Accelerated underwriting trends:
A Canadian market perspective

Accelerated underwriting (AUW) is a program where traditional life insurance underwriting requirements are not required for a subset of applicants that meet favourable risk requirements in an otherwise fully underwritten process. However, even within that definition, the implementation of AUW can vary from one insurer to the next. For instance:

• Insurers may use different types of underwriting analytics—ranging from smoker propensity to BMI misrepresentation models—alongside more traditional underwriting rules.
• Typically, if an applicant successfully “passes” the models, a policy can be issued on a fluidless (“No Fluid”) basis without the need for a paramedical. However, some insurers also layer on the use of attending physician statements (APS) to mitigate the impact of the foregone fluids and vitals.
  • If the underwriting models flag a concern, then the applicant is targeted for additional underwriting requirements, reverting back to a more traditional full underwriting approach.
  • Applicants can also be randomly selected, or “held out”, for additional underwriting requirements. This allows insurers to measure the performance of their AUW programs.

Regardless of the varying nuances of how AUW is implemented, the goal remains consistent across insurers: reduce the level of cumbersome evidence collected to improve the process for the customer, advisor, and insurer.

For consistency, this article will adhere to the Munich Re definition of AUW: face amounts and issue ages that are eligible for No Fluid, that use underwriting analytics, and that employ a holdout program.  

AUW programs are a growing practice in Canada, with the 2020 pandemic propelling their development. In 2017, only one Canadian insurer offered an AUW program. By 2023, this increased to 10 insurers, with additional companies looking to develop their own programs in the future. For customers, the growing availability of AUW programs has resulted in clear improvements by providing a faster, less invasive buying experience for the majority of life insurance applicants.

For insurers, the implementation of AUW programs has enabled companies to extend improved buying experiences to more customers through higher No Fluid limits. As shown in Figure 1, AUW programs have allowed insurers to increase the maximum No Fluid limit at issue age 45 from $1,000,000 in 2017 to $5,000,000 in 2023, with a corresponding increase in the Individual Life No Fluid percentage by face amount from 29% to 54% over the same years. 

The increase in No Fluid percentage over these same years is also reflected in a decrease in placement time for Individual Life, Fully Underwritten applications, as shown in Figure 2. This increase is not without risks, however. For example, one ever-present concern when liberalizing underwriting requirements is the risk of anti-selection, i.e., when applicants or advisors apply for insurance with additional knowledge about their own health and lifestyle, knowing that fluids will likely not be collected.

However, Figure 2 also shows that placement breakdowns—including placement rates, applications placed standard, applications declined/postponed, and wastage—have remained steady despite the removal of fluids for the majority of policies. This is one possible indication that the risk mitigants introduced by insurers have been effective at identifying the right risks.

Risk mitigants for insurers can take a variety of forms. For instance, advances in computing technology and artificial intelligence have propelled the development of underwriting analytics for insurance. Insurers are increasingly incorporating predictive models in their underwriting processes, whether for triage or decisioning. In Canada, this mainly consists of misrepresentation models, which identify applicants misrepresenting disclosures that would otherwise result in a material difference in underwriting outcome. Smoker and body mass index (BMI) misrepresentation models are currently the most common form of underwriting analytics across AUW programs in Canada; all insurers with AUW programs either have at least one of these models already, or are looking to add more models to strengthen their AUW capabilities.

The implementation of underwriting analytics has also allowed insurers to introduce holdouts to their AUW programs. Holdouts are cases in the No Fluid underwriting workflow that are selected for additional requirements, which could include some combination of fluids, vitals, and/or non-routine APS:

• Random holdouts (RHOs) are selected randomly or chronologically and can be used by insurers to understand the impact of their AUW program on their underwriting decisions.
• Targeted holdouts (THOs) are selected by underwriting analytics and allow insurers to liberalize underwriting requirements while still enforcing additional scrutiny where warranted.

Insurers use one or both types of holdouts to enhance their risk monitoring and risk selection capabilities. In Canada, holdouts are most commonly implemented for face amounts over $500,000, at levels of approximately 10% of policies submitted for RHOs, and 14% for THOs.

Figure 3 shows that Munich Re’s Individual Insurance Survey participants have significantly increased their usage of underwriting analytics and holdouts over the last five years. Insurers are continually refining and enhancing their AUW program holdout levels to increase confidence in their accelerated decisions, while balancing customer and advisor experiences.