Economics of e-insurance Internet Applications in Insurance Presented by: Michelle D. Smith SEAC Meeting June 21, 2001 1
Three distinct, yet interconnected e-tracks The Influence of e on Insurance/Financial Services Distribution/ Sales Channel Management Process Improvement/ Operational Efficiency New Underwriting/ Pricing Models
Each e-track has its own evolutionary path and unique payoff Distribution/ Sales Channel Management Brochureware Pre-sales support Online selling Customer value management Customer relationship management Increased Market Share Process Improvement/ Operational Efficiency Web-enabling of current business processes Outsourcing/ partnering Reengineering the business process Reduced Transaction Costs/Improved Service New Underwriting/ Pricing Models Automated underwriting Expert underwriting Identifying new data with greater explanatory power Better risk selection; Product Innovation
The winning business models of the future exploit all three e-tracks Distribution/ Sales Channel Management Brochureware Pre-sales support Online selling Customer value management Customer relationship management Process Improvement/ Operational Efficiency New Underwriting/ Pricing Models Web-enabling of current business processes Automated underwriting Outsourcing/ partnering Expert underwriting Reengineering the business process Identifying new data with greater explanatory power Insuranc e Busines s Model of the Future
Web-enabling of key business processes improves efficiency and enhances service to customers and agents Application data entry Reduces data errors Eliminates duplicate entries Underwriting Reduces time and and cost cost to to reach an an underwriting decision Automates decision-making Process Improvement/ Operational Efficiency Linking carriers with distributors Policy delivery Provides web access to to databases containing needed data from multiple carriers to to facilitate agent connectivity to to carriers, making them more productive Provides web-based tools for for policy assembly and and delivery of of policy to to customer Customer and and agent service Provides customers and and agents with account information Facilitates online policy changes Offers potential to to disseminate information faster
Value creation through process improvement Distribution/ Sales Channel Management Process Improvement/ Operational Efficiency New Underwriting/ Pricing Models
New Business Processing The Paper Way Consumer Agent Needs Analysis Gather Information for App Agent Support Snail mail to Fills In App Visit with Consumer Schedule Appt Obtain Bodily Fluids Mail to to Lab Notify Consumer/Agent Reject Accept Mail back Start process again ABC Life Put in NB Queue Paramed Firm Order Paramed APS Lab Analyzes Mail to ABC Notify ABC Types in App Issue Clerk Initiates Und Process Check Requirements Underwriters Review Assemble Policy Agent Mail to Discover Missing Information Information Complete? NO YES Make Decision Go/No Go Deliver to to Consumer Schedule Appt ELAPSED TIME 45 DAYS
New Business Processing The Electronic Way Consumer Agent Needs Analysis Enter App Electronically Agent Support Fills In App Visit with Consumer Schedule Appt Obtain Bodily Fluids Send to to Lab Notify Consumer/Agent Electronically Reject Accept ABC Life Issue Dept X Discover Missing Information Initiates Und Process Paramed Firm Check Requirements APS Lab Analyzes Underwriters Review X Information Complete? NO e-mail YES Make Decision Go/No Go X Notify ABC X Assemble Policy X Agent Deliver to to Consumer ELAPSED TIME 20 DAYS
What are these e-solutions? EXCHANGE - Distributor/Carrier - Forms, Product Info. - Case Status - Calculation Engines CARRIERS - SmartForms - e-underwriting - WorkFlow - Data Collection - Data Scrubbing LINKS TO BACK OFFICE - Case Status - Commission Information - In-force Policy Information - Application Upload - Broker appointment/licensing
Life/Annuity Case Study Mission Analyze life/annuity e-solutions connectivity data flow work flow Quantify expense savings issue processing underwriting policy maintenance sales and marketing support Quantify increased profit and/or competitiveness
Life/Annuity Case Study Approach Where are expense savings? paper mailing storage time/labor How do you quantify this? good question!
Life/Annuity Case Study Challenges Need studies that measure variables like # pages per x apps/policies # mailings # hours storage costs difficult to quantify expense savings Regulatory, signatures, agent/customer use
Life/Annuity Case Study Analysis performed Estimate hours/pages/mailings Check against higher level data from key carriers Tie back to reasonable industry level unit allowances Future projects: do more accurate expense studies (more carriers)
Life/Annuity Case Study Simple Model Components & Assumptions Key Functions Effected Key Cost Savings Ultimate Savings Issue Expenses App. processing data entry data scrubbing Policy delivery assemble and print review and delivery Policy status Staff time Paper Mailing Not taken ratios 50-80% 90% 90% Half Underwriting Expenses Collect information MIB DMV APS inspection reports Collate and process Selection fees (?) Staff time Paper Mailing Not taken ratios 67% 90% 90% Half
Life/Annuity Case Study Results: Apply simple model assumptions to baseline Percent Today s Expense Levels 100% 65-75% Percent Today s Expense Levels 100% 80-85% 50-60% 50-60% Today Next 1-2 yrs. In 3-5 yrs. Today Next 1-2 yrs. In 3-5 yrs. Issue Administration Underwriting Future unit expense levels as % today s expense levels
Life/Annuity Case Study Results assume In 1-2 year period, only about 50% paper/mailings removed (signature required) In 3-5 years most paper/mailings removed In 1-2 years technology doesn t impact selection fees In 3-5 years selection fees also reduced By 3-5 years, staff time for key functions reduced 50-70%
Life/Annuity Case Study Other results: Maintenance expense savings Uses similar model Savings from: web-based consumer interactions paper/mailings Projected to be 30% - 50% savings, but may be additional expense for web site maintenance, etc.
Life/Annuity Case Study Other Results: Return on investment Increase product ROIs by 2-3% or, make product more competitive! What is return on technology investment? Will depend on sales levels
Life/Annuity Case Study Other business improvements Policy holder relations improved persistency cross-sales Sales force efficiency improve productivity broaden distribution channels More objective underwriting
Value creation through new underwriting models Distribution/ Sales Channel Management Process Improvement/ Operational Efficiency New Underwriting/ Pricing Models
Internet product activity is currently focused on commodity products (like term), potential to expand to other product types Driven by technology improving consultative capability Internet Product Opportunity North America Complex Large Commercial P/C Cash Value Life Key Key Current market Product Complexity Small Commercial P/C Annuity Individual Health Medical Supplement Disability Long-Term Care Next wave Intermediate wave Future wave Term Life Homeowners Travel Auto Simple Pull Source: Conning & Company/Tillinghast analysis. Renters Market Dynamic Push Driven by consumers financial and internet/online-buying savvy
Technology can also play a role in changing the product offering Instant Issue Term Example Middle-income bank customer Wants to purchase term insurance for protection Not interested if transaction is not quick and has to go through intrusive medical inquiry Products that do exist are limited and not competitive Solution Develop automated approach to issue term insurance (up to certain face amounts) within 30 minutes. Design product to accommodate underwriting information that can be accessed on real-time basis. Leverage off expense savings to pay for higher mortality costs.
Instant issue term process ILLUSTRATIVE Reject/gather more information No Consumer Distributor (Agent) Submits e-application Technology Solution Company Submits to to Third Third Party Party Checking Source Source Meets Criteria? Yes Insurance Carrier Carrier Issue Policy
Case example: How technology can change the product offering Bancassurance Situation Bank customers in in middleincome market have interest in in buying additional term insurance for protection needs Their interest wanes if if they can t buy insurance quickly and without providing intrusive medical information Some limited products exist, but they are not competitive Potential Solution Develop automated approach to issue term insurance within 30 minutes Design product to accommodate underwriting information that can be accessed on real-time basis Leverage off the expense savings to pay for higher mortality costs