FIVE NEW BUSINESS DASHBOARDS every Life Insurer Needs by Des Field Corbett Allfinanz Product Manager
Table Table of of Contents Contents Executive Summary 3 Deeper Business Insight Becoming the Lifeblood of Life Insurance Operations 4 Introducing Straight Through Processing 6 The High Cost of Manual Processing 8 Reducing Referral Rates 9 Understanding Referral Sources 10 Reducing Medical Evidence Costs 12 Top 25 Disclosures Causing Requests for Evidence, Ordered by Cost 13 Reducing the Duration of the New Business Process 14 Top 25 Disclosures Causing Requests for Evidence, Ordered by Duration 15 Sales Breakdown by Channel 16 About Automation Solutions from Munich Re 17 About Des Field Corbett Des has over 10 years experience in designing and delivering financial software applications with market leaders such as Fidelity Investments and FINEOS. His focus has been on automating and improving new business processing, and in the use of business analytics to improve profitability and business performance. Des has spent the last two years assisting Allfinanz clients implement cutting edge straight through processing solutions around the globe. He holds a B.Tech (Hons) Degree in Information Technology and Telecommunications, from the University of Limerick. Des can be contacted on DFieldCorbett@munichre.com This document is Munich Re 2011. The contents should be treated as confidential and circulation restricted. Copies of this document should not be provided to third parties except with the explicit written authority of Munich Re. The Munich Re logo is a trademark of Munich Re.
EXECUTIVE SUMMARY Better Data. Better Decisions. Insurance executives understand the importance of reviewing their underwriting data and rule sets regularly to improve the profitability, speed and efficiency of their underwriting decisions. Making good decisions is critical in underwriting, but making those decisions quickly is taking on added importance given the complexity and competitiveness of today s insurance marketplace. Successful insurance executives are turning to the latest generation of technology-assisted underwriting tools to give them deeper insights not only into their applicants and customer base, but also into the rule sets that support their underwriting decisions. Getting the right answers depends on asking the right questions, and understanding how those questions can influence the underwriting process. One of the leading causes of customer frustration with the underwriting process is how long it can take it s no surprise that customer acceptance rates decline as the process is extended. To reduce delays, it s important for executives to identify the applicant disclosures that generate the most referrals and to understand the effects of those referrals on underwriting profitability. The right underwriting support tools can generate reports that help you answer questions such as Which disclosures cause the most referrals? or Which disclosures cost the most? or take the longest to resolve? or What s my most profitable sales channel? Answering those questions requires better data, as well as sophisticated tools that can help you apply that data to support better decisions. Munich Re Five New Business Dashboards every Life Insurer Needs 3
DEEPER BUSINESS INSIGHT BECOMING THE LIFEBLOOD OF LIFE INSURANCE OPERATIONS In today s competitive life insurance markets, successful companies are increasingly using advanced, technology-assisted underwriting to improve the profitability of an expanding range of complex products. Life insurers need to ensure that everyone pays a premium appropriate to their level of risk while also taking into account the cost of assessing that risk. Reaching this goal requires insurance companies to analyze their data sets on a regular basis to determine if changes need to be made. Most insurance companies, following industry best practice, continuously monitor and look to improve their underwriting rule sets. This is generally done quarterly, every six months or annually, depending on the insurer s case volume. While standard reporting can help companies identify cases needing review, using new business intelligence software solutions to gain detailed understanding of the data provides more effective results. The latest business analytics tools allow insurance executives to not only access underwriting case data, but also to examine that data from various points of view. A number of key metrics - including the most common disclosures triggering evidence requests; the top disclosures ordered by cost and duration; sales breakdowns by channels; and other ad-hoc reports can provide new insight into the effectiveness of a company s underwriting rule sets and allow executives to model the effects of changes within those rules. This flexibility can give stakeholders in the underwriting process - such as the Chief Underwriter, Head of Insurance Operations or Head of Distribution - a deeper understanding of how the rule set is contributing to a company s overall underwriting profitability. 4 Munich Re Five New Business Dashboards every Life Insurer Needs
Business analytics solutions can be sourced as in-house IT projects, from specialists or from some providers of automated underwriting solutions. By augmenting executives business knowledge with the ability to easily view data in whichever way they choose, without the requirement to utilise and plan costly and time-consuming IT resources, business analytics can transform how life insurers view their case data and empower them to better understand the performance of their rule sets, and the impact this has on their business. Munich Re Five New Business Dashboards every Life Insurer Needs 5
INTRODUCING STRAIGHT THROUGH PROCESSING The industry s traditional sales processes and procedures are a common source of frustration for insurance executives looking to improve operational efficiency. Supporting independent and captive agents often requires duplicate steps and paperwork that fail to add value for the agents, carriers or customers involved in the process. As companies look for ways to streamline the process, technological improvements such as straight through processing (STP) offer a wide range of potential advantages in reducing the cost and time associated with insurance sales and underwriting. STP enables the automated processing of applications and other forms by standardising the way electronic data is collected and formatted. Applying consistent data formats improves operational efficiency by allowing standardised data to be processed seamlessly by the wide range of people involved in reviewing customer applications and serving clients through their policies lifecycles. 6 Munich Re Five New Business Dashboards every Life Insurer Needs
With STP, agents and customer service representatives spend less time reviewing and processing paper-based forms, and can invest more time developing new business and serving client needs. STP reduces the time, cost and potential bottlenecks associated with policy applications and forms, and helps carriers further reduce the cost of identifying and correcting policy application-related errors. By reducing manual intervention, insurers can reduce processing costs and the time it takes to resolve pending cases and issues, and ultimately dramatically improve not-taken-up (NTU) rates for applications. STP can provide a number of potential benefits: Increased sales. STP allows carriers to automate application processing, which makes the sales process easier and less expensive. Agents spend more time with customers discussing their financial needs, and less time trying to find the reasons behind application delays. Improved efficiency. STP removes many of the delays and hassles consistent with manual application processing, and reduces the need for people to review applications and re-enter data submitted manually. Processing electronic data reduces the opportunity for errors and delays in application processing, and improves the consistent application of underwriting guidelines. Increased agility delivers competitive advantage. Automated, consistent data processes help companies adapt to rapidly changing market and economic conditions by improving their ability to adjust rates or underwriting criteria, or to unveil new products more rapidly. The benefits STP can offer are particularly acute for life insurers, which have to balance the ongoing desire for increased sales volumes with the need (particularly for the Head of Insurance Operations or Chief Underwriter) to ensure new business is brought in using rates and terms that accurately reflect its risk profile. To satisfy these desires effectively, companies must work continually to improve the efficiency of their business processes, and evaluate how its procedures affect their underwriting profitability. Munich Re Five New Business Dashboards every Life Insurer Needs 7
EVOLUTION OF AUTOMATED UNDERWRITING SOFTWARE SYSTEMS 1 st Generation: These are black box systems that were probably imposed on an insurer s underwriting team to ensure consistency as well as a bare minimum standard of underwriting decision making for example through reinsurers offering discounts where such systems were deployed in a client s underwriting process for new business. These systems are not typically controlled by the insurer, nor does the insurer have the ability to adapt or change them. The sole benefit to the insurer seems to come through a lower reinsurance treaty price. These systems are not easily adapted or changed to meet the changing needs of the insurance company. 2 nd Generation: These are systems that are adaptable or changeable in theory even by the insurance company they have open interfaces against which carriers can program their underwriting logic. In practice the level of expertise necessary to achieve this has meant that such changes can generally only be safely made by the original developers of the systems (the vendors, typically reinsurance companies) with one or two notable exceptions where the insurance company has for example, hired staff with deep knowledge of the system who previously worked for the vendor, or where over many years of dedicated effort, they have built these skills in-house. These systems can be changed, but only by IT experts with solid programming skills and deep knowledge of the product. 3 rd Generation: These are systems where a graphical user interface, or some other mechanism exists to enable an insurer whose underwriters have basic computer literacy (basic here means the typical expertise in office and business software that anyone who uses a PC on a daily basis should have) to extend the system to add new business logic (Underwriting Rules), or change or adapt the existing logic without the dependency on outside expertise such as programming know-how from the IT department or an outside consultant or vendor support. This marks a dramatic leap forward as this generation of system puts power in the hands of the underwriting team for the first time, and removes the dependence on the vendor. 4 th Generation: Once ease of use becomes a given, the frontier moves to delivering actionable analysis. 4 th Generation systems, in addition to a 3 rd Generation User Interface, also provide powerful reporting functionality, giving the underwriters (and other stakeholders such as the VP of Insurance Operations or the Head of Distribution) a deep understanding of the present and past behaviour of their system. 8 Munich Re Five New Business Dashboards every Life Insurer Needs
THE HIGH COST OF MANUAL PROCESSING Figure 1: STP Trend Analysis There s little disagreement among insurance agents and carriers that manual processing takes far longer, and is far more expensive, than it needs to be. Bring any group of agents and underwriters into a room and you ll hear a litany of horror stories about incomplete or illegible applications, information that was entered incorrectly and other roadblocks in the application process. Beyond the anecdotal evidence of inefficient processes, however, is the real-world cost of processing applications manually. For example, in the US, insurance companies face up to $50 just in printing costs for paper-based applications, which can take up to two months to process. Nearly half (45 percent) of new applications are ruled Not in Good Order (NIGO), and present underwriting and administrative issues that can cost an additional $300 to resolve. And, perhaps not surprisingly in the face of lengthy delays, studies there have shown that nearly a third of life insurance applications (30 percent) are abandoned by customers during the processing stage. Given the potential costs of delay, it is critical for insurers to process and resolve life insurance applications as quickly as possible, before the customer s interest fades and frustration begins. If insurers track the applications that can be underwritten without manual intervention, an STP report can be generated to compare STP applications with those that are referred. Understanding this STP percentage can help insurers prepare more accurate sales projections, better estimate capacity and evaluate rule changes. For instance, if a rule change is likely to result in a greater number of referrals and reduce the STP percentage, an insurer can evaluate the likely cost of a rule change in greater administrative costs and, if needed, consider alternatives. Munich Re Five New Business Dashboards every Life Insurer Needs 9
REDUCING REFERRAL RATES Another way STP can benefit insurance companies is helping them better understand the causes of referred cases. For instance, a Head of Insurance Operations interested in increasing the STP rate may task the carrier s underwriting team with analysing referred cases to determine the common disclosures that trigger reviews. The underwriting team can then analyse the rules that result in these disclosures to determine if the rules can be adjusted to produce fewer referrals and increase the STP percentage (and underwriting efficiency). The table below illustrates how reducing the referral rate to Underwriting can dramatically speed up the average policy issuance time: Underwriting Stage Days Industry Norm Target with 4th Generation URE 1. Base Questions 1 14% 60% 2. Further Questions - - 3. Manual UW 31 52% 30% 4. Tele UW - - 5. Med. Evidence 82 34% 10% Average Duration (norm) 52 100% Average Duration (target) 18 100% Table 1: Case Duration by Underwriting Stage 10 Munich Re Five New Business Dashboards every Life Insurer Needs
UNDERSTANDING REFERRAL SOURCES Once optimisations have been performed on a rule set and enough cases have used the new rules, underwriters can run reports to compare the old and new rule set results to determine whether the adjustments to the new rule set have created the desired reduction in the volume of referred cases. When comparing the sets, it is important for underwriters to conduct comparisons by referral percentages, because relying on disclosure counts alone can be affected by seasonal variations in sales volume. Figure 2: Top 25 Disclosures Causing Referrals Potential Issues The most common disclosures may not be the most common cause of referrals. Disclosures may have different results for different product options and benefits. A popular benefit such as Total Disability cover could cause most of the referrals. Underwriter expertise and industry experience are still needed in optimising rules and analysing case information to identify underwriting trends. Munich Re Five New Business Dashboards every Life Insurer Needs 11
Business Analytics Approach By using a Business Analytics solution, life insurers can reduce not only the amount of time it takes to gather information, but also the amount of data that needs to be analysed. Because an underwriter can mine data from various dimensions, they can gather and examine data to answer specific questions. For example, they can ask to see the most common disclosures by underwriting result and benefit type, and then drill down to examine case-level information to determine trends. Figure 3: Report of Most Common Disclosures Causing Referrals for Critical Illness Benefit 12 Munich Re Five New Business Dashboards every Life Insurer Needs
REDUCING MEDICAL EVIDENCE COSTS The cost of obtaining and examining medical evidence is a major concern for underwriters, and inefficient rule sets can result in unnecessary requests for evidence. For instance, underwriters generally monitor evidence costs and link these requests for information back to cases before analysing individual cases to try to determine trends. Potential Issues Case information usually must be retrieved manually in cases for which evidence is requested. Underwriters must then use their experience to determine which disclosures caused evidence requests. Many requests for evidence are due to non-medical limits, and the case information will not help an underwriter. Unfortunately, they will only realise this after they have retrieved the case. Except for manually mapping the data, there is no way to determine the disclosures that request evidence for which the results do not affect the case outcome. Munich Re Five New Business Dashboards every Life Insurer Needs 13
TOP 25 DISCLOSURES CAUSING REQUESTS FOR EVIDENCE, ORDERED BY COST The largest expense incurred in risk assessment is the cost of gathering evidence. As we mentioned earlier, running a report showing the 25 leading disclosures that generate requests for evidence will identify the rules that generate the most requests. However, prioritising the optimisation of underwriting rules based on the number of requests made may not be as cost effective as prioritising the rules generating the most expensive disclosures to investigate. By adding the cost of evidence to the disclosure report, the underwriter can now identify the rules that generate the highest evidence costs and better prioritise the most effective candidates for optimisation and impact on the insurer s bottom line. Figure 4: Top 25 Disclosures requesting Evidence, ordered by cost Drill Down Approach By viewing the disclosures that cause requests for medical evidence, the underwriter can immediately determine which rules are triggering these requests. This data can then be ordered by the cost incurred, allowing the underwriter to prioritise which rules to analyse. Obviously, it is important to avoid referrals for unnecessary evidence, in order to minimise cost and improve speed to a decision. The underwriter can gain valuable insight into this by showing only those rules that request evidence, but where the final case outcome was standard terms. One of the key drivers of the NTU (not-taken-up) policy rate is the duration of the new business process. Comprehensive studies carried out by Munich Re in the UK have shown that cases with an electronic decision generally take about a single day to issue, while referred cases have average case durations of 31 and 82 days (see Table 1: Case Duration by Underwriting Stage). 14 Munich Re Five New Business Dashboards every Life Insurer Needs
REDUCING THE DURATION OF THE NEW BUSINESS PROCESS There is a direct relationship between the speed at which a policy can be underwritten and its acceptance by an applicant. This is clearly reflected in the NTU rates shown in Table 2: New Business Leakage, below. Potential Issues Where an insurance carrier is interested in reducing medical evidence requests, the reports or data analysis used to determine which rules should be prioritised for optimisation may need to be redone to reflect the most commonly occurring requests (not the most expensive ones) to reduce the average case duration. Underwriters must analyse data manually to determine how long requests for particular types of evidence generally take, and use this knowledge to determine which rules are the most promising candidates for review. Additional lengthy manual analysis must be done to determine whether other factors are affecting case duration, such as channel or product mix. Underwriting Decision (Time in weeks) New Business Leakage Not taken-up rate (%) 1 9 2 12 3 12 4 16 5 24 6 23 7 25 8 27 9 31 10 36 Table 2: New Business Leakage The major factor determining the duration of a case is whether or not that case is referred to underwriting and if medical evidence is requested. It should surprise no one that taking longer to review an application leads directly to a higher NTU rate, as customers either change their minds about a policy or, more commonly, contact another distribution channel to explore options with competing carriers. Munich Re Five New Business Dashboards every Life Insurer Needs 15
TOP 25 DISCLOSURES CAUSING REQUESTS FOR EVIDENCE, ORDERED BY DURATION By combining the average duration of an evidence request with those disclosures that caused a request-for-evidence report, the insurer can identify the rules that generate the requests for evidence mostly likely to extend the duration of a case. Figure 5: Top 25 Disclosures Requesting Evidence, ordered by Duration Business Analytics Approach The underwriter can view the most common disclosures ordered by the duration of the case. By also considering whether the product type or channel, instead of just the disclosures, caused the referrals or requests for evidence, the underwriter can determine the rules that may require analysis, no matter the cause of the extended case duration. The underwriter can also filter these results by other case data dimensions such as product or benefit to determine if they are influencing the case duration. 16 Munich Re Five New Business Dashboards every Life Insurer Needs
SALES BREAKDOWN BY CHANNEL Insurance companies with multiple sales channels can expect different types of sales to result from their various channels. The product mix, quality, premiums, STP, issue rates, and average cost per policy figures can all vary across different channels. A report that displays the product breakdown by channel can indicate the types of cases that are being issued and can help determine if targets are being met. While a simple case count will indicate sales levels, it may also be useful to view the total premiums per channel, as this is often a targeted measure. A date comparison or trend graph would also be valuable in determining if targets are likely to be achieved. Figure 6: Sales Breakdown by Channel Munich Re Five New Business Dashboards every Life Insurer Needs 17
ABOUT AUTOMATION SOLUTIONS FROM MUNICH RE About Automation Solutions from Munich Re Munich Re is one of the world s largest reinsurers providing solutions for complex risks to 40 million clients in over 30 countries. Munich Re s Automation Solutions are the market leader in providing new business processing and underwriting automation solutions to the life insurance industry. The Automation Solutions division of Munich Re delivers exceptional solution-based expertise that enables straight through processing (STP), increases sales and reduces costs for life insurers worldwide. Munich Re s Automation Solutions have enabled STP and instant issue for insurers and banks globally, who are now able to auto-assess the majority of new applications at the point of sale for a variety of life insurance products across the full spectrum of distribution channels. This has been accompanied by a significant reduction in new business acquisition costs. Headquartered in Dublin Ireland, the Automation Solutions division of Munich Re also has offices in Tokyo Japan, Sydney Australia and Chicago USA. The Automation Solutions division of Munich Re stands for outstanding client proximity, and its list of clients proudly includes world leaders such as Zurich, Aegon, Liberty, Unum, ING, HSBC, Prudential, The Hartford and Metropolitan Life. Learn more at our website: http://automation.munichre.com 18 Munich Re Five New Business Dashboards every Life Insurer Needs
CONTACT US Automation Solutions Munich Re Mountain View, Central Park, Leopardstown, Dublin 18, Ireland. Tel: + 353 1 293 2888 Automation Solutions Japan Munich Re Sanno Park Tower 13F, PO Box 13, 2-11-1 Nagatacho, Chiyoda-ku, Tokyo 100-6113, Japan. Tel: + 81 3 4550 1550 Automation Solutions Australia Munich Re 8th Floor, 25 Bligh Street, Sydney, NSW 2000, Australia. Tel: + 61 2 8116 2900 Automation Solutions USA Munich Re 10 South Riverside Plaza, Chicago, Illinois, 60606, USA. Tel: + 1 847 373 9704 Munich Re Five New Business Dashboards every Life Insurer Needs 19
2011 Munich Re Mountain View, Central Park, Leopardstown, Dublin 18, Ireland