How will innovation in underwriting affect policies?

In some quarters, the challenges involved in obtaining medical details mean the pandemic has seen a return to a more human approach to underwriting by providers. Generally speaking, however, the underwriting process has become more automated in response to changing circumstances.

Providers have been improving instant acceptance online by creating more bespoke and innovative questions to capture more information.

This dynamic underwriting approach means that insurers can offer a much higher straight through processing rate. 

So, does more automation and more information allow insurers to price more accurately?

“This is an interesting question,” Naomi Greatorex, managing director Heath Protection Solutions, says. “I think sometimes the online underwriting system seems to offer a loading where an adviser may feel that the rating is borderline and there are some additional facts that a underwriter may have considered and the system cannot. 

“In these instances I have seen premiums being rated, and following a conversation with an underwriter who has reviewed the additional information, the rating is reduced or removed. Automation and straight through processing does allow insurance companies to offer more competitive premiums, as the cost of processing the insurance has been greatly reduced for people that can be instantly accepted.”

Underwriter engagement

But as a result, many people cannot be accepted through online routes. This is when advisers and underwriters need to be understanding of individual circumstances. 

Many underwriters are very open to discussion about a client’s risk, why decisions are being made and also the information that they need to fully make an assessment.

Kathryn Knowles, managing director of Cura Financial Services, adds: “Online journeys come across as cheap, because you are getting people covered this way, in a ‘straight through’ [manner with] no underwriting risks. As soon as someone has a risk that cannot be easily integrated into the system, they have to go through a more bespoke process. 

I think sometimes the online underwriting system seems to offer a loading where an adviser may feel that the rating is borderline and there are some additional facts that a underwriter may have considered and the system cannot. 

“This doesn’t mean that online journeys are cheaper, it just means that people who can access cheap protection cover can easily do so through this route.”

Greatorex adds: “The more we move towards automation within underwriting, the more important it becomes to speak to a protection specialist, particularly for clients who have medical disclosures. More people could be excluded if we rely solely on a more automated system, and do not help people access advice.”

Exclusion risk

Another danger with a solely online strategy coupled with an insurer’s increasingly sophisticated ability to capture more information than ever before - albeit a standard set - is that it risks excluding more people from getting insurance, as systems cannot take into account or consider the complexities of a person’s circumstances

David Mead, founder of Future Proof and joint head of protection at St. James's Place Protection Planning, says: “More automated processes do mean that some clients are more likely to be excluded from access to insurance, especially if they self-apply. 

“When an adverse decision is delivered, it’s important for insurers to explain the rational for their decision clearly to the client, as well as signposting them to specialist firms who might be able to assist the client.”

.The more we move towards automation within underwriting, the more important it becomes to speak to a protection specialist.--Naomi Greatorex

Ian McKenna, founder of FTRC and Protection Guru, says: “The more we get to understand health and the more individuals understand their own personal future health, the more likely it is that some consumers will choose not to insure, even though the actual cost of cover for them will be very low. 

“Conversely when we have a greater understanding of long-term medical risks, inevitably underwriters looking to balance their portfolios will seek higher premiums for, and in some cases exclude, those individuals who have a very high propensity to claim.”

Electronic records

Other challenges to the quest for innovation have emerged via the increased drive to gain access to electronic health records, which can make life easier for insurers to accurately and quickly underwrite policies.

Electronic health records are primarily driven by condition codes - a three-character code which the doctor or their assistants enter into the patient record. 

A single mistyped character in a code can mean the difference between a condition that has no impact on insurance and one that is potentially life threatening, so is very significant from an underwriting perspective. 

McKenna says: “[As a result of this] a growing number of protection advisers now ask their clients to obtain a copy of the medical records in advance before submitting an application in order to make sure the records are correct. 

The more we get to understand health and the more individuals understand their own personal future health, the more likely it is that some consumers will choose not to insure, even though the actual cost of cover for them will be very low.--Ian McKenna

“This can be particularly important if the client does have a complex medical history.”

McKenna believes that insurance will become cheaper for those with good long-term health prospects, and as medical science advances mean we are better able to understand who represents a 'good risk'. 

However, as the ability to identify high-risk individuals becomes greater, cover will become more expensive for others, indeed some may not be able to access insurance at all. 

McKenna says in this context it is important to understand the long-term strategy for the health service, adding the objective should be one that moves away from a service which provides care at the point of need, to one which prevents need by early diagnosis and intervention.