Five years ago, COVID-19 sparked significant changes in insurance underwriting and new business acquisition that could point to how insurers will handle risk five years from now.
Some forces create change slowly. Think of a glacier inching its way forward over eons, carving out a changed landscape as it goes.
Pandemics – swiftly spread by robust viruses and high-velocity human travel – are different. COVID-19 is the latest example of these fast-acting change agents. The virus rapidly altered how people work, play, and learn.
Five years removed from the pandemic’s onset, the insurance industry is not the same. In some ways, COVID-19 accelerated changes that were already taking place; in others, it sparked new ways of doing business. This article examines what insurance leaders might expect five years from now in underwriting and new business acquisition based on three “new normals” spawned or accelerated by COVID-19.
Insurers five years from now likely will lean on increasingly sophisticated systems to meet more fully evolved customer expectations. These systems will be centered on robust automated rules engines that deliver fast decisions without sacrificing accuracy.
COVID-19 accelerated the development of this future.
When the virus hit, many insurers found themselves ill-prepared to meet the sudden need for contactless transactions. In Italy, for example, industry contacts reported to RGA that some insurers had to use glue sticks to paste printed-out COVID-19-related questions onto existing paper questionnaires.
These forms then had to be distributed and re-collected, coded by hand, and returned to the appropriate office. All this had to be done in a country that had some of the tightest movement restrictions in the world, where people were legally prohibited from going more than a few hundred feet from their homes for months.
Innovations we see today are a direct result of this. For instance, implementations of Aura Next – RGA’s automated digital underwriting platform – accelerated throughout the pandemic and have continued to grow. Among its many features, Aura Next provided insurers the tools during COVID-19 to redesign their interviews and questionnaires in mere hours to add an additional question regarding the virus and get the new version in production the following day. Today, Aura Next processes more than 5 million applications each year.
Continued integration of such sophisticated systems is crucial for building the insurer of the near future, as consumers demand faster decisions and insurers face a looming labor crunch.
Five years from now, insurers will have progressed and adapted to new digital evidences, often replacing the historical paramedical exams and fluid-based tests. Coupled with behavioral science, this new approach – though not a one-to-one replacement for paramedical and fluid-based tests, which were carefully curated for the life insurance space – will continue to provide accurate decisions more quickly and less invasively.
When COVID-19 gripped the world, consumers’ interest in and appreciation for life insurance increased, while their willingness to allow strangers into their homes for paramedical exams or bloodwork declined. Alongside the temporary closure of many medical clinics, this made reliance on traditional exams a challenge.
That challenge accelerated a trend that was growing prior to the pandemic. Digital underwriting evidences – including electronic health records (EHR), medical claims (MC), and LabPiQture – individually and in combination are proving to be equally if not more accurate than fluid-based tests and paramedical exams for some applications.
For example, one RGA study examined self-reported body mass index (BMI), a critical factor in determining an applicant’s risk. It found that self-reported BMI understated risk by up to 3.2% compared to various third-party digital evidences (Figure 1).
The next phase in this evolution will increasingly incorporate behavioral science, which seeks to decipher the differences between what humans say they do and what they actually do. Behavioral science techniques are already helping insurers redesign their applications to ask questions that make it more difficult for applicants to shade the truth – on everything from alcohol consumption and tobacco use to build composition and mental health.
For example, by using behavioral science techniques that require double confirmation on a question about BMI, 31% of respondents disclosed they likely weigh more than the answer they had given. The average estimate increased BMI by 1.2, a potentially significant risk difference because of the strong link between BMI and mortality (Figure 2).
Sophisticated systems and the digital underwriting evidences that feed them are likely to be more vital in the next five years to help alleviate the growing dearth of seasoned underwriters that started before COVID-19. The US Bureau of Labor Statistics projects that the insurance industry could lose roughly 400,000 workers through attrition from 2024 through 2026 in the US alone.1
The data suggests most of those departures will come through retirement.2
COVID-19 accelerated this trend. Many seasoned underwriters retired early or became consultants, sharing their highly valued skills with several insurers instead of just one.
A half decade from now, insurers will likely be staffed with underwriters adept at using the sophisticated systems their employer provides. They will be akin to creative technologists who can collaborate with AI systems to handle cases more quickly and accurately. These underwriters – despite their dwindling numbers compared to a generation ago – will be more highly valued for their combination of underwriting knowledge and technical skills. They will be crucial to help evolve the technology and must be in the driver seat throughout this process. With the shortage in underwriters, their talent will be only more prized as time goes on.
Alongside policies that accommodate remote work, which allow insurers to tap into the talent pool no matter where they might live, successful insurers of the near future will be agile, efficient, and grounded in human-technology collaboration.
Five years removed from the dawn of COVID-19, most insurers know there is no going back to business as it once was. Insurers will have to continue to adapt to the demands from consumers and agents for quicker, less invasive application processes. To do this, they will need more sophisticated systems that can help bridge the talent gap.
Where to start? How can insurers scale the challenges of the future? Partnerships with companies that have vast technological resources and deep talent pools from a broad spectrum of specialties are already proving to be a key indicator for what separates those finding success from those being left behind.
Contact us today to explore partnering with RGA to help prepare your business for the new normal of a post-COVID insurance world.
