Three years after diving into unknown territory with the launch of tele-underwriting in the UK protection market, Mike Taylor assesses the method's success
It has been almost three years since tele-underwriting started in the UK protection market. At the time, it was seen as a radical approach to how business was submitted and underwritten. Those providers that took the plunge were hoping tele-underwriting would improve the quality of health disclosures, reduce processing costs, improve service levels and enhance the customer experience. So, has it delivered on its early promise?
Two different models were developed in the UK. The 'Big T Model' is the collection of all application information over the phone, typically using an expert underwriting system. The other process is the 'Small T Model', which is the collection of additional application information over the phone, after an application has been received. Companies have adopted different approaches here, either relying on their own in-house services or outsourcing to a selection of tele-underwriting service providers.
Due to the interactive nature of tele-underwriting, the insurer is able to focus on asking relevant questions, which allows them to explore customer disclosures in a greater level of detail. This provides a clearer picture of the risk presented, allowing quicker underwriting decisions and also less reliance on requesting costly medical reports that can delay the process. Tele-underwriting is also likely to increase the number of customers offered cover without the need for further health information. As the process is refined and improved further, it is possible that eventually almost all customers will be accepted without the need for medical evidence.
But, how can insurers rely on the quality of the customer's disclosure?
Quality of disclosure
Tele-underwriting is proven to generate significantly higher levels of disclosure compared to the more traditional submission methods. Under a typical process, the adviser and customer complete a short application form, containing the basic details of what they are applying for. Once the short application is received by the product provider, a medically trained tele-underwriter collects the customer's health and lifestyle details over the phone, with the support of an expert underwriting system. This allows the provider to collect relevant health and lifestyle details, and allows the expert system or the underwriter to make an accurate assessment based on the information provided.
A typical telephone interview should last for no more than 20 minutes. Details of what the customer said during the tele-underwriting interview can then be sent for the customer to check, providing an opportunity for them to amend any details.
Alternatively, providers may use trained underwriters or nurses during the tele-underwriting interview, which will also, ultimately, lead to less medical evidence being requested and business being put on risk quicker.
Point of claim
There are many advantages to using tele-underwriting, but, ultimately, the biggest benefit of all comes when a claim is submitted. The industry's record on claims is disappointing, and currently, one in five critical illness claims are declined, with a significant proportion linked to non-disclosure. Tele-underwriting, however, is bucking the trend.
Adopting a tele-underwriting process allows all calls to be recorded, which provides a clear audit trail so any contentious situations can be resolved more effectively. The tele-underwriting process has also increased the level of customer disclosure at application stage, and conversely has significantly reduced non-disclosure at the claims stage. Although tele-underwriting alone will not eradicate non-disclosure, it is going a long way to reduce it.
Tele-underwriting could also prove to be the perfect solution for some of the recent recommendations made by the Law Commission. Its recent consultation paper supported a non-contestability period, which would mean that a claim could not be turned down on the grounds of non-disclosure once a policy had been in force for three years, unless it was deemed fraudulent.
If such a recommendation was to become law, it would be essential to operate a process such as tele-underwriting, which encourages a high level of quality disclosure, and reduces the risk of non-disclosure. The lack of a robust application process could result in all customers paying more for their protection needs, to cover the cost of increased claims payment due to non-disclosure. Therefore, it is essential for financial advisers to continue embracing tele-underwriting, especially as it provides many benefits for them, including less form filling, and passing the disclosure risk on to the insurer.
One of the key challenges for tele-underwriting is the total cost of running such an operation. Traditionally the collection of health and lifestyle information rests with the financial adviser. However, with the insurer taking on this additional workload, additional cost is also likely to be incurred. Typically, the tele-underwriting team needs to be sufficiently resourced to offer flexibility with customer appointments. The cost of tele-underwriting varies by provider, but typically costs in the region of £20-£40 per applicant. However, tele-underwriting also offers significant financial savings if done properly. With GP reports now costing almost £80 each, any reasonable reduction in medical evidence requests can greatly reduce costs. In addition, there is less time spent at the claims stage due to the reduction in non-disclosure and contested claims. It has also been suggested that tele-underwriting may support improved reassurance rates, due to the increased disclosure and more accurate underwriting decisions.
Impact on customers
Tele-underwriting should improve the customer's experience by focusing on relevant questions, and taking away the embarrassment of answering some sensitive health and lifestyle questions face-to-face. Tele-underwriting allows questions to be asked at a time convenient to the customer, when they can be reassured about the process and provided with confirmation of what they discussed with their policy documentation. There seems to be a positive groundswell of opinion on tele-underwriting from both customers and financial advisers, and the process is now responsible for an increased proportion of protection business in the UK.
The use of an expert underwriting system has allowed the tele-underwriter to gather more extensive and detailed information. This has reduced the amount of medical evidence required and has provided a quicker, more efficient process. The quality of the information disclosed has ultimately led to a reduction in non-disclosure rates, and therefore a drop in disputed claims. This has helped support the claims process and any potential law reform in future.
Although there are clearly additional costs to running a tele-underwriting process, they are outweighed by the reductions in medical expenses, less claims disputes and potential savings in reassurance rates. The final word must rest with the customer, as this is a process that is truly designed to support them. If the application process is shorter and at the same time collects more relevant and accurate information then this must ultimately provide reassurance and trust that genuine claims will be honoured in future.
Mike Taylor is chief underwriter at Axa Life
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