While the industry is years behind the retail sector on online point-of-sale applications, there has been some progess. Paul Holland questions the future of underwriting technology
Online underwriting, in simple terms, is the application of internet technology and "intelligent" programming techniques to automate the provider process of assessing risk, whether medical or otherwise, and applying or offering appropriate terms based on responses to assessment questions.
The life and critical illness protection market has concentrated on systems utilised by insurance intermediaries submitting new applications on behalf of clients. The retail sector has, however, already had experience of using such systems to accommodate direct consumer new business submissions through a tied relationship.
Most providers now accommodate point-of-sale online underwriting systems, supplied by specialists in this field, such as Allfinanz and Magnum.
Lower underwriting costs, saved timed and reduced processing resources are all potential benefits associated with automating underwriting decisions. The underwriting process is often perceived as the main delay in processing a protection application, a primary aspect addressed by automating these processes.
Paper applications have suffered from almost the mirror of this perspective with error rates reported in excess of 70%.
Incentives
By way of giving an incentive to the take-up of online submission and underwriting systems, the product providers have introduced enhancements associated with electronic new business submitted through these systems.
In addition, and given the 'straight-through terms' that can apply, immediate decisions can result in reductions to pipeline processing times, it can also improve cash flow given earlier risk and associated payment for new business.
Non-disclosure has formed a large part of the discussions around these systems given that their usage is by way of intermediaries disseminating information and completing the forms on behalf of a consumer.
If the intermediary has keyed the case online, where does the liability lie if a claim is declined for non-disclosure and the client says 'I told the IFA'? In the event of a claim being rebutted, a client claiming to have imparted relevant medical information to the acting intermediary is likely to give rise to them contacting the Financial Ombudsman Service (FOS).
The FOS produces a consumer fact sheet around this sensitive subject and the following extract presents an insight into the principles it follows in assessing such claims.
If the intermediary firm was acting on behalf of the insurance company, then the insurance company cannot claim that information the client gave to the intermediary was not properly disclosed.
However, to be able to avoid a policy, the insurance company has to show that it would not have offered the same policy at the same price - if it had known the true facts.
Given the difficulty in establishing where an error may have occurred, proving that the disclosure of information was made in full may be achieved in one of two ways:
n Recording the client interview when the application was submitted
n Seeking the client's confirmation that the information disclosed is full and correct at the point of new business submission.
In both instances authenticating the client's identity needs to be beyond reasonable doubt.
What does the future hold for online underwriting? Automating sophisticated processes and services with a view to reducing unit price is a natural progression given technological advances, and one that can ultimately lead to greater consumer value.
Given the industry's experiences to date, it is likely that the use of such systems will be complemented by other processes and technologies to ensure there can be no doubt around the integrity of information against which a risk can be assessed and costed.
Paul Holland is managing director at Webline
