In an article that first appeared in The Actuary, RGA shares new data on the state of AU for individual life insurance and highlights a path forward for successful AU.
As mentioned elsewhere, “accelerated underwriting (AU) programs give life insurers new ways of assessing medical and financial risks for some applicants more quickly than traditional underwriting programs.“ New analysis of RGA data on the state of AU for individual life insurance paints a clearer picture of where AU is today and highlights a path forward for successful AU.
Gathered from RGA data and confidential industry sources, the analysis looked at acceleration rates, mortality slippage based on gender and risk class, and the type of evidence and tools the industry currently uses for AU programs. It also addresses concerns from the AU community about escalating policy face values and issue ages. (The SOA Research Institute published a report in November 2023 on AU: 2022 Accelerated Underwriting Practices Survey Report. The SOA Research Institute’s study compared the results of two surveys, not only to determine how practices have changed but also how they have changed from 2020 to 2022 because of COVID-19.)
AU programs have matured and strengthened since 2014, which generally is considered the year the practice started to develop. RGA’s analysis of the U.S. individual life insurance AU market demonstrates that maturity and may offer guidance on enhancing existing AU programs and improving their outcomes.
Across the AU programs RGA reinsures, acceleration rates vary widely from 10%-70%. The average acceleration rate across programs is 40%-50%.
Mortality slippage—the estimated mortality increase for policies issued through AU relative to policies issued through traditional underwriting—also may change as face amounts increase. Recent analysis of AU random holdout data reveals lower mortality slippage for face amounts $500,000 and higher when compared to smaller face amounts, as shown in this chart.
The most common maximum face amount is $1 million, with more than 40% of AU programs setting that maximum amount. Another 40% of AU programs maintain a maximum face amount of $2 million to $3 million. Almost half the programs offering $2 million or more in coverage use tiered age limits to ensure the highest face amounts are restricted to younger issue ages, such as age 40 or 50. Less than 5% of AU programs offer maximum face amounts of more than $3 million.
In general, acceleration rates for policies up to $1 million are higher than acceleration rates for policies greater than $1 million.
Currently, the most common maximum issue age is 60. Only a few AU programs push their maximum issue age to 65 years. Medical impairments are more common at higher ages, which may correlate to lower acceleration rates and higher mortality slippage for policies issued to older applicants.
As shown in this chart, older applicants are less likely to be approved accelerated than younger applicants.
As one might expect, AU random holdout data reveals the highest mortality slippage for ages 40 and older. Interestingly, however, we see higher mortality slippage for ages 18-30 than the 31-40 age group. One theory is that people under 30 may visit their doctors less frequently than their older counterparts, and less detailed digital medical footprints may allow higher-risk, younger applicants who otherwise would have been disqualified from the accelerated process to be approved.
AU random holdout data reveals a material gender gap for estimated mortality slippage on AU policies. On average, the mortality slippage of females is 40% lower than the overall average for an AU program; the rate for males is 40% higher.
Early AU programs restricted offerings to preferred nontobacco user classes. But as the industry learned from its early iterations, AU programs have expanded to standard and better classes, both tobacco and nontobacco. Some programs are adding substandard classes to the mix, but they typically structure them as grouped substandard classes. In an accelerated environment where full details about the applicant’s health profile may not be available, it can be difficult to determine a precise table rating.
The best risk class has the highest acceleration rate and the highest mortality slippage. On average, the acceleration rate of the best risk class is between 1.5 and 2 times that of the residual standard class, as shown in Figure 3. Based on AU random holdout data, the best risk class has more than 1.5 times the overall mortality slippage level, on average. This is partly due to the absence of key metrics in traditional preferred criteria, such as measured cholesterol, blood pressure and build. Additionally, while other risk classes may benefit from “favorable misclassifications” in some programs, this isn’t possible for the best class because there are no better classes “upstream.”
Without the traditional paramedical exam and fluids collected that takes place under full underwriting, AU frequently necessitates additional evidence to evaluate applicants. This chart breaks down the types of evidence and tools AU programs use most frequently as well as tools that underwriters are exploring for expanded use in the future.
Many insurers have zeroed in on the “big three” evidence types to enhance their AU programs:
Choosing between evidence tools requires more than a one-size-fits-all approach. It is important for insurers to seek the best type of evidence to make a decision on a specific case. What is right for one case may not work for another. But each of these “big three” evidence types carries the strong advantage of being significantly less expensive and time-consuming than a paramedical exam or insurance lab panel.
What can this new analysis tell us about how to potentially improve AU programs?
The future is bright for AU programs, and there are opportunities for program improvements, whether through a closer investigation of mortality slippage by gender, expanded use of evidence or a stronger emphasis on monitoring. We believe insurers could expand AU offerings and improve overall outcomes by focusing on these factors.
At RGA, we are eager to engage with clients to better understand and tackle the industry’s most pressing challenges together. Contact us to discuss and to learn more about RGA's capabilities, resources, and solutions.
