Last Updated 5/27/2021
Issue: Underwriting in insurance is the process an insurer uses to examine risks and determine the appropriate rate for coverage provided. Life underwriters examine all the data gathered in the application process to classify and group the risk in order to charge accurate premiums. Historically, this application data included a physical exam with doctor’s notes, blood work, and urine analysis. As consumers increasingly expect on-demand digital services, some insurers are using accelerated underwriting (AU) techniques to forgo a physical exam and supplement the application process with data from external sources along with new analytics and modeling techniques. The result is a reduction in the application process from several weeks to just hours.
Background: Traditional life insurance underwriting requires the collection of extensive medical information including a physical exam and fluids (blood, urine, and saliva). From the beginning of the application process to issuance of a policy can take up to a few months. Some insurers also use simplified underwriting techniques which allows an applicant to forgo the medical exam and collection of fluids in exchange for generally higher premiums.
Insurers have found the traditional underwriting process to be an obstacle to purchase for consumers shopping for life insurance, in large part due to the physical exam and long application time. In response, the industry has begun to develop and implement AU techniques that forgo the physical exam and incorporate data, like prescription drug history and motor vehicle records, from external sources to process applications in a matter of hours. Aside from reducing the application time, the use of these techniques offer benefits to both insurers and consumers including increasing sales, reducing administrative costs, and reducing fraud.
Besides the information provided on the application, the data for AU techniques come from a number of different sources including credit reports, motor vehicle records, and the Medical Information Bureau. Then predictive analytics tools are used to segment and price the applicant’s risk. However, AU alone does not always lead to issuance of a policy. For some applicants, the available data will be insufficient to adequately evaluate their risk profile, so they will still need to complete the traditional underwriting process including a physical exam.
Status: According to LIMRA, nearly 90% of life insurers are currently using or are planning to use automated underwriting techniques. As analytics tools and techniques continue to mature and quality consumer data becomes increasingly available, AU use is expected to grow and improve but likely will not replace traditional underwriting in the foreseeable future.
The Accelerated Underwriting (A) Working Group is charged with considering the use of external data and data analytics in accelerated life underwriting. At the Summer 2020 National Meeting, the Working Group provided an update from the information gathering phase of the project.The group is currently working on draft guidance for states in evaluating life insurers' use of AU and external data. An initial draft of the report was exposed for a comment period ending May 28, 2021. The group is planning for a completed report later this year.
The Big Data (EX) Working Group is charged to review insurers’ use of consumer and non-insurance data in all areas including underwriting and to develop guidance, if appropriate, for the regulation of data vendors and brokers.
Committees Active on This Topic
Data and Innovation Resource Collection
NAIC Research Library
Ethical Algorithm Design Should Guide Technology Regulation January 2020, Brookings Institute
Insurance Circular Letter on Use of External Data in Life Insurance Underwriting January 2019, New York Department of Financial Services
Use of Data for Underwriting of Life Insurance Products August 2018, LIMRA
The What and Why of Accelerated Underwriting February 2018, ACLI