Cutting underwriting times

Reduce the time it takes to get policies approved for wealthy clients

Thanks to improved technology and medical advances, underwriters can now identify risks more accurately. How has the underwriting industry adapted to serve the needs of wealthy clients?

An increase in the number of wealthy Canadians means the industry is issuing higher face amount policies. According to calculations by McMaster University economist Michael Veall, the top-earning 1% of Canadians has almost doubled its share of the national income, from 7.6% in 1980 to 13.6% in 2000.

Between 1990 and 2000, there was an increase of 68.8% in income earners at $100,000 and more. Yet nationally, the number of all earners increased by only 10.1%. The growth in incomes at the high end has been quite rapid while incomes of the majority of the population remained stable.

How has the underwriting industry adapted? Some insurers and reinsurers have introduced a dedicated underwriter for high-net-worth (HNW) clients. The process largely remains the same as it would with any other face amount, with the only difference being that these cases jump the underwriting queue.

Although there are dedicated underwriters and case coordinators for HNW business — also referred to as VIP business — such policies are still processed slowly. According to a 2008 study, up to 42% of cases over $10 million face amount take up to six months in underwriting.

What is considered a large life case today? Some insurance companies determine a large case by face amount, while others look at the amount of premium as well as the face amount. The definition has evolved over the decades.

The 1980s:

• Actor Ronald Reagan is elected to the U.S. presidency;
• John Lennon is assassinated;
• The AIDS virus is first identified in the U.S.;
• And, a $1 million dollar face amount life application is a large case.

The 1990s:

• Nelson Mandela is freed after 30 years of imprisonment;
• Technology sees the emergence of the World Wide Web, mobile phones and email and Microsoft introduces the Windows operating system;
• Dolly the sheep is cloned;
• And, a $5 million dollar face amount life application is a large case.

The 2000s:

• September 11, 2001 sees terrorist attacks by al-Qaeda upon the United States;
• The Euro becomes the standard European currency for most nations;
• Barack Obama, the first African-American president of the U.S., is inaugurated;
• And, a $10 million dollar face amount life application is a large case.

The decade starting with 2010 will see even larger life face amount cases. Advisors are looking to life insurance for innovative solutions for their HNW clients. This type of business must be given a different level of scrutiny and demands a different service requirement. Delays with this type of business carry large consequences.

Why? Let’s examine the various scenarios where delays can jeopardize HNW business:

• The applicant visits his doctor during the underwriting process, but the underwriter has already received the attending physician statement (APS).The applicant must make the underwriter aware of the medical visit. That’s because the underwriter needs to request the reason and results of this visit from the physician. It could be something as benign as a cold, or it could be a change in health so the underwriter needs to know whether it affects mortality.The longer a case stays in underwriting, the more likely a person is to see their doctor for reasons that do not affect mortality, such as a prescription refill.The number of physician reports required and the underwriting process itself are the main causes of a prolonged case.
• There are changes in market or investment trends. While waiting for underwriting to be completed, the applicant could come across a better solution than life insurance and choose another investment vehicle
• Applicant loses interest. By the time an application reaches the insurer, the advisor has put in many months of work. Delays, piecemeal gathering of evidence and constant touch points will discourage an applicant.
• Outdated underwriting evidence. Underwriting evidence is only valid for six months. Delays may stale-date this evidence and prompt amendments or repeat testing.
• Ballooning costs. Time is money. The longer a case stays in underwriting the more costs it incurs. It’s all about the time value of money.
  • Better mortality experience (assumptions the insurer has made on the actual number of deaths in a given group of people) due to the quality of the evidence. Also, the underwriter gains expertise with each new case.
  • Increase in placement rate
  • Faster premium payments
  • Underwriting time is accelerated due to the quality of the evidence and the underwriting synopsis
  • Satisfied applicant and advisor
  • Allows more time to build and manage the relationship with the advisor
  • Allows a reinsurance underwriter more time to market to insurers
  • Speed of issuing the policy, which translates into faster commissions
  • A positive applicant experience
  • Increase in business from referrals
  • Better communication, since the advisor is aware of the status of the case at all times
  • A timely life insurance policy
  • Elimination of excessive touch points for additional information due to poor-quality evidence received in underwriting
  • Better mortality experience (assumptions the insurer has made on the actual number of deaths in a given group of people) due to the quality of the evidence. Also, the underwriter gains expertise with each new case.
  • Increase in placement rate
  • Faster premium payments
  • Underwriting time is accelerated due to the quality of the evidence and the underwriting synopsis
  • Satisfied applicant and advisor
  • Allows more time to build and manage the relationship with the advisor
  • Allows a reinsurance underwriter more time to market to insurers
  • Speed of issuing the policy, which translates into faster commissions
  • A positive applicant experience
  • Increase in business from referrals
  • Better communication, since the advisor is aware of the status of the case at all times
  • A timely life insurance policy
  • Elimination of excessive touch points for additional information due to poor-quality evidence received in underwriting

The solution to these delays is a quality case-management process. This involves a HNW underwriter liaising with the advisor, applicant and insurer during the underwriting process and developing an underwriting summary for the insurer. Doing this ensures the quality of the underwriting evidence, eliminates piecemeal evidence gathering, and provides an underwriting synopsis from which an insurance underwriter can make a timely assessment.

The benefits of quality case-management to the insurer and reinsurer:

How does the advisor benefit?

How does the applicant benefit?

HNW underwriting needs to change. It’s time to become innovative, transformational and transparent with this unique business to reduce the delays and increase the quality. After all, ensuring this happens is a matter of dollars and common sense.

Carmela Tadescois VP of Underwriting Services at LOGiQ3 Corp., which provides outsourced expert underwriting solutions to the North American advisor, insurer and reinsurer