Digitizing Life Insurance New Business with Technology and Tools
In February Celent published its second report using data from a 2016 New Business Benchmarking Survey. The first report compared data based on the average face value of products sold by the participating insurers. The second report presented the same benchmarking data but considered technology as the main focus. It compared the overall averages for a set of key metrics with the averages for high and low technology users throughout the new business process. The findings from the report were not surprising; except for the fact that we had to acknowledge that technology in the new business is still slow to take hold.
We found that electronic application use is on the rise. Just less than one half of all applications by the participating insurers were submitted electronically. The insurers that sold moderate face value policies were more apt to use electronic applications than insurers that sell high face value policies. That makes complete sense since most insurers begin their eApplication journey with less complex products like term or whole life. Celent believes that all insurers can achieve benefits from eApplications. Less than half the insurers in the study Insurer reported having an eApplication, and those with captive insurers submitted a larger percent of their new business via eApps. Direct to consumer as a channel was reported by four of the insurers and they received 20% of their applications from e-apps targeted to consumers.
Data quality is a critical issue that strongly impacts unit costs. As a group, the insurers that participated in this study estimated that 69% of all paper applications received were not in good order (NIGO). For those that implemented eApps and have a technology heavy new business process the NIGO rate fell to 5%.
We also found that imaging systems were ubiquitous. Ninety-eight percent of paper applications were imaged. Imaging was also used for the underwriting requirements that are received in paper. Workflow systems were also very common. But as the process moved closer the underwriting evaluation the level of automation began to drop off. Seventy percent of the participating insurers could automatically order and receive underwriting requirements; however, this happened for less than a quarter of the applications. Since most third party providers of underwriting evidence can provide data in digital formats, this Celent recommends this as an area for future investment by insurers. Further down the line shows that technology is not king in the underwriting departments yet. Automated application evaluation, underwriting/case management workbenches, and electronic signatures were used by over half of the insurers in the study; however, less than 40% of all applications were managed on a workbench. Even fewer were processed by an underwriting system, and only 12% included electronic signatures. Electronic policy delivery, new in the 2016 survey, occurred for 4% of all applications.
When an insurer is fully automated in the NBUW process, benefits can be seen in cost and time metrics. For insurers that implemented technology throughout their new business process the unit cost per application dropped from US$312 to US$237, and unit cost per policy issued fell from US$440 to US$329. The average cycle time fell from 38 days to 17 days for the insurers that implemented a full suite of new business and underwriting technology into their process.
The highest-level conclusion that can be drawn from this new business benchmarking data is that even among top-tier insurers, there are significant differences in new business performance, particularly when technology is considered. Creating performance measures such as unit cost, percentage of new submissions “in good order,” and cycle time is essential. Monitoring those measures against a peer group will be an eye-opening experience for insurers that do not do it today. While direct comparisons between insurers are difficult due to product and channel differences, this study and our previous one suggest there is a strong relationship between face amount and unit cost. It also suggests that technology can have an impact on costs and cycle times when it is implemented across the process or even in just parts. Insurers are urged to analyze their own performance, starting with metrics such as unit cost per application received, unit cost per policy issued, and percentage of cases received not in good order.
The notion that life insurance underwriting is more art than science (and thus exempt from automation) is misleading at best. It is true that the subtleties in underwriting present unique challenges for technology. But underwriting is a process like many others in that it requires certain data as input, and there are rules that govern both the process flow and the decisions that result from it. Following basic principles of getting clean data and automating wherever possible will help insurers do their jobs more cheaply and more effectively.
Process improvement strategies should focus on implementing electronic applications, automating the receipt of third party underwriting evidence, and automating underwriting decisions. The order depends on the distribution strategy and change management processes in place to maximize the benefit. Few insurers have maximized the potential value of new business automation, but the findings in this report show the time savings and cost reduction potential of implementing technology across the new business process flow.