On the mend?

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An undervalued area of the claims process, underwriting, if made more efficient and easier to understand, could repair the trust between consumers and insurers, writes Michael Whyte.

Underwriting may not seem the most glamorous area of the industry but it forms the basis of all insurance. Essentially, it is underwriting that decides the type of cover a person should receive, how much they should pay, whether exclusions should apply or even whether or not to offer protection to the person in question at all. It is the function of the underwriter to act as a gatekeeper, to determine the level of risk that each customer presents and to price their policy accordingly.

Naturally, some areas of underwriting are more complicated than others, and nowhere is this more true than in life and health-related insurance. But, throughout the industry, steps are being taken to make underwriting speedier and more efficient all round.

As is the case with most industries, insurance has been transformed in the last decade with the advent of the internet. Consumers now have access to quotes, cover, even comparisons with other insurers, usually in a matter of seconds. It then comes as no surprise that companies are turning their attention to the web to provide quicker, slicker solutions to offer cover to all. Given the estimation that around half of the population currently has no life cover, it is up to insurers to make it as easy as possible to obtain straightforward, affordable protection.

Although many insurers have been tapping the internet resource for some years now, there is still tremendous potential and room for improvement. Companies are unveiling new facets of their online capabilities all the time, offering everything from critical illness (CI), to income protection (IP), to non-standard life cover, all in an instant with the click of a mouse.

the future

And while it is clear that online underwriting may not be able to offer cover to every individual in a matter of minutes at present, as insurers look to segment and target specific groups in a more sophisticated way, it is likely that the next big developments will be online.

As improvements in technology are made, it is probable that insurers will be able to accept more and more cases online, reducing the need for manual underwriting to a bare minimum. By offering alternative routes to obtain life insurance - such as phone or internet - providers are helping to close the UK's £2.3trn protection gap.

But, beyond the need for technological advances, there is also a need to streamline the underwriting process from beginning to end. This means many insurers are looking beyond traditional paper-based processes and are using people power to speed up their underwriting services.

A number of insurers are adopting the practice of using nurses to aid the underwriting process for life, CI and IP applications, often through tele-underwriting. Nurses can either be used for the entire application process, or to check certain information or delve deeper if a person discloses information at the outset that warrants further investigation.

The benefit here is that nurses have a level of medical knowledge that underwriters themselves may not have. While underwriting staff can establish the level of risk a person poses from their application, a nurse may be able to determine important facts about a person's health by their responses and the way they answer the questions put to them. The underwriter and the nurse have different skill sets that compliment each other and can help speed up the application process dramatically.

Nurses are often used in cases where GP reports may typically have been used and can help to streamline the process dramatically. A typical GP report can take around 20 days to send and receive, while the majority of telephone nurse interview cases can be turned around within days.

Further innovations have seen improvements at the pre-sales stage to provide advisers with direct help and guidance on 'what if' scenarios. One example of this is the introduction of pre-sales helpdesks that allow advisers to learn what special terms may have to be imposed for certain cases and whether a risk will be accepted on standard terms. As well as saving time and expense for both advisers and applicants, the service also aims to eliminate frustrations for all concerned, particularly if a client is seen to be posing a particular risk. For example, if terms could not be offered, by answering questions up-front rather than waiting for an application to be submitted and later declined, the process is made smoother and quicker for everyone.

Paperwork has also been something of a bone of contention in the past, blamed for slowing down the underwriting process. Because of these, companies are making efforts to simplify both GP reports and customer application forms.

Training of underwriting staff has been in the spotlight as well in recent months with more than one insurer launching underwriting academies to train their staff in all aspects of the field. This, in turn, will lead to improved service levels for advisers and customers and a more satisfying process for all, staff included.

But the industry must be careful not to rest on its laurels. While many steps have been taken, there is still room for improvement, not least with customers themselves.

weathering the storm

The life insurance market - and specifically CI cover - has attracted harsh criticism in recent times. Insurance companies have been condemned for non-payment of claims, and seen as some as trying to 'wriggle out of' paying their customers, often on the basis of non-disclosure.

Yet, as any insurance company will admit, it can only offer cover on the basis of the information it is given - which puts the onus onto the consumer to tell everything they can to ensure their policy is valid.

Insurers then need to do everything they can to educate customers to ensure they understand what is required of them when taking out an insurance policy of any kind.

In July of this year, Norwich Union launched a pilot scheme to help tackle the industry-wide problem of non-disclosure. By writing to 5,000 existing life and CI policyholders and asking them to review their initial applications, it offered customers an 'amnesty', giving them the chance to inform the provider of any details that they may have missed off their original forms.

So far there has been a remarkable reponse rate to this pilot, with around one in six policyholders responding to the communication, and half of these disclosing additional information.

This then begs the question, could more be done outside the world of underwriting to help improve things within? If customers provide the correct information in the first instance, for the most part, their policy will be underwritten accurately. If customers understand what they are being asked when filling out an application form, they are more likely to provide the correct information. This is something the industry must constantly address to provide a better deal for customers - advisers and insurers alike.

In light of recent calls for a solution to the non-disclosure problem, some companies are also investigating a proposition that would offer customers the option of paying an increased premium to ensure a guaran-teed payout in the event of a claim. This extra premium would absorb the cost of up-front underwriting.

However, this in itself is not clear-cut. What level of information is required to fully underwrite a policy for a guaranteed payout? There is an argument that a GP report will only tell insurers so much - and will be restricted to the conditions that the customer has told their doctor about. It will not necessarily list a person's height, weight, smoker status or drinking habits, for example, which again puts the onus on the customer to disclose. Should insurers then be taking a leaf out of the US's book and demand a medical examination before offering terms?

On the other hand, there is an argument that many policyholders would assume a standard policy is already guaranteed to payout in the event of a claim, and that such a product would only serve to cause confusion and even mistrust among consumers.

The current life insurance market presents something of a paradox. The average customer would like to see a product that is simple, straightforward, easily available and easy to understand. They would also like to be sure that their policy will provide payment in the unfortunate event of a claim - which comes down to having a valid policy and a claim which meets policy criteria.

This then suggests that quicker underwriting is a two-way street, requiring better information from customers and better processes from insurers. If the industry can resolve this, it may have a simpler, brighter future all round. n

Michael Whyte is chief underwriter at Norwich Union

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