Some problems are too big to solve alone. And as the name would suggest, “jumbo” policy limit violations rank among such big problems for life insurers.
However, a new collaboration leveraging expertise from two of the industry’s biggest service providers – TAI and MIB – offers a highly effective solution.
A Jumbo-Sized Problem
Jumbo limits refer to the amount of coverage in force and applied for on an individual life for automatic reinsurance – generally $35-$65 million per person in the U.S. market. Jumbo limit breaches take advantage of a blind spot within the industry: insurers’ inability to know how much coverage an applicant already has with other carriers, leaving insurers to rely solely on applicant disclosures and exposing them to potential high-value fraud.
Consider the numbers:
- Total life insurance in force in the U.S. = $3.6 trillion
- 2% of all in-force falls into jumbo risk category = $72 billion
- Total in actual claims that exceed jumbo limits each year = tens of millions of dollars
Some jumbo limit breaches may be unintentional, such as someone planning to replace a policy who applies for new coverage without terminating the old, or high net worth individuals looking to diversify their portfolios and failing to ensure their total coverage falls within the limits. Often, however, deliberate fraud can be to blame.
While insurers can readily access applicant data such as motor vehicle records, prescription histories, and medical records, a resource providing real-time information on in-force and applied-for coverage has proven elusive, despite many efforts to develop such a resource over the years. Challenges have included incompatible data formats, questions about where to store the data, and reliance on point-in-time data. No path to an industry-wide database solution to prevent jumbo breaches existed.
Enter TAI and MIB.
An Industry-Wide Solution
As with many other fraud-related issues, the answer to addressing jumbo violations lies in industry-wide collaboration. TAI, the market leader in reinsurance software and consulting services, has teamed up with MIB, an industry leader in data insights and digital solutions for risk assessment, to develop a powerful new tool for identifying potential risks related to jumbo limit breaches well before claims time.
TAI administers about 75% of reinsured business in the U.S., including most big carriers, via a common file format. Jumbo risk is heavily concentrated in 25 of the biggest carriers, representing approximately 95% of policies “in play” for jumbo violations. Since 24 of these carriers use TAI for reinsurance administration, TAI manages data for the vast majority of in-force jumbo policies. MIB, meanwhile, has ongoing access to applied-for policies in the U.S., including jumbo applications. Together, TAI and MIB have combined data sources to create an unprecedented data vault stored by MIB that provides a much clearer picture of jumbo-related activity. With this new resource, carriers and reinsurers alike can identify and work to prevent potential breaches before they occur.
The MIB Jumbo Service alerts insurers of potential breaches to be investigated by underwriters, who will be armed with valuable information about an individual’s total in-force and applied-for coverage. Unlike sporadic, point-in-time detection solutions tried in the past, MIB’s tool will provide perpetual, ongoing access to data, both improving effectiveness and reducing costs. It will be the only data solution in the industry providing insight into both in-force and pending application activity.
MIB and TAI launched the first phase of the product (an MVP) in the last quarter of 2020, engaging six large carriers, who each received a report showing in-force data and application activity during the two-year contestability period. These initial six companies confirmed the value of the report and provided suggestions for enhancements and future solutions. The report, which incorporated 4.5 million of in-force data records from TAI and over 3 million MIB Insurance Activity Index application activity records, revealed the extent of the problem, identifying hundreds of potential violations for each of the participating insurers.
Following the successful first phase, the MIB Jumbo Service is now available to all carriers and reinsurers with jumbo risk business. Point-in-time reports for carriers and reinsurers who sign up for the service will be available in the fall of 2021, with real-time alerts available in early 2022. For more information about how to sign up for the MIB Jumbo Service, contact MIB at email@example.com.
Collaboration is the Key
While the benefits of MIB’s Jumbo Service are clear, the MIB-TAI collaboration offers perhaps even more exciting possibilities through other products being pursued. A total-line review product that will provide underwriting alerts for issues such as stacking and income-to-coverage ratio problems is slated for delivery in 2022. The partnership is also exploring potential opportunities for predicting lapses, insights into purchasing patterns, and other applications across the insurance value chain, as well as new ways to serve underinsured consumers by identifying needs and offering coverage to match.
The MIB-TAI collaboration demonstrates that the challenges facing the industry can best be overcome together, through insurance companies and organizations with aligned incentives coordinating and combining resources to meet those challenges head on. With so many transformative drivers now affecting insurance and so much uncertainty ahead, the time to come together is now.