ReFocus March 1-4, Las Vegas, NV

(1)

ReFocus 2009

March 1-4, 2009

Las Vegas, NV

B5 – Automated Underwriting and

Straight-Through Processing: The Present and Future of

Underwriting Technology

Jym Barnes, Michael Keller, James McArdle,

Dirk Sack

(2)

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:

(3)

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

(4)

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

(5)

Optimized Underwriting

Gathering Part 2

Tele App AURA Tele UW

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

(6)

Optimized Underwriting

Gathering Part 2 Real-time Evidence_{(Rx, MIB, MVR)}

Third Party Evidence Providers

• Real-time evidence

–

Rx

–

MIB

(7)

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

(8)

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

Gathering Part 2 Real-time Evidence_{(Rx, MIB, MVR)} _{(Paramed, Lab, APS Summaries)}Fully-Underwritten Evidence

(9)

Fully Medically Underwritten Evidence

• Parameds

• Labs

–

ExamOne (Quest, LabOne)

–

Clinical Reference Laboratory (CRL)

–

Heritage Labs (Hooper Holmes)

• APS Summaries

Optimized Underwriting

(10)

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

(11)

Underwriting Rule Set

• Thousands of risk factors in categories such as:

– Impairments, Injuries, Surgeries – Medications, Treatments – Occupations, Sports/Avocations – Lifestyle

• Supports the recognition of risk factor aliases

• Supports preferred criteria

• Multiple impairments — disclosure decision

• Questionnaires

• Height/Weight Limits

• Age/Coverage Limits

• MIB rules

• MVR rules

• Lab rules

• Rx rules

• APS Summary Scripts

Optimized Underwriting

Structured Underwriting Data Underwriting

Rules Rules Engine

(12)

Structured Data

Underwriting Rules Rated Accept Rated Accept DD DD DD DD _D_DDD DD DD DD DD DD DD DD_D_D DD DD DD DD DD _D_D DD D D DD DD DD DD AA TT DDDD TT DD TT TT TT TT TT TT TT TT TT AA AA AA AA AA AA A A AA TT TT TT TT TT TT TT AcceptAccept ReviewReview DeclineDecline AcceptAccept Rated Accept Rated Accept AcceptAccept DeclineDecline DeclineDecline ReviewReview ReviewReview ReviewReview Rules Engine Structured Data

Automated

Underwriting

Optimized Underwriting

Gathering Part 2 Structured Underwriting Data Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Real-time Evidence

(Rx, MIB, MVR)

Underwriting Rules Rules Engine

(13)

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

(14)

Optimized Underwriting

Gathering Part 2

Structured Underwriting Data Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Real-time Evidence (Rx, MIB, MVR) Underwriting Rules Actuary Rules Engine Underwriter Management Information Management Information The Brain

Optimized Underwriting

Gathering Part 2 Structured Underwriting Data Fully-Underwritten Evidence (Paramed, Lab, APS Summaries) Real-time Evidence

(Rx, MIB, MVR)

Underwriting Rules Rules Engine

(15)

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

?

(16)

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

(17)

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

(18)

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

(19)

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

(20)

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 Tele-Underwriting 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

(21)

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?

(22)

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

(23)

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 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

(24)

Underwriting Process

Policy Issue Billing and Collections Inforce Administration Reinsurance Administration Electronic

Application UnderwritingUnderwriting

=Life Co

Refer Accept Decline

Connect your system to pass the application information to VELOGICA and retrieve the decision.

MIB Motor Vehicle Record Rx Profile Underwriting decision Transamerica Reinsurance Application Data

=Transamerica Reinsurance’s responsibility

Underwriting Process

Receive APP Response Order Rx, MVR & MIB Underwrite Using APP, Rx & MVR Approved Determine Insurability at App Level (Questions & Build)

Pass Pass Pass

(25)

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

(26)

Underwriting Algorithm

• Non Rx Variables

– Age

– Gender

– Admitted conditions

– MD prescriptions

• Rx Variables

– Last time prescribed

– Duration

– Dosage

– Frequency

– Unique prescriptions

Rx Interpretation

Underwriting Algorithm

MVR Application Scoring Table 3 75-99 Table 2 50-74 Standard 0-49 Underwriting Outcome Score

Decisioning

(27)

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

ReFocus March 1-4, Las Vegas, NV

ReFocus 2009

March 1-4, 2009

Las Vegas, NV

B5 – Automated Underwriting and

Straight-Through Processing: The Present and Future of

Underwriting Technology

Jym Barnes, Michael Keller, James McArdle,

Dirk Sack

Automatic Underwriting and STP; Myth,

Reality or Evolving?

Automated Underwriting and

Straight-Through Processing:

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

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

Optimized Underwriting

Optimized Underwriting

Third Party Evidence Providers

•

Real-time evidence

–

Rx

–

MIB

Rx Benefits

•

Applicants prescription history

•

Dosage and frequency of refill

•

Physician who prescribed medication

•

Respondents answer Rx questions more truthfully

•

5-year medical profile

•