The global COVID-19 pandemic created the urgent need for life insurance companies to quickly adjust to government mandates for social distancing and stay-at-home measures. Companies pivoted to manage applicants refusing to allow examiners into their homes, paramed examiners fearful to travel due to Covid, and agents pressuring direct companies to issue policies without completed paramed examinations. Companies not already working in the modern era of accelerated underwriting (AUW) were finally being forced to join (or at least consider) the new paradigm of fluidless underwriting.

The pandemic also highlighted the known coverage gap, demonstrating the need for American households to purchase life insurance.^1,2 Prior to COVID-19, the Life Insurance and Marketing Research Association (LIMRA) statistics showed 46% of American adults do not own life insurance, and of those who do, many are underinsured.^3,2 Approximately 48% of U.S. households are at financial risk if their primary wage earner dies unexpectedly due to an average life insurance coverage gap of $200,000 U.S. dollars, which amounts to more than $12 trillion in total market need.¹ Particularly concerning is that only 34% of millennials own individual life insurance policies.²

Although the COVID-19 pandemic brought the need for life insurance to the forefront, it concurrently increased the potential for anti-selection for the life insurance industry. Existing applications contained no questions specifically related to Covid exposure or diagnosis; thus, if permitted, carriers began adding questions to address this new risk.⁴ Both direct companies and reinsurers suddenly needed to balance the risk of COVID-19 related anti-selection with the push to approve applications without fluids at even higher face amounts than normally used in the accelerated underwriting process. 

Why the Coverage Gap Exists

The life insurance coverage gap is multifaceted in causation. A lack of consumer knowledge and understanding prefaces an unsavory, timely process, ultimately resulting in inadequate coverage. Additionally, many Americans rely upon group life insurance coverage through work to cover their needs, but the pandemic has left millions unemployed and without the coverage they thought would protect their families.

Historically, the life insurance buying process has not been a consumer-friendly experience.² Applicants suffered through blood draws, provided urine specimens, and answered sensitive medical questions asked by a stranger. Underwriting often takes weeks to months, leading to lost business due to incomplete underwriting, equating to lost premium and revenue.

Inaccurate public perception also creates the coverage gap.^1,8 Research has shown there is a public perception that life insurance premiums are cost prohibitive and are much higher than the actual cost.⁸ Consumers overestimate the cost of life insurance coverage up to 300% of actual premiums.^3,1

Addressing this inaccurate perception has been challenging even from a grassroots sale perspective. Agency-based, traditional sellers of life insurance are reduced as newer generations demonstrate less interest in brick and mortar business, opting for use of technology through the internet to sale financial products.^5,9,10 However, the use of social media to gather information on financial topics has substantially increased and presents an opportunity for the life insurance industry to educate consumers.¹ Continued use of computer technology has fueled the Direct-To-Consumer (DTC or D2C) trend as it continues to accelerate in recent years since younger consumers prefer low-touch, faster gratification experiences (such as the Amazon sales experience) instead of the traditional insurance agent customer transaction.^10,1,2

How AUW Can Change the Coverage Gap

Increased consumer comfort with online financial transactions and availability of technology support the shift in how the American public is purchasing life insurance. According to LIMRA research, about half (47%) of American consumers find accelerated or simplified underwriting more appealing than traditional underwriting.⁸ Less than half of people surveyed stated they preferred to use an agent, which is the traditional method of purchasing life insurance. The specific preference for online purchasing also doubled to 29% from 2011 to 2020. During the beginning of the COVID-19 pandemic, LIMRA research showed an increase in online applications as well, which mirrors the new public desire to purchase life insurance using simplified underwriting.¹  

The new underwriting paradigm of accelerated underwriting utilizes more efficient, less expensive, and more convenient methods that provided similar protective value. Similar to motor vehicle records, financial and prescription database checks are used in conjunction with predictive modeling.

Accelerated underwriting offers an improved consumer experience in several ways.

• Convenient: Digital applications are done at the time of the applicant’s choice, day or night.
• Timely: Real-time risk assessment provides the applicant a decision within minutes.
• Elimination of invasive testing (e.g., no blood draws).

AUW enhances the underwriting process for insurance companies in various ways as well. Companies can benefit from:

• Reduced underwriting acquisition costs on underwriting requirements: Database checks are less expensive than traditional underwriting requirements such as paramed exams, fluid testing and medical records.
• Improved turnaround time (TAT): Quick decisioning greatly reduces the typically long (30 days or more) underwriting cycle.
• Decreased acquisition costs: New preferred distribution methods like DTC result in lower acquisition costs since agent sales commissions are reduced. Companies should consider the cost of paying digital distributors as well as budgeting for DTC marketing costs.
• Lower employee costs: Although an initial investment is required to set up an AUW process, larger volumes of applications can be processed without human intervention. Underwriters can then focus their skills on more complicated financial and medical applications.

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