Why is Life insurance so expensive — to process?
Thoughts on the underwriting costs
One of the benefits of being part of Celent is getting a view into the insurers that we support. Recently, Karen Monks and I published a report Upping the Bar: Key Metrics in Life New Business and Underwriting . This is a refresh of reports we did in 2016 and 2017. The goal of this blog is not to recap the entire report for you. That's what the report is for!
I wanted to focus on one area: cost. The report focuses on other areas such as staffing and cycle time, and has many insights. We sliced and diced the data from multiple perspectives. But let's look at costs. First, the cost allocations.
In the report, we look at two classes of insurers. The first group focuses on higher face amounts, while the larger group focuses on more modest face amounts. What I find fascinating is that the companies that sell larger policies generally have higher new business and underwriting costs. Inherently, this makes sense. Larger policies are generally older insureds, and the underwriting is more complex.
But as you can see, it is not always the case. The two most expensive insurers sell more modest policies. The most expensive company spends over $2,500 per policy issued. Now every chart has outliers, but this seems pretty extreme. At the lower end, you see the benefit of smaller simplified issue policies.
The costs categorized here include staffing costs, including the mail room, case managers, underwriters, and management. They also include the costs for gathering the underwriting requirements. These two items dominate the cost structure.
Let's drill down a little more.