Increasing Insurability Through Accelerated Underwriting in the Era of Covid

Why the Coverage Gap Exists

The life insurance coverage gap is multifaceted in causation. A lack of consumer knowledge and understanding prefaces an unsavory, timely process, ultimately resulting in inadequate coverage. Additionally, many Americans rely upon group life insurance coverage through work to cover their needs, but the pandemic has left millions unemployed and without the coverage they thought would protect their families.

Historically, the life insurance buying process has not been a consumer-friendly experience.² Applicants suffered through blood draws, provided urine specimens, and answered sensitive medical questions asked by a stranger. Underwriting often takes weeks to months, leading to lost business due to incomplete underwriting, equating to lost premium and revenue.

Inaccurate public perception also creates the coverage gap.^1,8 Research has shown there is a public perception that life insurance premiums are cost prohibitive and are much higher than the actual cost.⁸ Consumers overestimate the cost of life insurance coverage up to 300% of actual premiums.^3,1

Addressing this inaccurate perception has been challenging even from a grassroots sale perspective. Agency-based, traditional sellers of life insurance are reduced as newer generations demonstrate less interest in brick and mortar business, opting for use of technology through the internet to sale financial products.^5,9,10 However, the use of social media to gather information on financial topics has substantially increased and presents an opportunity for the life insurance industry to educate consumers.¹ Continued use of computer technology has fueled the Direct-To-Consumer (DTC or D2C) trend as it continues to accelerate in recent years since younger consumers prefer low-touch, faster gratification experiences (such as the Amazon sales experience) instead of the traditional insurance agent customer transaction.^10,1,2

How AUW Can Change the Coverage Gap

Increased consumer comfort with online financial transactions and availability of technology support the shift in how the American public is purchasing life insurance. According to LIMRA research, about half (47%) of American consumers find accelerated or simplified underwriting more appealing than traditional underwriting.⁸ Less than half of people surveyed stated they preferred to use an agent, which is the traditional method of purchasing life insurance. The specific preference for online purchasing also doubled to 29% from 2011 to 2020. During the beginning of the COVID-19 pandemic, LIMRA research showed an increase in online applications as well, which mirrors the new public desire to purchase life insurance using simplified underwriting.¹  

The new underwriting paradigm of accelerated underwriting utilizes more efficient, less expensive, and more convenient methods that provided similar protective value. Similar to motor vehicle records, financial and prescription database checks are used in conjunction with predictive modeling.

Accelerated underwriting offers an improved consumer experience in several ways.

• Convenient: Digital applications are done at the time of the applicant’s choice, day or night.
• Timely: Real-time risk assessment provides the applicant a decision within minutes.
• Elimination of invasive testing (e.g., no blood draws).

AUW enhances the underwriting process for insurance companies in various ways as well. Companies can benefit from:

• Reduced underwriting acquisition costs on underwriting requirements: Database checks are less expensive than traditional underwriting requirements such as paramed exams, fluid testing and medical records.
• Improved turnaround time (TAT): Quick decisioning greatly reduces the typically long (30 days or more) underwriting cycle.
• Decreased acquisition costs: New preferred distribution methods like DTC result in lower acquisition costs since agent sales commissions are reduced. Companies should consider the cost of paying digital distributors as well as budgeting for DTC marketing costs.
• Lower employee costs: Although an initial investment is required to set up an AUW process, larger volumes of applications can be processed without human intervention. Underwriters can then focus their skills on more complicated financial and medical applications.

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