A life insurance policy is rarely thought of as a legal contract, but that's exactly what it is. It's an obligation from the insurer to pay your beneficiaries a sum of money that helps protect against financial loss if you die while coverage is still in force. So what if Kris Kringle decided to apply for coverage? How would you underwrite it? How would you package a policy designed to provide joy and happiness to children around the world?
If you have applied for an individual life insurance policy recently, you may have found that insurers can go to great lengths to evaluate the risk or (underwrite) before committing to issue an actual policy. Those complex underwriting steps start with evidence of insurability that includes evaluating your current health status which may involve blood or other lab tests along with previous medical history, checking your credit score or driving record, verifying your insurance history through the MIB database and knowing your occupation and hobbies. YES, this can be time consuming and costly for the insurer and an uncomfortable process for the applicant that may take several weeks and give cause to bail out of the process.
Let's review what we all know about Mr. Kringle and his potential risk.
- He is a happily married, jolly, white-haired male of an unknown age who tops out the scale and the Body Mass Index with his stout frame.
- He lists no family doctor or ailments requiring medical attention.
- He's a toy maker by trade who runs his own small business. He also moonlights once a year as a highly talented delivery person. However, he receives no verifiable income.
- He doesn’t appear to have a driver’s license or credit score but still manages to be a successful part-time pilot who has been seen numerous times behind the reins of a big red sleigh, perhaps driving without his seat belt on, and led by several flying reindeer.
All of this could lead anyone to believe there is a pattern of risky behavior with unverifiable information that may even tempt you to decline coverage. Traditionally, the work of a life insurance underwriter has been viewed as a complex and demanding role that required strong analytical skills, attention to detail and solid judgment – but where to begin with Kris and his unique profile?
There is help. In a recent commentary written by Gail McGiffin from Ernst & Young, she discusses how "advanced analytics and predictive modeling have been among the most important business and technology development areas during the last decade." Gail provides an insightful view of how UW solutions have evolved over the past 20 years specifically in the P&C industry with the adoption of rating models. She also presents two important questions that help shed light on the underwriting challenges face by life insurers:
- How will advanced models and rules engines change the role of underwriters in the future?
- In the hands of skilled professional, how will they enable better decision making and business results?
Whether it's a Specialty, or Commercial Lines P&C coverage, or underwriting a whole life policy on a jolly old man, risks must be evaluated and underwriting so that sound decisions are made. Life insurers are seeking to control and expedite the underwriting process across their organization. They want to improve the underwriters effective and drive efficiencies based on the product, line of business and complexity of each step in the process. They seek dynamic case management and control capabilities to guide underwriters, ensuring compliance and providing end-to-end visibility into all facets of their underwriting process.
Insurers require a truly reusable underwriting foundation that helps them grow profitability and address the challenges of complex risk. Yes, even Kris Kringle (Santa Claus)!
Happy Holidays Everyone!