Vitality members receive personalized health goals. The healthier their lifestyle, the more points they can accumulate to earn valuable rewards and discounts from leading retailers. Additionally, they can save as much as much as 15 percent off their annual premium.

Promutuel Assurance: Promutuel Insurance created a new change management strategy and built a global e-learning application, Campus, which uses a web-based approach that leverages self-service capabilities and gamificaton to make training easier, quicker, less costly and more convenient.

Digital and Omnichannel

Sagicor Life Inc.: Sagicor designed and developed Accelewriting® , an eApp integrated with a rules engine; which uses analytic tools and databases to provide a final underwriting decision within one to two minutes on average for simplified issue products.

Gore Mutual Insurance Company: Gore created uBiz, the first complete ecommerce commercial insurance platform in Canada by leveraging a host of technology advancements to simplify the buying experience of small business customers.

Operational Excellence

Markerstudy Group: Markerstudy implemented the M-Powered IT Transformation Program which created an eco-system of best in class monitoring and infrastructure visualization tools to accelerate cross-functional collaboration and remove key-man dependencies.

Guarantee Insurance Company: In order to focus on their core competency of underwriting and managing a large book of workers compensation business, Guarantee Insurance outsourced its entire IT infrastructure.

Pacific Specialty Insurance Company: Complying with their vision is to become a virtual carrier, meaning all critical business applications will be housed in a cloud-based infrastructure, PSIC implemented their core systems in a cloud while upgrading infrastructure to accommodate growth in bandwidth demands.

Legacy Transformation

GuideOne Insurance: GuideOne undertook a transformation project to reverse declines in its personal lines business. They launched new premier auto, standard auto, and non-standard auto products, as well as home, renter and umbrella products on a new policy administration system and a new agent portal.

Westchester, a Chubb Company: Chubb Solutions Fast Track™, a robust and flexible solution covering core business functionality, was built to support Chubb’s microbusiness unit’s core mission of establishing a “Producer First,” low-touch mindset through speed, accessibility, value, ease-of-use and relationships.

Teachers Life: Teachers Life has achieved a seamless, end-to-end online process for application, underwriting, policy issue and delivery for a variety of life products. Policyholders with a healthy lifestyle and basic financial needs can get coverage fast, in the privacy of their own homes, and pay premiums online in as little as 15 minutes.

The quality of the submissions this year is a clear indication the industry is turning a corner and embracing transformation, digital initiatives, innovation and valuing data analytics.  It is inspiring to see the positive results the insurers have achieved and a pleasure to recognize them as Model Insurers for their best practices in insurance technology.

How about your company? As you read this, are you thinking of an initiative in your company that should be recognized? We are always looking for good examples of the use of technology in insurance. Stay tuned for more information regarding 2017 Model Insurer nominations.  

 

Making property/casualty underwriting investments that pay off

Underwriting is at the core of the insurance industry. The processes of selecting and pricing risk and the additional operational processes necessary to deliver a policy and provide ongoing services are essential to the overall profitability of a carrier. Over the last few years, carriers have been heavily engaged in replacing core policy admin systems and increasing the automation of their underwriting processes.

Automation of underwriting processes carries the promise of improved results, but can come at a significant cost — both the hard costs (purchasing technology, implementing technology, and changing processes) and the soft costs. Change can be hard on both underwriting staff inside a carrier and on the agents who receive the output of the underwriting process.

So when does it make sense to invest in automation — or, put another way, are there pieces of the underwriting process that when automated are more likely to result in improved results? We thought it would be interesting to investigate these questions to provide guidance to carriers that are trying to prioritize their efforts.

Our goal was to understand the actual state of underwriting automation in the insurance industry. Are carriers living up to the hype in the media that implies that virtually every carrier out there has automated every step of the process? Or is the progress slower? Are carriers with older systems at a disadvantage against those who have replaced their systems with modern solutions? Do high levels of automation actually result in better financial results?

The process of underwriting was broken into 26 logical components of work. For each component, three levels were defined — ranging from little automation used to significant levels of automation. Carriers can use this report as a self-diagnostic tool by comparing their scores to the benchmarks that follow in this report. To understand what top carriers are doing in this area, Celent conducted a survey around this topic looking to answer these key research questions.

  1. What are the different components of underwriting that can be automated?
  2. Where are carriers utilizing automation in underwriting?
  3. Are high levels of automation in underwriting correlated with improved metrics?

Our key findings were:

  • Average levels of automation vary dramatically by line of business, even within the same company.
  • Personal lines carriers are more likely to be applying high level of automation in the front end processes related to automated quote, issue, and renewals — including automated communications with policyholders.
  • Commercial lines carriers tend to apply higher levels of automation for the back end including workflow, product management, rating, and reporting/analytics.
  • Workers compensation and specialty carriers tend to have slightly lower levels of automation in all aspects of underwriting but can achieve significantly better results when applying automation to processes related to analytics and service.
  • Carriers with newer systems are using high levels of automation in more of the processes. Those who have had their systems for over 15 years have had a lot of time to customize their solutions and have slightly more highly automated processes than those whose systems are between 10 and 15 years old.
  • Personal lines carriers are the most likely to benefit from high levels of automation, especially automation related to process efficiency and underwriting insights.
  • Commercial and specialty carriers benefited most from high levels of automation in processes related to underwriting insights. Generally, the best combined ratios were found in those carriers with a medium level of automation — processes that were supported by technology, but had some level of human intervention as well.
  • Workers comp carriers are most likely to benefit from high levels of automation in processes related to driving underwriting insights.

Here’s a link to the report.  You can download it if you’re a customer. If you’re not a client, ping me and we can chat.