Tele-underwriting has swiftly been embraced in the protection and health insurance industries, but, as Andrew Gething tells Paul Robertson, there is a way to go. Not least a greater degree of adviser interaction.
The growth of tele-underwriting has arguably been one of the most revolutionary changes in financial services over the last few years, yet because of its back room, systems-based, nature it has been taken for granted.
While some providers have developed this function in-house, notably Axa, which carried out a long-term project on the use of tele-underwriting, there are only a few outsourcing firms involved at the cutting edge.
Morgan Ash, is one of the pioneers within the UK and Europe, and remains one of the only two players of any influence in the UK Tele-interviewing outsourcing market. The firm, along with rival Medicals Direct, deals with brokers, life and health firms across the industry. Yet, for all its success, Tele-interviewing was not invented in the UK but in the USA.
Andrew Gething, managing director of Morgan Ash, explains: "It didn't progress massively over there though. Then we started about five years ago, and opened a German office in 2008. That market is now starting to move, and the same can be said of Spain."
So why did tele-underwriting take off here? Gething gives the credit to the reinsurers. "The reinsurers are starting to play an active role, they are very much pro tele-underwriting, which is lending the concept an international aspect. I'm told that there is quite a lot happening in South America as well. We have had people in the office from Australia, South Africa and Japan, all looking at what we do. Britain is leading."
Understanding Mortality Risks
The overriding issue for the reinsurers is that interviews provide better information, giving a better understanding of mortality risks. The reinsurers are able to change their pricing if they can understand their risk better. While this seems to be the reinsurers core reasoning, they are also keen to be partners in this movement.
"We partner with a lot of reinsurers in some shape or form. In some countries this has become a little more formalised - in Germany Gen Re opened its own service, not very successfully. In addition Scor has announced a tele operation which will start in Spain, as a global operation," says Gething.
The question is, do reinsurers provide service to providers as well as reinsurance? Gething notes that they already do: "In the UK they just provide reinsurance, but in other territories they provide lots of services, including underwriting. Reinsurers are perfectly positioned to open as insurers in various territories but they need to consider if it is core for them or not, and are they any good at it. In most cases it is outside their core competence."
Tactical Moves
Of course, the growth of tele-underwriting has not been a completely linear one, and barriers remain to its roll out across the industry. In the beginning many providers began with ‘small T'; follow up phone calls when more information was required. According to Gething this was a tactical move, not designed to aid sales.
"It is a case of ‘can I get information quicker and cheaper than a GP report (GPR)?' The answer is yes, and it saves time and money. The real move is to ‘big T' which is about making sales easier and about making customer service easier.
"To do that, you need the reinsurer, the underwriting department, and the sales department all in a line. We have been most successful in the direct sales offices of providers where production and sales are in the same office and the benefit can be assessed across the two. The same goes for banks. There is still some hesitance in the broker channel though," says Gething.
Gething believes there is still a long way to go: "We will see some online systems direct to public but the proportion sold through paper should massively reduce, leaving online sales or tele-interviewing. At the moment online sales and tele-underwriting are seen as separate, and they need to come together."
However, there is a problem: "Paper has already massively reduced and I would guess is below 20% now. But the trend has been from paper to online, and the systems for that are not very tele friendly. So there is a conflict at the moment, between online and tele. It is a headache for the people who built those systems - hence it is easier to outsource it. I see tele-interviewing doing at least half of the business in the next few years. In the end big T, small T and online will all merge and be tailored to the individual."
Despite the noted hesitance, Morgan Ash expects to be interacting more with the advisory chain. "I very much see us working with brokers in a big way in the future," says Gething.
"These would be any size broker. It would even be worth our while working with a two-man band. The point is, this service is really motivated by sales, most of our work over the past couple of years has been with provider's sales departments. One may be a sales department in a provider and the other a broker but the motivation is the same. It is all about improving service and speeding the process up."
Muddying The Waters
Gething concedes the point that Morgan Ash is equally poised to become an adviser itself, and does not rule this out in future. "Our core competence is getting medical information, having said that, I think we will at some point do some sales, but this would be on request. We are growing pretty quickly at the moment and I wouldn't want that to muddy the water. There is still a lot to improve in the area of just collecting medical information, speed, quality, service and making the whole thing more personal."
Traditionally there has been one process and one application form for everyone, and at the moment most interviews follow this pattern. Gething expects this to change, with interviews targeting the individual. To keep it in perspective the amount of people being interviewed at the moment is about 10%. Unfortunately we struggle as an industry in trying to put a cost/benefit on service, we always struggle to put numbers on service," says Gething.
When it comes to service, a good illustration is the industry's attitude to impaired lives. It is here that the potential for individual underwriting is thrown into relief.
From an interview point of view impaired lives are a longer underwriting process, but few would deny that if you can get someone on risk who otherwise would not be put on risk can only be a good thing.
The problem is, as ever, money. Gething says: "It is easier to say we will only spend a tenth of the time getting someone who is clean and healthy on. If firms were really trying to cover those who needed that cover then they would be targeting these people, and charging them appropriately.
"There needs to be a change to the present system of impaired lives and ordinary rates. We need to just charge people an appropriate amount for their risk, just as we do in all other types of insurance, which is effectively individually priced. This would mean a change in the way the industry sells, where we say a standard price and then get back with a rating. The point is that the present system is fine for the clean and healthy, but as soon as you are impaired it becomes a mess."
Gething believes that we will in time interview nearly everyone. "It is hard to say when though. We are held back a little by budget constraints and it's fair to say that there is a reluctance to change in general in the industry. But impaired lives could to an extent also be handled online.
There are two aspects, the cost/benefit sums and to me the bigger gain, the empathy you show to your customers."
To date, the use of GPRs has dropped at least 50% for most of Morgan Ash's customers, yet Gething admits to a long way to go. "We will never eliminate GPRs but we can further reduce them. We have done the easy bit and now we really need to get the data over several years and prove to the reinsurers that we are reducing the risk. Obviously this process will take several years.
"We will look back in years to come and ask why we ever had financial people collecting medical information. We are insuring people against their medical risk, although it is a financial product. We do all the compliance on the financial side but there is no compliance or checking on the medical side and that is the bit that is the problem on why we are having people not being paid out. It's barking really."
He has a point.
