The New Underwriting Paradigm: Carrier Options
September  2015

​When underwriting reform became a fixed topic at industry meetings a few years ago, some dismissed it as a topic of the day. But it has proven to be much more than that. Today life insurers from niche players to mainstream companies are taking steps to change the underwriting process. And the support – or mandate – for these initiatives often comes from the highest levels of the company.

The biggest driver of this movement is a desire on the part of life insurers to grow or tap into the under-served middle market. Unlike the high-end market, where traditional underwriting remains very effective, the middle market requires faster, easier and less costly ways to assess mortality risk.

A number of companies already use e-data (MIB, MVR, pharmacy records, electronic identity check, etc.) to increase underwriting efficiencies. And developments underway with electronic health records (EHR) – a rich source of historical medical data – will bring about a more radical paradigm shift in how we sell and underwrite life insurance. These changes are not in the far-off future. Companies can take steps today to leverage existing technology and third party data and prepare for the really big advancements down the road.

It’s Not Easy…
As companies explore the options for building technology- and data-driven platforms, they quickly learn that these projects are big and costly, hard to build and even harder to maintain on a long-term basis. (Just keeping up with new and changing prescription drugs requires an enormous commitment.) From a financial, human and intellectual capital perspective, few companies are positioned to build and maintain these new and innovative systems by themselves.

So where can a carrier turn? Basically, there are four options: build in-house, work with a software company, work with a data vendor, work with a reinsurance partner. Each option has its pros and cons, which are outlined here:

Option 1 - Build in-house

Pros: ​Cons:
  • ​Carrier owns most, if not all, intellectual property
  • Complete understanding and control of underwriting decisions/logic
  • Protection of any competitive advantage
  • Control of security
  • Less dependent on partner/vendor strategy changes
  • ​Requires significant resources and investment
  • Maintenance is complex
  • Responsible for vendor connectivity and management,disaster recovery and security
  • Competes with other high value projects
  • Costs can only be spread over carrier’s portfolio


Option 2 - Work with a software company

​Pros: ​Cons:
  • ​Development costs are spread among multiple customers
  • System likely already in production and tested
  • May have expertise in linking solution to multiple administrative systems
  • ​Lack depth/breadth of underwriting expertise (underwriters, physicians, actuaries, etc.)
  • Carrier provides expertise to design and maintain rules
  • Can’t assume mortality risk
  • System improvements viewed as an expense unless there is sales benefit
  • Complex contracts
  • Expensive maintenance and improvement charges


Option 3 - Work with a data vendor

​Pros:

​Cons:

  • ​Development costs spread among multiple customers
  • System likely already in production and tested
  • Implementation and usage fees may be lessened as the sale of data is the business driver
  • ​Lack depth/breadth of underwriter expertise (underwriters, physicians, actuaries, etc.)
  • Can’t assume mortality risk
  • System improvements viewed as an expense unless there is sales benefit
  • Limited flexibility if new provider offers better quality or lower price
  • New information that lessens importance of their data or discovery of better data may be minimized or ignored


Option 4 - Work with a reinsurer

​Pros: ​Cons:
  • ​Mortality risk partner - incentive to keep system current
  • Typically employ the required medical, underwriting and actuarial expertise
  • Impartial to new or improved data sources as mortality enhancement directly benefits them
  • Development costs spread among multiple customers
  • System likely already in production and tested
  • Implementation and usage fees may be lessened or even eliminated as reinsurance is the business driver
  • Enhancements likely implemented at no cost since reinsurer shares in the risk
  • ​Reinsurance will likely be required and may not be a part of carrier’s strategy
  • Solution is likely to be more focused / narrow when compared to a software company


SCOR is one of the most active players in the automated underwriting space. Through our success with Velogica, our automated underwriting platform, we have earned a reputation as an industry innovator in individual life underwriting. We are helping major clients drive new models of efficient underwriting through automated risk assessment and point-of-sale policyholder capture.

Velogica is time-tested and proven, having processed more than two million life insurance applications. We have accumulated a wealth of experience data during the past decade, which allows us to continually enhance the system for middle market sales and beyond.

If you are interested in a more in-depth discussion on this topic, please feel free to contact me.