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Underwriting and Claims

Facultative Life Insurance Underwriting Transformed

A Strategy to Create Solutions of Vision and Value in the Ecosystem Era
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The term “ecosystem” is thrown around a lot in the insurance industry these days – and for good reason.


A spectrum of new data sources and advances in digital technology applied throughout the insurance process have brought companies together in new and unanticipated ways. The COVID-19 pandemic fueled additional progress in this area, which promises to remain a dominant trend after the pandemic recedes. While startups and new entrants have created more complex networks of interconnectivity, established partnerships – including those of insurers and reinsurers – have also been recast, adding new layers to traditional roles.

In the area of underwriting, particularly facultative underwriting, we have seen industry dynamics completely redefined by the COVID-19 pandemic. As we emerge from the pandemic, this shifting landscape will remain. Many insurers looking to derive more value from their underwriting function may face outdated technology, legacy processes, and the industry-wide retirement of experienced underwriters. Carriers are taking a thorough look at how underwriting works within their businesses, determining areas that could benefit from greater support, and identifying the best partners to provide it.

In the area of underwriting, particularly facultative underwriting, we have seen industry dynamics completely redefined by the COVID-19 pandemic.

In late 2021, amid this turbulent – yet exciting – time for the industry and for the underwriting profession, I accepted a tremendous opportunity to head up underwriting for RGA’s U.S. mortality business. Our team has been hard at work developing a strategy to both build on RGA’s unmatched legacy and to create a vision for the future. These four principles will guide our path forward:

1. Connection matters.

At a time of intense change, no one can afford to observe from the sidelines; every participant is connected. Established insurers, new insurtech entrants, reinsurers, and other players are sharing underwriting data, insights, and capabilities across systems and services to fast-track innovation, adapt to change, and deliver more personalized customer care.

To take full advantage of these ecosystems, insurers need to create new partnerships and rethink existing ones, including those with reinsurers. In the past, the reinsurer has demonstrated value primarily as an underwriting “expert” or “consultant.” While RGA underwriters of course value that role of providing a view across the underwriting landscape, we are dedicated to enhancing our value proposition to become even more engaged as doers, active participants with a stake in shaping the forces remaking the industry. Instead of simply overseeing facultative underwriting work, we intend to lead progress and forge connections to move the industry forward.

Instead of simply overseeing facultative underwriting work, we intend to lead progress and forge connections to move the industry forward.

In effective underwriting ecosystems, investments in talent and technology made by any one participant can benefit all. At RGA, for example, we have developed an end-to-end suite of services, reinvented technologies, and supplementary support programs – all designed to draw on our traditional facultative expertise and respond both to specific and common insurer pain points. These include issues with capacity, legacy systems, and processing speed. We are delivering greater value through actual day-to-day underwriting support, not just consulting, and filling a void within the ecosystem for those carriers who need these services.

2. Expertise matters.

We shouldn’t interpret any of the above trends as lessening the need for the facultative review. In fact, RGA broke our previous record in the U.S. market by reviewing more than 120,000 facultative cases in 2021. With underwriting talent pools stretched thin, there is heightened need for mastery of the art and science of facultative underwriting.

Though resource-intensive to maintain, the facultative yield extends well beyond “just” the individual case. Ill-considered underwriting process improvements and poorly developed or neglected guidelines can lead to noticeably lower placement rates and margins, which can inflict real damage to the bottom line.

For this reason, insurers are understandably reluctant to relax the rigor of facultative review or otherwise constrict the facultative market. And yet the pressure to produce the most time- and cost-efficient outcomes is mounting. Again, for some carriers, turning to ecosystem support may provide solutions.

Recognizing this, RGA is doubling down on facultative underwriting as central to the company’s value proposition, introducing new technologies and efficiencies to the process. We partnered with insurers to develop a market-first Precision Calculator for best-in-class risk calculation and launched a FAC Optimization solution that integrates machine learning, optical character recognition (OCR), and natural language processing (NLP) technology into the facultative underwriting process.

We partnered with insurers to develop a market-first Precision Calculator for best-in-class risk calculation and launched a FAC Optimization solution.

3. Innovation is more than either-or.

In his 1997 book, The Innovator’s Dilemma, Harvard Business School professor Clayton M. Christensen argued that, very often, companies fail, not because executives made bad decisions, but because they made good ones – the logical choices that had made those companies successful for decades. These executives became ever more expert at refining one set of rigid systems while disregarding new ideas as distractions. Then, they discovered too late that their products or services became obsolete overnight.

One could call this the facultative innovator’s dilemma, as well. And yet when it comes to the question of innovation, the answer to this is not either-or; it is both. Facultative underwriters must be capable of both technical excellence and experimentation, of both delivering rigorous case review and challenging the status quo, of both delivering consistent risk assessment results and adapting to the unexpected.

Facultative underwriters must be capable of both technical excellence and experimentation, of both delivering rigorous case review and challenging the status quo, of both delivering consistent risk assessment results and adapting to the unexpected.

Our carrier partners are well along the path of fundamentally reimagining traditional underwriting age and amount categories. In a similar way, RGA is breaking down and rebuilding the definition of a “facultative” case. It is time to break away from labels that can constrict the industry artificially. What qualifies as a facultative case anymore?

Consider this: Traditionally after insurer review, RGA provides a competitive second opinion. We are expanding that role within the ecosystem construct by questioning the status quo: Why not provide that same level of consultation, not solely at the end of the process when all other reviews have been exhausted, but anywhere across the value chain when underwriting expertise is needed? Why not provide services along with underwriting, and across a wider set of products? Why not assemble an ecosystem of products and services to provide a deeper level of value? As an industry, insurers asking these questions and we are responding.

Partnership

4. Partnership cannot become a platitude.

Our carrier clients are at the center of everything we do. Amid the redefinition of so many traditional roles and notions around underwriting in emerging ecosystems, one primary principal still applies: True partnership fuels innovation and long-term growth. In other words, when partners look out for each other’s best interests, everybody wins. This is especially true for reinsurers working with direct insurer clients. If the concept of partnership becomes an empty platitude for the reinsurer, the costs to overall efficiency and progress can be great.

RGA has embraced a vendor-agnostic approach, allowing insurer-partners to find the right tool within the broader ecosystem to meet their specific needs. This necessitates a deep understanding of the data tools landscape and best-in-class capabilities, and a willingness to make the insurer’s success the primary goal. As we expand our capabilities, it is vitally important to establish clear guardrails within each partnership that keeps client-centricity paramount. We provide a full range of on-demand solutions and are willing to assume the risk, but only as determined by each client.

Looking Ahead

When it comes to assessing the risks of the future, underwriters, like actuaries, base forecasts on facts. Yet, when it comes to relationships, we hear carriers’ calls to establish partnerships that require a broader vision of reinsurance underwriting. In return we seek partners who are willing to reimagine the familiar, rethink data collection methods, and refine risk assessment practices – all in the interests of bringing affordable financial protection to more people.

The old model demands re-invention. Future success demands a meaningful, scalable, and material system of supports – an underwriting ecosystem for the future.


If you would like to learn more about the underwriting ecosystem we have created at RGA, I am eager to hear from you. Please contact me to start a conversation about how RGA can help meet your underwriting needs.

The Author

  • Dr. Dave Rengachary
    DBIM, FALU, FLMI
    Senior Vice President
    Head of Underwriting

    U.S. Mortality Markets
    Send email >

Summary

Insurers facing outdated technology, legacy processes, and the industry-wide retirement of experienced underwriters are taking a thorough look at how underwriting works within their businesses. RGA's Dave Rengachary offers a new vision for how RGA can help insurers thrive in the new underwriting ecosystem. At RGA, we are eager to speak with clients about any support needed. Contact us to discuss your underwriting needs.

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