Insurers Seek Competitive Edge Through Underwriting Analytics
Efficiency Gains
Still, Gorman notes, progress continues to be made in the automation of new business. When this approach first took off -- in the late 1990s and early 2000s in certain personal lines -- insurers enjoyed the efficiency gains of passing through, or jet issuing, 30 percent of applications while referring the remaining 70 percent to human underwriters, according to Gorman. Today, he contends, the more advanced carriers enjoy between 80 percent and 95 percent pass-through.
These efforts have benefited from improvements in tying together analytics with enabling technologies, such as rules engines, workflow solutions and content management environments. Additionally, Gorman points out, as carriers have gone through increasingly sophisticated iterations of predictive models, they have found that they can build and validate models on less data than they would have needed in the past and still enjoy a comparable business benefit.
The Hartford's (Hartford; $26.5 billion in 2006 revenues) group benefits division furnishes an example in its group life and disability lines. In June 2007 the division rolled out a streamlined online personal health application leveraging improved analytics-driven medical underwriting. "What we've done is built a Web-based tool and hooked it up to our PULSE medical underwriting engine," relates Monica Spigner, assistant vice president, consumer operations, for The Hartford's group benefits division. "Now we have a very powerful process that gives real-time decisions almost 80 percent of the time to those consumers who elect to use the online application."
The six-question online application replaces a 24-question paper application that not only was more difficult for applicants to complete, but could take weeks to process in some instances, according to Spigner, who says rollout of the online process was preceded by about 18 months of work to update underwriting rules processed by the homegrown PULSE engine and get the new qustions filed with state regulators. "It was the rigor of pulling all the historical data out of PULSE -- the actuarial, the mortality tables -- and working with our individual risk managers to apply the latest and greatest in terms of medical underwriting guidelines," she explains. "We partnered to ask how and at what point we could change those guidelines to streamline the consumer experience -- for example, by ordering fewer exams for a particular diagnosis -- and still get an approval that we were comfortable with from a risk management perspective."
The opportunity presented by improved analysis was that some of the guidelines previously used within PULSE not only were too conservative but positively counterproductive from both a risk and efficiency standpoint, according to Spigner. Certain "red flag" medical conditions would result in PULSE declining a given applicant and referring the case to an underwriter, she relates. In a large number of those cases, however, the individual risk eventually would be approved after an appeal process that demonstrated that the condition was under effective management. "I'd rather approve those conditions on the front end rather than deny them and have them come back to my unit as an appeal, which costs me money," Spigner says.
From the time the new six-question application was completed in June until October 2007, The Hartford worked with Glastonbury, Conn.-based BenefitsXML to Web-enable the previously manual process that connected applicants to PULSE and the carrier's underwriters. "They had modules that did the work, but we had to customize their tool because it assumes that a customer has different approaches for life and disability," Spigner explains. "We differentiate ourselves in the market by using one form -- one process for both life and disability coverage."
While The Hartford's group benefits division is yet to formulate metrics for measuring the success of the online application, since it went online in October, the division has enjoyed $50,000 of savings related to the reduction of medical exams alone, Spigner reports. She says she believes that it may take a couple of years to realize the risk management impact of the new process.
"We'll continue to monitor our loss ratios and risk management data," Spigner remarks. From a more general perspective, "When we have more experience with the form and process, I believe we'll see faster time to decision and more hard dollar savings."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
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