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The Actuary The magazine of the Institute & Faculty of Actuaries
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Insurance: The winds of change

Nothing could really take the world of life and disability underwriting by storm, but there are winds of change blowing. That welcome breath of fresh air is tele-underwriting — more correctly tele-interviewing — in which risk information is obtained over the telephone by a trained interviewer instead of via the traditional application form or doctor’s report.

The trend towards tele-interviewing is so significant that it prompted reinsurer SCOR Global Life and consultants SelectX, together with renowned US underwriting expert Hank George, to conduct a worldwide survey of insurers to gauge the extent of take-up, how it is being used and what the experience has been. But before looking at the survey results, consider the background against which tele-interviewing needs to be assessed. Underwriting tends to be a cumbersome process that has not changed significantly over the years.

Although it has been speeded up with point-of-sale rules engines, it is still expensive and time-consuming, especially when a doctor’s report is needed. It is no wonder that it is seen by advisers as a barrier to business and that chief executives wonder if it is necessary. In a minority of cases, the sales process itself can be a problem; the completion of the application form can sometimes result in ‘economies with the truth’ or, worse, non-disclosure of varying degrees.

The prime virtues of tele-interviewing are founded on the use of a trained interviewer having no connection with the sale and, on a recorded telephone call, ensuring privacy and no discomfort in discussing sensitive health matters one-to-one. Make no mistake — this combination is extraordinarily powerful. The theory is that non-disclosure rates are reduced and, as the interviewer understands what the underwriter wants to know, he or she can probe where necessary via a set of ‘drill-down‘ scripts, getting a notably high level of detail and avoiding the need to seek follow-up information. These twin benefits mean that tele-interviews are routinely replacing the bulk of the normal application form. But even in a more traditional process, a tele-interview can ably replace a doctor’s report for many medical disclosures, saving significant time and cost.

Can applicants really provide the sort of information demanded by underwriters, and can it be relied upon? The answer is ‘yes’ to both. But underwriters do have to adapt a bit: they need to interpret the tele-interview content — read between the lines — and resist calling for a doctor’s report anyway. Reassurers’ underwriting manuals need to adapt to provide more meaningful guidelines to assist the underwriter in the new process.

To what extent has tele-interviewing caught on? According to the survey, around three-quarters of companies in the UK, Ireland, North America, South Africa and Australia apply tele-interviewing in some form. Elsewhere, usage is very patchy but in some markets reaches 30% of life companies. Of those insurers not currently using tele-interviewing, about half are considering its introduction in most locations, notably Spain, Germany and parts of Asia.

It is a relatively recent innovation everywhere except North America, where the concept originated, and where experience goes back over 10 years. It is interesting to look at why companies introduced tele-interviewing in the first place. In mature markets the main reasons were to save time and cost and to reduce dependence on doctors’ reports. In other markets — the less developed but fast-growing economies — the interest was in lessening agent involvement, improving customer service and reducing anti-selection and non-disclosure.

The differences between the types of market illustrate two things. First, the overtly uncomfortable relationship between insurers and distributors in the less mature markets, and second, the fact that companies in those countries have come later to tele-interviewing but have learned from the experience of the earlier adopters elsewhere.

In fact, the biggest benefits of tele-interviewing lie in reducing the risk of non-disclosure, creating a better risk profile for the portfolio and potentially lower risk assumptions and/or reassurance cost. In addition, it creates a new customer service proposition that is better in terms of experience and speed. There may be operational cost reduction, but it is often marginal, especially for routine tele-interviews which, if undertaken by the insurer, are an added cost. Nevertheless, just over half of survey respondents worldwide declared some sort of saving in acquisition costs, although around 10% reported an increase.

In the US and Canada, tele-interviewing is largely routine for all cases, replacing the traditional application form. Elsewhere, the picture is mixed. For example, in the UK and Ireland, of the companies using tele- interviews, 44% said that the discretionary (doctor’s report replacement) model is predominant, compared with 36% who cited routine tele-interviewing for all cases and 12% who employ a combination of the two.

Does the theory of improved disclosure rates apply in practice? According to the survey the answer is ‘yes’. In the UK and Ireland, 44% of companies reported an improvement, although another 48% said they did not have enough information to draw a conclusion. Forty percent reported a modest increase in rated cases. In other mature markets, companies responding positively represented around three-quarters of all those employing tele-interviewing. Companies also reported emphatically that the quality of disclosures has improved too.

Who is making these additional disclosures? Experience tells us that the value of tele-interviewing is highest among older applicants who naturally tend to have more ‘interesting’ health histories and therefore more to disclose. It is surprising that some survey respondents reported that their tele-interview use is skewed towards younger ages. Is this because they are routinely getting doctor reports and they feel an interview is redundant? This is an interesting finding as the value of the tele-interview rises with age — in line with the mortality and morbidity curves — and is often preferable to a doctor’s report.

Although tele-interviewing improves the volume and quality of risk information overall, it cannot be expected to eliminate non-disclosure completely. This is why it is important to have sound processes associated with it — so that when it is necessary to challenge what was disclosed at application, a fair challenge will succeed, whether that occurs before a court or an ombudsman or other official arbiter.

Almost all UK and Irish companies in the survey provide applicants with a summary of what they have told the interviewer; a quarter ask for a signature and for the document to be returned to the company. Notably, half have used the digital recording of the interview to resolve a dispute of some kind.

So far, the transition to tele-interviewing has not amounted to a revolution — not yet, anyway. But in our opinion, tele-interviewing will play an increasingly important role in most markets. Niche market segments aside, why would you not want to use a method of gathering risk information that:
>> Is separate from the sale process
>> Is demonstrably successful in reducing non-disclosure and in improving information quality
>> Represents first-class evidence in the event of a disputed claim (no more conflicting stories from applicants on the one hand and advisers on the other)
>> Speeds up the new business process (giving a valuable improvement in conversion rates)
>> Has won approval from customers
>> Has won approval from regulators.

In most markets it is still relatively early days for tele-interviewing, and the survey shows that many companies have not followed best practice processes and need to polish up their act in some respects. For example, in some cases, firms just went ahead without carefully involving all stakeholders, particularly sales forces and brokers. For successful tele-interviewing you must have your distributors fully on board. Furthermore, a surprising number are failing to monitor the quality of interviews, conduct customer satisfaction surveys or routinely improve their scripts and drill-downs.

Tele-interviewing, when done well, provides a more robust risk selection process for the company, relieves the sales agent of a difficult part of the standard process and, most importantly, offers customers a far superior experience when taking out the vital insurance products our industry provides.

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Peter Maynard is the director of SelectX Ltd. Catherine Lyons is the underwriting and claims development manager for SCOR Global Life