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Recently, I was asked to share thoughts on life insurance underwriting in the future, with an eye toward what I’d do if I could start planning now for something to be used by mid-decade. It is a big and interesting question, given the critical nature that the function plays in all lines of business, compounded by the issues created when a product set is blessed with an impressively long liability tail. Since repricing on renewal isn’t an option for many of these products, and that underwriting for the moment remains a “once and done” effort, getting it right the first time is critical.
One of the other challenges, however, ties to demographics. Like many other key functions, the current population of experienced underwriters is aging. For many carriers, their distributors are as well, with the average age of an agent now cresting 62. While that isn’t old by any means, as an average it is stunningly high. Industry data also shows that most life insurance companies have failed to develop effective strategies for selling products and services to anyone born after 1975, the mid-point of Gen-X, and they themselves will hit the half-century mark during the current planning cycle. Product design and distribution have their own issues of course, but if we turn back to underwriting, here what I’d consider important from a classic People, Process, Technology perspective.
- People
- An acquisition program for the next generation of talent is critical. With underwriters aging an immediate question becomes “where does the next generation come from”.
- An effective training and development program is also critical. This becomes even trickier than in the past since automation means that many lower level/entry positions that have historically been used as training grounds are gone since those were the easiest things to automate for short term cost savings.New programs will need to be implemented and continuously updated to deal with the ongoing surge of technological capabilities and process changes.
- Knowledge management is key to supporting what happens with people of course, and sharing things across generations becomes even more important given the changing views that people have of their career paths. Tours of duty for Millennials and Gen-Z measure more in the 3-4 year range in many vocations, rather than the 30-40 years that were a fixture of earlier generations.
- This is an area that many companies have long supported with remote work, well before COVID became an unexpected reality. This will continue to be the case, of course, but collaboration between home office and field partners will be critical with new generation employed on both sides of the wire.Perfecting this will be key to future success.
- Culturally, as more is automated, the whole question of “is it art or science” will again emerge. A company will need to answer the question and have an effective change management process in place lest it create passive aggressive resistance to change.
- Process
- Tooling which supports automation is of course at the foundation here. Creating the process of the future will require some notable rethinking of efforts. Imagining a future that is different than just using technology to make bad process go faster will be key.
- Processes will need to be flexible in the future to accommodate an array of changes, as data sources change, algorithms improve, and regulators come to grips with what is allowable.And what is not. The State variations may be significant in the future too, suggesting additional needs to be able to apply flexibility to process, even while managing it carefully to avoid regulatory trip wires.
- Speed will of course be important, but perhaps even more important than absolute speed (one an acceptable throughput level is reached) will be operational transparency. Black box processes are simply a bad idea going forward. This is something that can be easily addressed when people understand what it is.It is at the foundation of what many think about when the describe an Amazon-like process.
- Testing and compliance will be important too. There are significant risks and dangers that in pursuit of automation, speed, and improved profitability, unintended bias will be introduced into the process. Concerns about this in Group insurance are already clear, where plan sponsors increasingly ask carriers to “prove” that there’s no bias in what they do from a pricing and UW standpoint. Carriers should consider how they will react when regulators ask similar questions.
- Carriers should be mindful of how all this ties to field operations. As carriers move toward third-party distribution, they will lose control of some of the process elements they hold near and dear. How they consider an outside looking in perspective, and support field relationships where they need integration, may have a lot to do with their share of a distribution partner’s book in the future.
- Technology
- There are plenty of commercial capabilities in market to choose from. Buy, don’t build. Configure, don’t customize.
- Look for solutions with robust workflow capabilities that can automatically route work based on UW skills and experience. Skill based routing can improve process, add to productivity, and help deal with volume ebbs and flows.
- Capabilities that can auto-adjudicate work up to specified dollar amounts and retention limits are key. Some carriers are already auto-adjudicating high face amount policies now with an effective use of data access and algorithms.
- Consider the capabilities and needs of a primary carrier’s reinsurers and consider what tooling that may already be bringing to market, from the reinsurer, which can leverage treaty provisions.
- Data is going to be key in the future, so continuously considering what the appropriate types and sources of data are will be important. At the same time, keep an eye on the regulatory world to see what guidance may be forthcoming from the NAIC or the DOIs. Some of the things which sound “cool” or “possible” may turn out to be problematic depending on how some of the discussions about how best to deliver on the social contract provisions of insurance evolve. As an insurance commissioner once said, “a risk pool of one… is no longer a risk pool”.
The future is arriving surprisingly quickly. Now is a great time to start preparing. If you’d like to discuss in more detail, please drop me a note at RMcIsaac@Aite-Novarica.com.