Anyone wanting to take out life or disability insurance needs to have both time and patience. That’s because every applicant, whether with or without a pre-existing condition, currently faces up to 25 health questions. This makes acquiring new business more difficult. Smart underwriting from Munich Re should now ease the situation, explains Thomas Geißler, Head of Section Underwriting Life International.
A reduced number of health questions is becoming an increasingly important competitiveness factor – especially in disability insurance. What’s behind this trend and what does it mean for insurers’ risk management?
Thomas Geißler: In our digitalised world, fewer and fewer people are prepared to invest a lot of time in buying insurance. Providers are responding to this and, after engaging in intense competition on products, prices and conditions, are now competing to have the fewest application questions. For risk management, however, these are essential. You see, life and disability insurances only work as products if there is a balance of information between the provider and the client. As insurers, we must create this balance by, amongst other things, determining the applicant’s state of health – as precisely and with as much legal certainty as possible – by means of clear and fully-documented questions in text form. Otherwise, practice shows that providers encourage anti-selective behaviour and bring high risks into their portfolios.
With its new smart underwriting approach, Munich Re is nevertheless now jumping on the bandwagon and is reducing its total of up to 25 medical application questions to just four basic questions and two supplementary questions. Why’s that, and with what claim to risk quality?
The question why is quickly answered: as risk and development partners, we support our clients by strengthening their competitive position – for example through innovations like smart underwriting. This new approach manages with only 4 plus 2 health questions, without affecting risk quality! That’s our claim, and to this end we have worked for several years to develop and thoroughly test a new questioning technique. The result: smart underwriting in the form of a set of questions individually tailored to the insurer, the product and the sales channel. This speeds up the application process without having an anti-selective effect.
Are the 4 + 2 questions developed anew for each insurer and each product?
The four basic questions always cover the same aspects: Is the applicant taking any medication? Have they been hospitalised during the period enquired about? Have they received any outpatient treatment, and do they have any chronic illnesses? The way these questions are formulated may differ, however, depending on the insurer, target group, sales channel and application process. The at least two supplementary questions are then totally individual. We devise these only after thorough analysis of the relevant application and claims history, in close collaboration with experts on the insurance side, in order to optimally tailor the smart underwriting to the respective requirements.
How can the insurer and you be sure that an individually developed set of questions will also actually work in practice?
This requires very close monitoring, which is why we have specially developed for our clients a tool for monitoring smart underwriting results. Depending on the degree of digitalisation and data organisation at the insurer, real-time analyses of the current situation are thus possible, thereby allowing undesirable developments to be identified and eliminated early on.
But I’m right in saying that digitalisation and algorithms are not necessarily an integral part of smart underwriting?
Yes, that’s right. Smart underwriting is like a filter that can massively speed up the application process. With intelligent pre-selection, this also works with manual processes, but the effect is heightened with increasing automation of the process landscape and dynamic questions at the point of sale. We offer solutions for every environment and support clients with integration.
Just to make it clear then, automated underwriting and smart underwriting are two independent approaches?
Ideally, both approaches are intermeshed and complement each other. Smart underwriting would be the start. After only 4 + 2 questions, the risk assessment for some applicants would already be complete. For the other applicants who answered “yes” to one or more questions, the process would continue automatically – with dynamically generated, more probing questions based on a set of rules. The advantage? Previously, automated underwriting has displayed the classic health questions one by one and gone through all the groups of organs. In combination with smart underwriting, in future only dynamically generated, more probing questions will be asked about the relevant groups of organs. This will speed up the process and further reduce the effort and expense involved in risk assessment.
When and for which sales channels will smart underwriting be used in practice?
We already have initial experience in pre-selected business – particularly in the areas of portfolio campaigns, sales through banks, and group business. Furthermore, with the insights gained from this phase, it’s quite conceivable that we could in the medium term also offer smart underwriting solutions for sales through brokers and general agents, as well as for online sales. Demand and pressure in the market are likely to continue rising. We will therefore support our clients all the more as partners in all disciplines – from underwriting, claims, pricing and digitalisation, all the way to data analytics.
