The way in which a life insurance policy has been underwritten has remained largely unchanged over the last half century. But according to industry experts, that’s about to change. The combination of cloud-based technologies, artificial intelligence (AI) and innovative insuretech that unlocks vast stores of data from files such as PDFs, has set the life insurance industry on a new course.
“Changes to how life insurance policies are written have been on the horizon for several years now, but have moved slowly to adoption, up until this point,” shared industry consultant Tom McCarthy. “Historically, policies were written for modest amounts and people were taken at their word about their health and other material factors. As some data points became available through medical tests, this enabled life insurance carriers to write larger policies. However, now, with multiple data streams available, and tools like predictive analytics, data mining, prescription profiles, and even mortality-predicting facial recognition technology, the pace of change and innovation is speeding up.”
One effect of these new technologies has been to reduce the time to issue a policy. Traditionally, it has taken weeks, and possibly months, for a policy to be finalized. “To gather all the necessary data to underwrite the policy correctly, to check medical records, and then code and enter that data, is a time intensive process,” noted Samantha Chow, industry analyst from The Aite Group. “Not only was this expensive work, it also presented the customer with numerous opportunities to drop out of the policy application process representing not only a lost revenue opportunity for the insurer but also resulting in costs incurred along the way,” added McCarthy.
A second impact of these data-focused tools is to reduce the bias that inevitably comes in writing and adjudicating a claim. “By using people to review and apply information related to a claim we have been biasing data for years,” shared Chow. “But now we can use AI to parse out the noise and underwrite policies more consistently based on what the data tells us, rather than what an agent wants us to know. This is exciting not only because of the improving the claims process, but also because it opens up new products to life insurance carriers because they can identify underserved populations and untapped markets.”
These new data-driven tools are reducing the time of issue from months and weeks to days and hours. Not only does this improve the customer experience, but also reduces costs while delivering revenue more quickly. This focus on customer experience isn’t just good for the customer noted Chow, it’s good for the carrier, their agents, and underwriters as well. “Data improves operational efficiency by automating routine decisions and manual processes,” she shared. “It frees up employees to strategize and really apply their insights to the business, rather than focus on non-value-added administration.”
Despite these advances, however, there is still a great deal of change to come for life insurance carriers. “One of the trends that I’m seeing is a growing sense of frustration among insurers that while they have access to a great deal of data, they’re also sitting on enormous stockpiles of information in their own records,” said McCarthy. “If they can unlock this information – such as PDFs of electronic health records and attending physician statements (APS), then they can continue to hasten the process of issuing policies, increasing revenue, and driving down costs. But unless they can extract data from PDFs quickly and easily then that advantage is lost.”
As well as retrieving data from different file formats, the other obstacle that data-driven life insurers need to address is to get information out of silos and legacy systems. “An insurance company might have multiple policies for one individual but none of them are connected because they’re stored in different systems and more than likely in different formats with different identifiers,” explained Chow. “Without the ability to marry these separate records there’s no opportunity to connect the dots and get a 360-degree view of the customer. Being able to have this broad perspective means being able to offer tailored products and improve their experience as customer. Moving data to the cloud and investing in third party as-a-service tools to store, clean, and apply data is the only way to connect those data points.”
While there’s a long road ahead for the life insurance industry to adopt and integrate these innovative technologies there’s ample evidence that changes are taking place. The latest Aite Group research found that cloud-based technologies and big data are getting close to maturity, with 81% and 71% of insurance carriers, respectively, committed to using these tools to support data-driven objectives. As the benefits – from cost containment to improved customer experience – accrue and more data can, in turn, be fed back into the models, the pace of change will surely quicken. For now, though, the focus for life insurance carriers ready to get started should be to start breaking down silos of information and unlocking the value of the data they already hold in legacy applications and file formats.