What can medical underwriting accomplish?
Rigorous medical underwriting could presumably bridge this mortality gap; however, the study's results suggest otherwise. After applying the same risk assessment standards using a proxy for medical underwriting (i.e., prescription and medical claims history) to both populations, mortality differences persisted between the prospective and historical insured populations.
For fully underwritten policies, even when comparing only the lowest risk quintiles of both populations, the mortality ratio remained materially greater than one. This suggests there may be inherent differences between these populations that extend beyond what traditional medical underwriting can capture.
The simplified issue category showed the most similarity between historical insured and prospective insured populations. As underwriting restrictions tightened, the mortality ratio crossed below the 1.0 threshold for the best risk quintiles, indicating prospective insureds might be well-suited for simplified issue products in today's market. Also, the prospective insured population consistently had lower mortality outcomes than final expense insureds.
Age and duration
The study also revealed interesting trends when examining mortality differences by age and policy duration. For fully underwritten policies, excluding the highest-risk individuals, younger ages showed a more significant mortality ratio between historical insureds and prospective populations. This finding is particularly noteworthy as younger individuals are often a target demographic when attempting to enter the middle market.
Duration analysis showed that a historical insured policy assessed more than 20 years ago had a better mortality rate – well above 1.0 – than the prospective insured population. This persistent difference suggests that factors beyond underwriting continue to have a long-lasting influence on mortality outcomes.
Strategies for responsible market expansion
These findings highlight the challenges of expanding into untapped markets and underscore the need for innovative approaches to responsibly reduce the insurance gap. However, this is not to suggest that these markets and their challenges should be avoided.
The insurance industry must continue to unlock the full potential of digital evidence. As individuals' digital footprints grow, leveraging electronic health records and other unstructured data sources could pave the way for more effective and efficient underwriting. The shift towards digital applications also presents an opportunity to balance customer experience with accurate disclosures, potentially through the implementation of behavioral science principles.
It is crucial for insurers to have a deep understanding of not only who they are targeting but also who is seeking them. This may involve developing effective lead generation strategies and partnering with quality third-party providers, especially when entering the direct-to-consumer market. Starting with familiar or well-defined markets, such as affinity groups, could provide a valuable entry point into new segments.
For those less familiar markets (and all segments), it is essential for the industry to ensure it is fulfilling a true insurance need with its product offerings, not merely seizing an opportunity. This may involve creating new offerings that fill the gap between simplified issue and fully underwritten products, both in terms of underwriting rigor and pricing.
Insurers should strive to manage price sensitivity, striking a balance between adequate pricing for the risk and affordability for the target market. For example, individuals, particularly those who are younger, may have an appetite for paying a higher cost for a more palatable experience along with a product that is more understandable.
Conclusion: A cautious but committed approach
RGA’s study provides valuable insights into the mortality considerations for untapped markets. While it reveals significant challenges, including higher mortality outcomes and limitations of traditional underwriting methods, it also provides a path toward innovative solutions.
As the insurance industry strives to close the protection gap, it must be cognizant of the realities of mortality differences in untapped markets. This means developing new underwriting techniques, leveraging advanced data analytics, and creating products tailored to the needs and risk profiles of underserved populations.
By approaching this challenge with a combination of caution and commitment, insurers can navigate the unknown territories of new markets, expanding their reach while maintaining responsible risk management practices. RGA is excited to work alongside carriers to provide solutions that will make financial protection accessible to all.
RGA experts are eager to engage with clients to better understand and tackle the industry’s most pressing challenges together. Contact us to learn more about our capabilities, resources, and solutions.