A clearer process
The latest COVERThink Tank putthe future ofunderwritingunder thespotlight.Peter Madiganreports
Angela Faherty: What stage is the protection market at with its underwriting processes?
Jason King: Talking from a distributor's perspective, I don't really feel that underwriting has changed much in the last couple of decades. We still have a high number of GP reports being requested, which gives us problems with getting information through quickly. Anything other than very 'clean lives' are very difficult to underwrite. With all the online systems we currently have, a clean life gets fantastic service and cover within half an hour, but anyone outside of that 35% of applicants gets thrown into a manual process that is paper-driven.
Peter Le Beau: I think there has been a genuine attempt to change the business model but the trouble for old companies is that they have to graft electronic systems onto existing processes and it is difficult to achieve the straight through processing they want. Progress from Royal Liver is getting positive results with something like 90% of cases not requiring a GP report.
Graham Spittles: I can confirm that. I would be very surprised if we requested GP reports in more than 10% of cases. We haven't hit a 10% margin yet. We are dealing with a product that has combinations of life and critical illness with the average sum assured being around £90,000 and 90% of cases going straight through. IFAs have been delighted with the service they have received.
Jason King: Application forms still have their part to play but it is ridiculous that we ask the same questions of every client about their health and occupation regardless of the clients' age, their risk profile and regardless of the benefit they are applying for.
Matt Rann: I think that we have to shorten the process. One of the things that has held back underwriters has been the paper process. Electronic processes can change that completely. You can underwrite the under-30s with just two or three lifestyle questions and segment occupation, age and sex, so why are we not doing it?
Peter Le Beau: There has been a lot of thinking about the underwriting process and we have had a situation where more and more risk has been passed onto reinsurers. If they get one very high risk case they will want to make lots of enquiries and that will mean a longer, more stringent application form and a lot of problems. As an industry we looked at how the Australian and South African markets have been quite innovative with straight through processing. A lot of intelligent thinking is going on between underwriters about how we can improve the process but that has not hit this market yet.
Peter Hamilton: If you look at where we were two years ago things have changed quite a lot even though there is still a lot of scope for improvement. Two years ago, insurers had to keep driving up rates because they could not deal with the volumes of business coming through, but in terms of processing, I think it has been quite streamlined. Particularly for clean lives, which beforehand went into a queue and were dealt with over days, weeks or months. I think we have seen quite a step change from where we were, there is far more refinement and we would guess that we are getting 50%-60% straight through, depending on the age profile and individual IFA.
Nicolette Bray: I think that the use of online systems has given us huge opportunities to get far more information out of the application system that we never had in the past. So although it is early days, in the future we will be able to look at these questions and step back and say that – although we may have had 32 pages of questions – only a small subset is generating medical evidence off the back of it. People have developed online systems and we are now starting to get the medical information we need and beginning to pull these applications back down and focus on various areas that are a problem.
Peter Le Beau: We have been hung up on GP reports for years and the actual value of the report in getting information is minimal, particularly for the younger age groups. For the under-50s the risk should be assessed on lifestyle rather than being based on health. We also need to ask what we can get better medical information on, such as oral fluids and skin cholesterol. This is a better methodology than GP reports, which are so expensive and take so long to get hold of that they present part of the problem.
Peter Hamilton: Where teleunderwriting will begin to make a difference is in areas like income protection where the client actually knows more about what is wrong with them than the doctor, such as with back conditions or stress. The value you would get from a GP report in this instance is far less than what you get from talking directly to the customer.
Iain Mallon: What part should IFAs play in data collection? I have heard industry figures say that 20-30% of paper applications are not completed properly.
Jason King: Advisers have a tremendously important part to play – they are our clients. Industry figures are well documented about how many paper applications are incomplete. That is why we do not submit paper applications.
Andrew Howe: There are opportunities out there for companies with better, lower GP report rates. The choice is also there for insurers. With your reinsurance purchase decision you can decide to buy purely on price and stick with your underwriting system or you can decide to try and get best practice in the market.
Jason King: There are opportunities for providers to gain market share without having to compete on price and to get the rest of the proposition right because we are looking very carefully at turn around time on cases.
Graham Spittles: There are a lot of instances where it is difficult to sell insurance. Figures have been around for years that 25%-30% of application forms are not being filled in correctly. Then when you do get them completed correctly, how many of them drop out before they are finalised and the case is on the books? From the figures we are seeing, tele-underwriting is much better. It is early days in terms of consistency rates and people staying on the books, but things look positive.
Iain Mallon: The level of disclosure is phenomenal with teleunderwriting. We have been surprised by it, and the information we get is often better quality than a medical report. I think it is a significant part of the solution. Our task is to have multiple solutions to fit into the distributor's sales process. IFAs may feel more comfortable working offline and completing an application form in front of the customer so you can then upload that and finish it at a later date.
Peter Hamilton: From the conclusions we have come to so far, that suggestion could mean going back to where we were two or three years ago. Tele-underwriting has a huge number of benefits not least in terms of disclosure, but if we were to suggest that it can apply to every customer in the market, and that means perhaps 10,000-15,000 people a day, we would just grind to a halt and be back where we began.
Iain Mallon: When the IFA is sitting in front of the customer and when they have a middle-aged client that might be a higher risk, they think: "I'll put them through teleunderwriting." When they see someone who is younger, fitter and lower risk they would say: "I'll put them through straightthrough processing." IFAs are quite capable of selecting a more suitable process and we should develop that with them.
Emma Thomson: There are lots of different models through which you can submit business. Even though we want our clients to submit information in one particular way, if they do not feel they have enough information on their medical history, we will try as much as possible to get that information from them, but some will say: "write to my doctor." We always try to avoid having to do that where possible. We find it very frustrating when we submit business online and it then falls into the paper process because then we are back at square one with half-completed application forms. Provider turn around times is a big factor that we take into consideration and I do tell advisers: "Do not recommend that provider unless the customer is perfectly happy to wait X number of days."
Angela Faherty: Where is the problem in underwriting? We have discussed that IFAs and providers are doing their best, but there is a shortfall.
Iain Mallon: We fall short in actually forgetting our end customers. Who is influencing this application form? There are all of the reinsurers, all of the life companies, the Government, Government bodies, the Association of British Insurers, the Financial Services Authority, the Financial Ombudsman Service and this list goes on forever. This is why we are here, to work together to reach a solution. We are pushing tele-underwriting or electronic processing when there is no short-term solution. We need a long-term solution to the problem of application forms.
Andrew Howe: Providers make the connection that if they cut their rates, they raise their volume and boost their profits. If that strategy is not good for advisers, the message needs to come back loud and clear.
Peter Le Beau: The underwriters that we are developing now are much more like business people than the underwriters of years ago. If you look at reinsurers, most of their marketing people used to be underwriters because there was no career progression in underwriting. So we've got a lost generation of underwriters with the only young underwriters being developed in the reinsurance companies. We need to be developing a new breed of underwriters who are far more business orientated and have to balance selection issues with processing and responses.
Jason King: The companies that are doing it right are putting underwriting at the front of the process to actually assess the application at a very early stage and make a decision on it rather than at the end of the process.
Peter Le Beau: Back in the 1970s, underwriters sat on the board of companies. If a case was declined it used to have to go to the board and it was a major issue. These underwriters would spent a lot of time studying cases. What the industry was better at then was big and exceptional cases. Now they are very good at dealing with easy cases but we have to find a way of being better at looking at difficult cases.
Graham Spittles: The structure of how underwriters process policies has changed dramatically in the last five years. Underwriters seem to have moved away from the day-today processes and now have targets of 30 or 40 cases a day and they have to hit those targets. That has taken away the investment in underwriters for the long-term future and we have seen the reinsurers move away from the support services they used to offer 10 years ago. But the fundamental issues for underwriters have not changed. For me, the most important underwriting decision that is ever made is the one made on day one – whether or not to get supporting evidence. You have to make the right decision.
Jason King: Advisers are selecting the companies they will recommend to their clients based on how well the case will be underwritten and what kind of premium is going to come out at the other end. We see a lot of cases that seem to be referred because of body mass index issues, so should we now be asking clients about their height and weight?
Angela Faherty: Where are we at the moment with non-disclosure?
Graham Spittles: As far as insurance is concerned there is not much we can do regarding non-disclosure. It is with applicants over-45 that we have the biggest non-disclosure problems. If you've got a 10- year term assurance policy for a 35-year old you can get that done in two or three lifestyle questions. The public's biggest concern regarding insurance is that their claim will not be paid, and the only way that a claim will be refused, other than stopping paying your premiums, is non-disclosure.
Matt Rann: In the market we have automated non-disclosure recording to identify cases by IFA. We have had horrendous non-disclosure problems with particular IFAs and it is a real problem that is very difficult to deal with. Historically, paper applications have been a problem but tele-underwriting has been a great help on the non-disclosure side.
Graham Spittles: Some statistics show that the number of total and permanent disability claims that are turned down is over 50%. This suggests to me that there is an issue, whether that be with the sale or the client not understanding what they have bought.
Peter Hamilton: Non-disclosure has always been a problem but what matters is developing a way of tackling it by warning customers in a much better way than we have before. So for example, when customers receive our initial documentation we also send out a confirmation schedule that says: "This is what you told us, this is what we are basing our decision on and you have to tell us if this is wrong." We get these back and in some cases there has been a significant non-disclosure, but on the whole customers do want to disclose.
Jason King: Advisers need to take responsibility for their share of the risk of non-disclosure when advising clients, if only to avoid a decision from the Ombudsman going against them. Providers also have a part to play and they could start by rewarding IFAs based on the quality of their disclosure.
Iain Mallon: Why do IFAs not have the option to ask life offices what their service standards are?
Peter Hamilton: Although periodically Lifesearch has published comparative service standards, we do not release our own standards as we know we might not always deliver on those. That presents us with a challenge because clearly we know our own service standards and are committed to meeting those, but we have little idea what other companies are necessarily doing, so we have to raise our game.
Peter Le Beau: You have got to ask point of sale questions that customers can reasonably be expected to answer in front of their partner. You really have an issue if you go too deep into peoples' lives and you have to think about whether tele-underwriting is easier than doing it in front of their partner. I have heard that reinsurers take a very draconian view on material non-disclosure. If a smoker secured non-smoker rates and then died and it was discovered that they were a smoker you would reduce the sum assured. The Ombudsman told me of a case where the reinsurer refused to pay the claim. There is this issue of whether your policy can be relied upon and this is an important issue, particularly when customers take cases to the Ombudsman.
Angela Faherty: When are we going to start seeing the benefits of tele-underwriting in terms of tackling the problems that are troubling the industry?
Iain Mallon: We are seeing investment in intelligent systems and putting bespoke underwriting systems into place, but we have to note that there are different levels of tele-underwriting out there. One thing that I am concerned about is that providers are investing large sums of money in teleunderwriting and then end up having their policy results tainted by not having a fully functioning system. They end up using this service to collect information rather than for underwriting.
Nicolette Bray: I think there is confusion across the whole of the industry about the understanding of what tele-underwriting is. It varies from your data capture at the front end to data capture with an expert system, to the back end with tele-underwriting and reduced GP reports. We hear from IFAs that they would like tele-underwriting because it reduces the need for GP reports, but the front end tele-underwriting may not do that. In some circumstances you are generating so much disclosure that the need for medical evidence increases because they are telling you too much.
Iain Mallon: That is not our experience. We have experienced increased levels of disclosure and had to ask for less medical evidence as a result.
Andrew Howe: There are several providers who have adopted tele-underwriting and they are getting consistent results. There are challenges ahead and there is still work to be done, but teleunderwriting does appear to be the way forward.
Emma Thomson: When it comes to tele-underwriting we have to trust that when we pass our clients over to a provider they will not only deliver the same standard of service that we deliver ourselves but also live up to what we have been promised.
Iain Mallon: We have done a lot of research into the subject and about 12% of people said they would use tele-underwriting so we have ensured that we have a capacity of about 20%-30%. What we have done is controlled our distribution channels. We can either penalise the consumer, which is incorrect, or we can actually manage our capacity.
Andrew Howe: Is the industry forming a judgement that teleunderwriting is the best way forward?
Iain Mallon: This is definitely the best way forward. Teleunderwriting is part of the mix, it is not the one big solution and we should not put it on a pedestal only for it to be knocked off.
Peter Le Beau: It is part of the bigger picture along with straight-through processing. It is half the solution.
Peter Hamilton: There is a danger that tele-underwriting has been built up, and if it is built up, then the industry will get swamped. We will be back where we were two years ago with a terrible perception of service delivery and we will be looking for a new solution.
Nicolette Bray: Tele-underwriting will take us so far but we still have a theoretical black hole where we are requiring reports from GPs. There is a lot of work ongoing, looking at the development of a national care record with the NHS and more GPs are becoming automated using clinical computing systems. That makes it easier for GPs to supply us with information that at the moment may take 21 days to reach us.
Emma Thomson: We can have applications that are up to a year old because of investigations and doctors taking ages with their reports. If you get a GP report back you know that the client will receive a rating but you do not know how much. It will at least be £100 but you need the medical information to know if it will go up to £200. At that stage I would love for underwriters to come to us and say: "The cost is already £100 – is the client expecting that? Do you want to proceed?" Some underwriters do not want to tell us that, but then we could go to the client and say: "Are you OK to continue?" If they are, that is brilliant. If they are not, then you are not wasting your time and money on the GP report.
Angela Faherty: What can be done to boost the number of underwriters in the industry?
Emma Thomson: Should we not be asking what can be done to decrease the number of underwriters that are leaving the industry? Mann Rann: What we need to do is put underwriters where they are really most valuable, and that is in interpreting complex medical evidence.
Iain Mallon: We have invested in an underwriting academy so we are actually bringing people through. The average age of our underwriters is about 30 so there is new blood coming in.
Jason King: It is all very good to be increasing the number of underwriters but we also need to be focusing on the effectiveness and quality of those underwriters. That is the key issue rather than where they work.
Matt Rann: There is a big training issue for intermediaries in the market to actually learn a bit more about underwriting. We have been trying to do this for the last five years, but really, I'm not sure if we have done that well. I do not think IFAs can just comply, they have to have some ownership of cases as well.
Iain Mallon: We are at the start of a journey, through underwriters, tele-underwriting and e-commerce we are getting a mix together that will result in a much more efficient industry.
Angela Faherty: Any other closing remarks?
Iain Mallon: While we are seeing lots of new processes, we are also seeing new risks as well, such as the rise of outsourcing the front end of the business to other countries. Tele-underwriting is a complex business and should be a UKbased operation rather than farming out to other countries.
Graham Spittles: Today the protection market and the underwriting process is at a crossroads and we will need to carry out a whole review of our processes and how underwriters put business on the books.
Peter Hamilton: There is more attention on the market now than ever before. There has been a wealth of intellectual capital being invested in ways to improve processes and I do think we have moved on.
