Automated Underwriting and Straight-Through Processing The

ReFocus 2009 March 1-4, 2009 Las Vegas, NV B5 – Automated Underwriting and StraightThrough Processing: The Present and Future of Underwriting Technology Jym Barnes, Michael Keller, James McArdle, Dirk Sack Carmen Effron Moderator Automatic Underwriting and STP; Myth, Reality or Evolving? Carmen F Effron, President, C F Effron Company Jym Barnes, President and CEO, RGA Technology Partners Inc. Dirk Sack, FSA, VP - Credit Insurance Product, CUMIS Life Insurance Jim McArdle, SVP- Sales & Marketing,Transamerica Reinsurance Mike Keller, SVP-Marketing, Farmers Life Automated Underwriting and Straight-Through Processing: The Present and Future of Underwriting Technology Jym Barnes President and CEO RGA Technology Partners, Inc. 1 Optimize Underwriting • Efficient gathering of evidence – Intelligent reflexive capability as close to POS as possible – Friendly to distribution Tele-UW – Offline – Online – Powerful search capabilities – Electronic interfaces into third parties Rx - MIB – MVR – Labs – Parameds – APS Summaries Optimize Underwriting • Optimal workflow – None when possible • Automate when can be automated – Digital thread throughout the new business process – Easily interfaced with other systems – Accessible by all stake holders 2 Optimize Underwriting • Accurate risk assessment – Analyze underwriting information – Human and automated – Management Information Store meaningful data – Robust rule sets • Simple to administer Optimize Underwriting • Recalibrate from experience – Management information • Detailed underwriting data – Claims data – Expertise • Actuary • Underwriter 3 Optimized Underwriting Gathering Part 2 Tele App or Tele Underwriting? Tele App Supports turbo and short app forms Drill down reflexive capture with case situation adaptability Customizable questions and rules maintainable by business user Cosmetic and/or UW changes to rules Ability to assign decisions during interview Web-based Dynamic question presentation based on multiple responses Reduce unnecessary evidence and follow ups Auto order and analyze evidence Capture responses electronically as structured data Digital interview recordings Ease of integration Management Information AURA Tele UW 4 Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Third Party Evidence Providers • Real-time evidence – Rx – MIB – MVR 5 Rx Benefits • • • • • • • Applicants prescription history Dosage and frequency of refill Physician who prescribed medication Respondents answer Rx questions more truthfully 5-year medical profile Hit rate 65% - 75% Two primary providers – IntelliScript – Ingenix Real Time Underwriting • Definition – Distinction from Simplified Issue • Point of Sale with Agent, Broker, Bancassurance, Direct – MIB – MVR – Rx • Application created POS • Time to decision 15-30 minutes • SI wrapped with underwriting rules and technology – Better selection of risks – Better mortality 6 Real Time Underwriting • Outcome • Qualify for Instant Approval – Majority of Applicants • Decline • Other outcomes – Oral fluids – preferred qualification – Transfer to call center (warm transfer) – Refer to underwriter Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) 7 Fully Medically Underwritten Evidence • Parameds • Labs – ExamOne (Quest, LabOne) – Clinical Reference Laboratory (CRL) – Heritage Labs (Hooper Holmes) • APS Summaries Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine 8 Underwriting Rules Engine • Wrapper for the underwriting rules • Make rules available easily where needed – All components of underwriting • Real-time access • Accessible over network (intranet, extranet, Internet) Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine Underwriting Rules 9 Underwriting Rule Set • Thousands of risk factors in categories such as: – Impairments, Injuries, Surgeries – Medications, Treatments – Occupations, Sports/Avocations – Lifestyle • Questionnaires • Height/Weight Limits • Age/Coverage Limits • MIB rules • MVR rules • Lab rules • Rx rules • APS Summary Scripts • Supports the recognition of risk factor aliases • Supports preferred criteria • Multiple impairments — disclosure decision Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine Underwriting Rules Structured Underwriting Data 10 Structured Data Rated D D T T T D TD D A T T T D D D T D T D D D T D D D A D D D A T D D D T A D D A D A DT D D T T A T T T A A D D Accept Rated Accept Accept Accept Accept Rules Engine Underwriting Rules Structured Data Decline Review Decline Decline Automated Underwriting Review Review Review Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine Underwriting Rules Structured Underwriting Data Management Information 11 Management Information Reporting • Underwriting data • Decision frequency • Track number of incomplete cases • Track volume of new business • Workflow metrics • Call process metrics • Structured by distribution Enhancements, working together with MorganAsh: – Sample reports 12 Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine Underwriting Rules Structured Underwriting Data The Brain Management Information Actuary Underwriter Optimized Underwriting Gathering Part 2 Real-time Evidence (Rx, MIB, MVR) Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Rules Engine Underwriting Rules Structured Underwriting Data Assumptions The Brain Pricing Management Information Claims Actuary Underwriter 13 Management Information + The Brains • Impairment analysis • Requirement analysis • Analyze trends based on any information captured • Refine your underwriting rules to better achieve your business objectives • Proactive versus reactive Questions ? Designed by underwriters Flexibility to adapt to change RGA knowledge and experience 14 Simplified Underwriting Dirk Sack, FSA, FCIA What is Simplified Underwriting? • A Form of Underwriting Usually Offered on: – Coverage Amounts of up to $300,000 - $400,000 – Maximum Issue Ages of 65 – 70 Years • Product Pricing Slightly More Expensive than Fully Underwritten Products • Applications use 3 – 5 Open Ended Questions to Capture Full Disclosure of Key Medical Risks – Individual Life policies utilize more questions • Most Applications do not require a Medical or Paramedical Exam – Policies automatically issued if ‘No’ answers to all questions – Utilize Tele-Underwriters to gather additional Medical, Avocation and Occupational Risks if ‘Yes’ to any question(s) or if Coverage Amount > On-Site Issuance Limits (i.e. $300 K or $400 K) – Tele-Gathering ≠ Tele-Underwriting 15 What is Simplified Underwriting? • Large proportion of Applications may be issued or declined based on the Tele-Underwriting Process – Decisions can be made on 60 – 80% of Applications requiring Underwriting – Provides Immediate Approval for Applications passing all System and Underwriting Rules • Some Underwriting Workbenches or Systems allow for Automatic Feeds from Third Party Administrators which further reduces Underwriting Approval times – Integrated with MIB – Medication Usage – Reviews Urine and Blood results, where abnormal results are pushed to an Underwriter – Removal of receipt and matching of mail Time to Issue/Approval Time Improvements • Improvements to Issuance Time depends on several issues: – Effort spent building and maintaining current the questionnaire rules used in the Tele-underwriting process – Level of reduction negotiated with reinsurers regarding other evidence requirements: • Paramedical • Urine • Blood – How quickly the applicant can be contacted once the application is received – Integrating Tele-Underwriting with an Automated Underwriting Workbench • Overall Cycle time can be reduced by up to 75% 16 Expense Reduction & Productivity Improvements • Improvements due to: – Reduced Cycle Times – Earlier Recognition of Premiums – Reduced Evidence Gathering Requirements – Achievement in Consistent Underwriting Decisions • May result in improved Reinsurance Terms – Reduced ‘Not Proceeded with Withdrawals’ Note: Decline Rates increase modestly due to improved disclosures provided to Tele-Underwriters Policies Best Suited for Simplified Underwriting • Most Creditor Insurance Policies – Lines of Credit – Mortgage Insurance • Individual or Group Term Insurance • Better Suited for Life Benefits – Disability, Critical Illness, Long Term Care may require additional underwriting – Other Benefits referred to Senior Underwriters 17 Cost Benefit Analysis for Simplified U/W • Payback of Investing in a Simplified Underwriting Process & System depends on: – Level of automation of Current Underwriting Processes – Whether Insurers are currently utilizing a Tele-Underwriting Process – Extent of reduction in Additional Underwriting Gathering requirements – Improvements achieved in the earlier recognition of Premiums from earlier policy acceptance – Percentage reduction in Withdrawn rates – Reduction in Underwriting Staff or Additional policies that current Underwriters are able to process – Mortality Improvements achieved from Consistency & Improvement in Overall Underwriting • May also result in a reduction in Reserve Margins Internal Rate of Return > 100% usually achieved Rules & Questionnaires • Significant Time & Effort must be devoted to Rules & Questionnaires to Achieve Results – Key Aspect to achieving a high percentage of Accept or Declines – Requires Chief Underwriter and Senior Underwriter(s) to build & test all rules • Need to maintain current – Quarterly updates required • Must fit with the Underwriting Philosophy – Education of Underwriters may be required • Need to tie to Risk Ratings identified in reinsurance manuals • Management Information needed to analyze & review work and to find where gaps exist in Rules & Questionnaires 18 Audit & Security • Setting up a Simplified Underwriting Process – Requires Integrated Effort with Others • Underwriting Workbench Vendor • Paramedical Vendor • MIB • Internal Audit • Internal IT Controller • Pricing or Product Actuaries – Underwriting Process must align with Pricing Assumptions – A few “unexpected” claims may result in program losses – Must perform Monthly or Quarterly Underwriting Audits to ensure no gaps exist in Rules, Questionnaires or TeleUnderwriting Process Management of Underwriting Staff • Work flow Analysis – Underwriting Workbench designed to manage Work In-Force • Automatically assigns next application to Tele-Underwriters or Underwriters (if referred) based on any applicable authority limits – Simplified Underwriting using a Rules Based System frees up Underwriter’s time to work on more complex cases • Important given the lack of qualified Underwriters currently available • Fewer Insurers are investing the time and effort needed to train and educate staff – Allows for increased volumes of applications to be processed using fewer staff – Will need to consistently reinforce with Underwriters the importance of accepting the Rules that have been built and tested within the Underwriting Workbench 19 Summary / Close • Given Current Economic Conditions, Investment in the Automation of a Simplified Underwriting Process may be something Senior Management wants to consider due to: – Reduced Expenses – Improved Productivity – Increased Premiums – Reduced Liabilities Plus: Enhanced Customer Service due to faster yet more reliable Underwriting of Applications Automated Underwriting and STP, Myth, Reality or Evolving? Jim McArdle SVP- Sales and Marketing Transamerica Reinsurance March 2, 2009 20 What is VELOGICA? • An automated underwriting platform and algorithm that utilizes electronic data in conjunction with application data to underwrite life insurance applications in real time. What is VELOGICA’s Value Proposition? • VELOGICA provides a simple and fast underwriting process to support transaction-based sales of life insurance 21 Products Supported • Term and Permanent life Insurance – Face amounts up to $250,000 – Issue ages 20-85 years – Risks up to Table 4 – Multiple underwriting classes – Male/Female, Non-Tobacco/Tobacco rates – 10-30 year term History 2000 - 2002 • Research project begins • Sample-tested prescription data on inforce policies • Began protective value studies 2003 • Protective value studies completed • Build-out of underwriting engine • Data contracts signed • Marketing pilots 2004 • First policies issued • VELOGICA system redesign and algorithm improvement 2005 • VELOGICA version 2 launched • New clients added 2006 • New clients added • Continued enhancement to algorithm & functionality 2007 • New clients added • PVS-SI • System upgrades 2008 • Expanded issue age ranges • Developing new products • Enhancing algorithm to version 3 22 Underwriting Process Rx Profile Application Data Motor Vehicle Record MIB Transamerica Reinsurance Underwriting decision Accept Decline Refer Electronic Application Underwriting Underwriting Policy Issue Billing and Collections Inforce Administration Reinsurance Administration Connect your system to pass the application information to VELOGICA and retrieve the decision. =Life Co =Transamerica Reinsurance’s responsibility Underwriting Process Receive APP Response Pass Determine Insurability at App Level (Questions & Build) Order Rx, MVR & MIB Underwrite Using APP, Rx & MVR Pass Pass MIB Approved Fail Fail Fail Refer Decline Refer Decline Refer 23 Application • 10 questions – – – – – – Hospitalization HIV/AIDs Tobacco and drug use/abuse Foreign travel and aviation Avocation and driving record Felony • Drill downs on “yes” responses • Authorization obtained before data ordered Underwriting Algorithm • MVR – Selective based on program • Females age 18-29 • Males age 18-45 – Traditional risk assessment • MIB – Determine severity of codes returned 24 Underwriting Algorithm Rx Interpretation • Non Rx Variables – Age – Gender – Admitted conditions – MD prescriptions • Rx Variables – Last time prescribed – Duration – Dosage – Frequency – Unique prescriptions Underwriting Algorithm Decisioning Scoring Application MVR RX Score 0-49 50-74 75-99 100-124 125+ Underwriting Outcome Standard Table 2 Table 3 Table 4 Decline MIB Other Refer 25 Algorithm Maintenance • Rx research – Audit of RX interpretation – Regular surveillance of clinical trials and medical research • Rx updates – Quarterly – Review approximately 1,500 – 8,000 new codes per quarter – 5 to 10 new drugs added per quarter IT integration • Web service available over the Internet via HTTPS. • Interface with any SOAP communication capable language • Inbound and outbound data is described by defined XML Schema Definition (.XSD) files. • Underwriting info is collected from the applicant. • Assembled into an XML document and submitted to the VELOGICA underwriting service. • A “receipt” is provided by the service acknowledging the submission. 26 IT Integration • The service-oriented architecture allows integration with a variety of front-end and back-end systems. • The two-pass XML-based communication can integrate with all programming languages that support web services. • The development effort required for integration is similar to that of integrating with the MIB WEB-DIRECT product. Performance • 80,000 applications over the last 12 months • 80% of U/W decisions made within one minute • Entire sales process and decision takes 10 to 15 mins • 24/7 application submit capability • Decisioning time – 3am – midnight (eastern) – Monday – Saturday 27 Life Transformation Mike Keller Senior Vice President – Marketing Farmers Life The Problem • Our Goal: – Get our Property / Casualty Agents to crosssell life insurance • Industry Solution: – Train them to become life and financial services agents • Industry Results: – Failure, year after year • Why: 1/12/2009 – Happy with the auto and home business – Life is too complex 56 28 Farmers Life’s Solution Transform the Company not the agent 1/12/2009 57 Farmers Life’s Solution STRATEGY Simplify Event > Process Confidence Complete value chain Integrated with P/C Simple & Friendly Segmented Products & Services for Agents & Customers 1/12/2009 58 29 Life Transformation – The Big Leap • Beat the competition: Auto • Fast, Simple, Easy solutions to the application, signatures and underwriting • Went looking for a solution and found Transamerica 1/12/2009 59 Simple Term – Fast, Simple, Easy • Product – Level Term 10, 20, & 30 year • e-Application – Carefully designed to be fast, simple and easy • e-Signature – one signature (e-Pad) populates all forms • e-Underwriting – Transamerica’s system shaves 15 days to 15 minutes or less (application – signature – underwriting) 1/12/2009 60 30 Simple Term – The Results • Best Product launch ever • Best Product take up ever • Accounts for 30% of our business by number of policies • Thanks to Farmers Life and Transamerica Teams!! 1/12/2009 61 The Future • Faster, Simpler, Easier • Products – Simple Whole Life – Simple Universal Life – Simple Variable Universal Life • Continue to transform the Company 1/12/2009 62 31