Life Underwriting Challenges and Policy Holder behavior

Konanani MaswobaMunichre

The next 45 minutesThe mobile revolutionDeath of an underwriterBehavior engineeringClaims experience

The mobile revolution

A quiet revolution is underway, with technology is re-configuring the traditional insurance distribution model.

The internet and mobile devices are impacting distribution, but the overall share of e-commerce sales is still low.

Nonetheless, new technology is fundamentally changing how consumers and firms interact with insurers.

The mobile revolutionThe direction is clear: new technology will

eventually enable customers to arrange most of their insurance through remote digital channels.

The newest direct sales channels – the internet and mobile devices – currently command a small portion of the market in terms of premiums. Agents and brokers, and other intermediaries such as retailers, banks and affinity groups continue to dominate sales. However, the statistics on e-commerce insurance mask the impact new technologies have already had on the overall distribution process.

The mobile revolutionAs Sun Life Financial commented “While North

American and European life insurance markets are mature, the potential for insurance in the developing world is estimated at between 1.5 and 3 billion policies, with life and health insurance being the products most in demand. These markets not only skew younger, they are also increasingly mobile equipped. In the developing world, mobile subscriptions more than doubled from 2011 to 2013, surpassing those in developed countries in 2013.”

Innovators in mobile microinsurance The “embedded” model, through partnerships between

mobile company Tigo and insurance intermediaries MicroEnsure and Bima, has brought life insurance to more than 1 million individuals in Ghana and Tanzania, 80% of who had never previously had coverage.

The programme has created brand loyalty for Tigo and reduced customer churn. The “embedded” model allows easy (free) adoption for customers, while the requirement to actively opt-in ensures they learn about the product. For “freemium,” Tigo offers to double the insurance coverage for a monthly fee of approximately USD 0.52.

Within the first three months of operation in 2012, Tigo saw tens of thousands of customers upgrade from free insurance to paid premium products.

Innovators in mobile microinsurance Mobile microinsurance has spread to Asia and Latin America, where

microinsurers are currently providing mobile services ranging from basic casualty to full life cover.

For instance, Colombian prepaid airtime retailer Fullcarga, in partnership with local insurer Colpatria, offers insurance plans and services through their online portal, as well as through both smart and basic mobile devices. Prices range from annual premium of (USD 4) for basic life and disability coverage to (USD 10) for extensive coverage.

The monthly premium – approximately USD 0.42 for the most basic life and accident plan – is below the microinsurance industry average of USD 1.22.53

One exception is Vodacom in South Africa, which has held an insurance license since 2012 but still partners with Liberty as the main insurer.

Death of an underwriterIn life insurance ... physical examinations are

common [and] the timeline for purchasing insurance is often measured in weeks rather than seconds.

While invasive underwriting evidence provides very strong protective and sentinel value that allows insurers to combat adverse selection, it may serve as an impediment to efficiently reaching the underinsured younger or middle-income markets.

Death of an underwriterNew medical technologies, smart phone apps

and data-driven predictive modelling solutions offer opportunities to bridge the information gap between applicants and insures while drastically reducing the length and invasiveness of the underwriting process.

The Death- Underwriting in the big data ageThe massive data sets that are growing at an

unimaginable rate are both a by-product and driver of the technology revolution. With inputs available from mobile devices, sensory technologies, ‘The Internet of Things,’ unstructured data from social media – as well as traditional, proprietary customer data bases

The Death-Is the environment too complex for underwriters?Product complexity and relevance of the

underwriting requirementsCompliance, privacy and security issues –

How to approach foreign territories risk and the moral risk of financing known terrorist/freedom fighters.

The ever changing tax environment, a case in point, the treatment of income protector benefits for tax purpose in South Africa

• Shrinking Market for Underwritten Products

The Current Competitive Environment for the Life Insurance Industry• Underwriting—A Competitive Advantage? In the absence of value and innovation, consumers will

base their insurance purchase decisions solely on price.value-creating mechanisms, underwriting is expensiveBorrowing from our non life colleagues; Telematics is the

latest technology with immense potential for insurers to offer consumers better value and, at the same time, contain costs.

It enables accurate risk assessment as insurers can charge appropriate premiums for the risk component that is within a client’s control.

This is because telematics technology gives clients the opportunity to understand individual driving behaviour

Societal and Demographic Change Earlier/More Effective Disease Intervention- An example from General

practitoners affiliated to Discover health.>Treatment check provides a detailed chronological history of an

applicant’s prescription history.>First, the reports can be quite cumbersome to read and interpret. A

proposed insured with even a modest medical history may have an Rx history that is pages and pages long detailing lists of drugs with exotic sounding names. There are over 180,000 NDC (National Drug Code) codes in use for drugs today with many duplicate names and similar names for drugs that are used for entirely different medical situations.

>Second, the tools that have been widely available to help underwriters decipher this report have been too simplistic in their approach – dividing drugs into good drug/bad drug lists. This approach dramatically oversimplifies a world where doctors have the freedom to use prescriptions for off-label uses, and where the same drug can be used for widely different medical reasons.

Societal and Demographic Change • Continued Mortality Improvement

>HIV mortality example• Customer Expectations The instant nodule generation. Increased Focus on Health Habits>Vitality and similar initiatives

The Competitive/Changing Marketplace • Alternative Data Sources- why are we sticky?

ASSISA/LOA protocol. Wearable data collectors?Why not learn from

the motor insurance industry?The Human Genome Project.• Expert Systems/Decision Support Tools. An

example from ALLFINEZ • How adaptable are our rating manuals?• The Ultimate Technology Objective: POS Policy

Issue

Behavior engineering

Can an insurer induce a favorable behavior pattern from the insured population pool? How is Discovery life succeeding?

A powerful market disruptor that could change the way insurance works.

Good health and good driving, the discovery experienceDeveloped the first integrated product that

allows pricing to add driving behaviour as a risk-rating factor to the dynamic pricing model.

The separation of short-term and long-term behavioural elements through a restructure of PayBack and Cash Conversion Benefits.

Good health and good driving, the discovery experienceThis improves the value proposition for

consumers as paybacks at an earlier stage are made possible, resulting in increased engagement levels in Vitality, better lapse rates and improved morbidity and mortality experience.

How much savings will good driving generate for the insurerBehavioral data from Discovery Insure as

reported by Discovery Group.Discovery’s short-term insurance company –

shows that the majority of motor vehicle accidents are preceded by poor driving behavior such as harsh braking and cornering as well as driving over the speed limit.

In 2012, motor vehicle accidents accounted for one in five deaths on the Discovery Life book, which amounted to overR245 million in claims.

How much savings will good driving generate for the insurerVitalitydrive clients have one-third less fatal

car accidents compared to the national average.

It also shows a direct correlation between driving behaviour and the incidence of claiming.

Clients with high levels of harsh acceleration, harsh braking and speeding have much higher claim ratios than clients with low levels.

Reward for healthy choicesThe vitality experience

The vitality experience

Claims experience from a client without incentives

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