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Accelerated Underwriting and COVID-19

Are these temporary changes here to stay?

April 2021

The individual life underwriting landscape continues to evolve rapidly. The ongoing market shift toward a new generation of prospective life insurance buyers has been challenging carriers to explore new and faster ways of selling and underwriting life insurance. On top of this continual market shift, add a global pandemic, and what we are seeing is COVID-19 essentially driving insurance carriers to adapt even more rapidly. This has been in the form of expanded eligibility limits and fast-tracking the adoption of alternative data sources during a period of time where traditional underwriting requirement were not easily accessible.

Munich Re Life US conducted an accelerated underwriting survey to capture new and emerging trends in the U.S. individual life accelerated underwriting market.

Munich Re Life US conducted an accelerated underwriting (AUW) survey in late 2020 with the goal of capturing new and emerging trends in the U.S. individual life accelerated underwriting market. Many of the findings in this survey were compared against our 2018 accelerated underwriting survey to highlight key trends over the past two years. One added “benefit” of the latest survey’s timing is that it allowed us to capture COVID-specific impacts to accelerating programs several months into the pandemic. For purposes of the survey and this paper, AUW is defined as the waiving of traditional underwriting requirements (e.g., fluids, medical exams) for a subset of applicants that meet favorable risk requirements in an otherwise fully underwritten life insurance process. This article highlights emerging accelerated underwriting trends and shares some of our high-level survey findings.

COVID-19 Impacts 

In order to assess the pandemic’s impact on the life insurance industry, we asked participants to identify and provide details on all modifications that were made to their company’s accelerated underwriting and full underwriting programs (FUW) in response to COVID-19. The intent of the questions was to compare and contrast the changes made to both of the underwriting paradigms. See Figure 1 for a comparison of results.

Figure 1 - Modifications to AUW and FUW programs in response to COVID-19.png
Figure 1: Modifications to AUW and FUW programs in response to COVID-19

The most common modifications made by the majority of carriers under both underwriting paradigms were grace period extensions (as mandated by state requirements) and additional underwriting questions, including COVID-19 exposure and a statement of good health.

Where we see the biggest disparity between traditional and accelerated underwriting program modifications is around the adoption of new underwriting tools or requirements, underwriting class limitations and waiving of existing requirements, all of which were more prevalent on the fully underwritten side. In many instances, these FUW modifications were temporary and modeled after carriers’ AUW eligibility limits and their current or planned AUW requirements. In particular, we saw carriers moving quickly into production with new tools such as medical claims data, electronic health records, and clinical lab data, which otherwise would have been evaluated at a more deliberate pace. These new data sources were intended to serve as a substitute for traditional exams, which were not easily accessible during the initial months of the pandemic’s emergence in the U.S.

The following sections explore noteworthy trends observed specifically on the accelerated underwriting side.

The industry has seen quite a bit of movement in AUW eligibility limits over the past few years. It’s worth noting that while the AUW median (and most common) maximum issue age of 60 and face amount of $1m have remained the same since 2018, we see a notable shift in the mean maximum face amount, up from $1.0m in 2018 to an average of $1.3m-$1.6m over the course of 2020.  The range of 2020 results shows the drastic impact COVID-19 has on AUW face amount limits, where these expansions were initially deemed “temporary” but have gradually become permanent.  
Figure 2: Percentage of programs with AUW eligibility at different age/amount combinations as of early 2020 (pre-COVID changes)
Figure 2: Percentage of programs with AUW eligibility at different age/amount combinations as of early 2020 (pre-COVID changes)
*For simplicity, qualifying ages are shown in quinquennial groups. Minimum qualifying ages < 21 and face amounts < $100,001 have been grouped.

Figure 2 provides a high-level visual of where the industry was in early 2020, specifically, the proportion of companies offering Accelerated Underwriting to applicants within each five-year age band and face amount groupings. All 30 companies surveyed were offering AUW to applicants between 21-40 and $250k-$500k, then we see a gradual drop off of companies starting issue age 40 and face amount $500k, with the steepest drop off at issue age of 60 and face amount $1m (the median upper limits). 

While there has been a noticeable shift in maximum face amount offerings in recent years, it’s important to keep in mind that not all AUW face amount bands are available to all AUW eligible issue ages, as evidenced by Figure 2. In addition to offering a banded eligibility structure, as reported by one-third of companies, some programs may pair high maximum issue ages and face amounts with conservative underwriting criteria, which is often accompanied by lower accelerated offer rates. This is often an intentional marketing strategy that allows companies to advertise lower premium rates or higher face amounts to attract a larger applicant pool.

Fast forward to mid-2020 and one of the common impacts the industry saw in response to COVID-19  were rather abrupt changes to eligibility limits.  Under both underwriting paradigms, we commonly see maximum issue age restrictions, where carriers were particularly concerned with limiting exposure to lives at the oldest issue ages where COVID-19 fatalities were more prevalent. On the other hand, we are aware of a few carriers that made expansions to their AUW issue age limits, but we should note that these programs were below the average AUW issue age limit to begin with, so implementing these changes actually brought them more in line with the industry.
Figure 3: Shift in AUW age/ amount eligibility by percentage of companies due to COVID-19 modifications
Figure 3: Shift in AUW age/ amount eligibility by percentage of companies due to COVID-19 modifications
*For simplicity, qualifying ages are shown in quinquennial groups. Minimum qualifying ages < 21 and face amounts < $100,001 have been grouped.

Arguably, what resulted in the most attention from the industry at the time changes were being made, were AUW face amount expansions. While initially considered “temporary,” these face amount increases were deemed necessary by many carriers in order to underwrite applicants at higher face amount bands that would have been served by full underwriting under normal circumstances. 

For a more detailed visual of the COVID-19 impacts on AUW age and amount limits by percentage of companies, see Figure 3, which can be compared against Figure 2 from earlier in this section of the report.

From the visual above, we see a mix of AUW issue age limitations at the oldest ages and expansions at the younger AUW issue age limits, particularly at the higher face amounts. We see a clear trend in that the most common modification was an increase in AUW eligible face amounts from $1m up to $2m or $3m maximum face amounts, primarily in the under 50 issue age cohorts. To the extent that we are aware of a company’s reason for AUW eligibility changes, this view excludes any pre-planned 2020 eligibility changes that were decided on prior to the emergence of COVID-19.
Underwriting tools are one area that is constantly evolving in the AUW landscape. As expected, motor vehicle records, prescription drug data, and insurance activity (MIB) continue to be leveraged by all AUW programs. With regard to how application information was collected in 2020, we see more companies are now using electronic applications versus tele-interviews. The majority of companies (59-81%) are using tools such as identity verification, Rx-based scoring models, credit-based scoring, credit data, criminal history, and other public records. 
Interestingly, the most common items that were being evaluated in 2020 but not yet in wide use were Electronic Health Records (EHRs), clinical laboratory results, medical claim records, and combined Rx and credit-based scoring models. We know that many companies quickly moved into production with some of these electronic data sources on their fully underwritten side during the COVID-19 lockdowns that prevented carriers from getting the traditional labs and exams.  Many carriers commented that their next step is to automate their use of these tools to be able to leverage them in an accelerated underwriting environment. See Figure 4 for more details on tools used by companies to classify accelerated cases as of June 2020. 
Figure 4: Underwriting tools and information sources for classifying risks in an accelerated pipeline
© Munich Re
Figure 4: Underwriting tools and information sources for classifying risks in an accelerated pipeline
Comparing the tools currently “in use” in 2020 versus 2018, we see the biggest increase is in Rx-based scoring models (+39%), followed by medical claims data (+32%), and EHRs (+23%).  These same tools, along with clinical lab results, were identified as the ones most companies were “considering” (but not yet in use) in the 2018 survey, so it’s not surprising to see that more programs have implemented them into the AUW process two years later. Consistent with our prior survey results, we still do not see any programs using wearable activity data to classify risks, with half as many companies evaluating this data source, compared to 2018.  

The risk class structure of accelerated underwritten products continues to expand, with 67% of companies now offering the same number of standard and preferred risk classes as their traditionally underwritten products, up from 50% of companies in 2018.

Most commonly, four non-tobacco (NT) classes were reported for both the traditional and accelerated underwriting paths, while two tobacco (TB) classes was the most common for both FUW and AUW.  The vast majority of AUW programs, 83%, now allow tobacco users to go through their AUW program, up from 67% in 2018. 

One AUW risk class feature that has remained stable since 2018 is the availability of substandard classes which approximately one-quarter of AUW programs continue to offer.  However, for those programs that do accelerate substandard risks, more limitations are placed on the substandard table ratings offered, with the median AUW substandard table rating available up to table 4 (D), compared to a median substandard rating of table 15 (O) on the FUW side. This likely explains why we saw a lower prevalence of COVID-19 driven “underwriting class limitations” in accelerated underwriting compared to traditional underwriting, as it was common for many companies to temporarily restrict offers to the most impaired substandard risks. 

All the companies that responded to the 2020 survey reported having a monitoring control put in place, whether it be random holdouts (RHOs), post-issue APS (PIA) audits, or other post-issue techniques.  The most commonly used “other” post-issue tools include MIB Plan F, followed by Rx post-issue check, and underwriter review.

Random holdouts are a monitoring technique in which cases in the accelerated underwriting workflow are randomly selected to go through the traditional underwriting process, in order to compare the FUW assigned risk class to that of the AUW outcome. The majority (57%) of companies conducted random holdouts as of June 2020.  The median and most common RHO rate is 5%, or 1 out of 20 cases, with 7.1% being the average holdout rate reported in 2020.

Similarly, we also see 57% of companies conducting post-issue APS audits, with an overlapping 23% performing both RHO and PIA techniques. The median and most commonly reported PIA audit rate was 10%, or 1 in 10 issued policies, while the average APS audit rate was 17.3%.  Some companies perform APS audits instead of RHOs because they don’t offer a fully underwritten alternative. Others prefer the post-issue audit process because they are less impactful to the customer experience, with the exception of material misrepresentation that can later lead to a live rescission of the AUW issued policy. 

Compared to 2018, we have seen a notable shift away from carriers performing a combination of both RHO and PIA monitoring practices towards just one of these auditing methods, often supplemented with other post-issue techniques, as listed above. Some companies intentionally dialed down their initial monitoring efforts once they were out of the pilot stage and gained comfort with the emerging trends, while others scaled back monitoring efforts directly as a result of COVID-19. As seen in figure 1, “monitoring processes” was the item with the largest differential in AUW program modifications over FUW program modifications. This can be explained by the same reason why “waived underwriting requirements” were more prevalent than the traditionally underwritten side. Traditional insurance labs were not easily accessible in the initial months of the pandemic. As a result, many AUW programs paused their existing monitoring processes or temporarily replaced them with alternative data sources.

Term continues to be the most common product to be offered in companies’ AUW programs, as indicated by 93% of responding companies, followed by universal life (63%) and whole life (60%). Other products also reported as having AUW availability include variable universal life and indexed universal life.  It’s worth noting that we see a significant jump in AUW programs offering permanent products in 2020 versus 2018, as shown in Figure 5 below.  Most companies typically pilot their accelerated program with a single product, commonly Term, with the intention of expanding to other product types once they have the opportunity to test and gather learnings from the accelerated underwriting process. 
Figure 5: Product types offered through AUW programs over time
Figure 5: Product types offered through AUW programs over time
*Includes 34 companies in total: 17 responses from 2018, and 30 responses from 2020
In order to capture the likelihood of existing products being made available in the accelerated underwriting path, we also asked what product types companies offered through their traditional underwriting path.  We found that AUW Term was available in 93% of companies with an existing FUW term product, while whole life was not far behind with 86% of carriers with an existing WL product offering it through AUW. Lastly, despite UL being overall more common than WL, it is only offered through AUW 73% of the time. This supports the concept that simpler products are more likely to gain traction in an accelerated path. 
When asked about sales channels being used in accelerated underwriting programs, the majority of companies reported using either career/captive agents or brokerage, while fewer companies are utilizing the direct-to-consumer and digital platforms for their accelerated programs. While this relationship between AUW channels is not dissimilar from our prior survey observations, we do see an increase in AUW availability across all distribution channels compared to 2018, implying that the average number of AUW channels offered by each company is expanding. Companies will often pilot AUW through a limited number of channels with plans to eventually expand to other channels as they gain experience in their accelerated underwriting process. 

Conclusion

It’s clear from the survey trends that the U.S. accelerated underwriting landscape continues to change rapidly, driven in part by the underwriting limitations put in place by COVID-19. Companies are expanding their AUW programs more quickly than ever in terms of face amount eligibility, number of risk classes, product types offered, and distribution channels, making this “new underwriting paradigm” more closely resemble that of full underwriting. At the same time, we are seeing the evolution and rapid adoption of more underwriting tools that are still somewhat of a “proof of concept” and have more varied use cases than we have seen from the “staple” AUW tools that remain in place since the time of our last survey.  At the time of adoption, these “staples” (Rx, MIB, MVR, credit-based) were better studied and understood from a mortality-impact perspective than some of the more recent tools being tried.

Simultaneously, we see traditional underwriting programs adopting new data driven underwriting tools at break-neck speed, driven in large part by the underwriting limitations put in place by the COVID-19 pandemic.  While the industry was slowly moving in this direction, COVID-19 essentially “hit the gas” on blending these two underwriting paradigms by further blurring the lines between accelerated and traditional underwriting. Which ultimately begs the question, are these temporary changes here to stay?

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