Nowhere in the world is the underwriting process as sophisticated as it is in North America. Nowhere else are underwriting decisions based:
- So frequently on laboratory analysis of blood, urine and oral fluid
- Routinely on modern assays such NT pro-BNP
- On MIB information – the MIB is unique, certainly as regards the level and detail of information
- On MVR information – these databases are unique
- On Rx databases – again unique
- So frequently on tele-interviews.
And nowhere else do vendors offer such a wide range of integrated services – tele-interviews, medicals and paramedicals, large-scale, rapid-turnaround lab testing, APS ordering, evidence summarization, database identity, credit and criminal record checks, other predictive modelling data… and all packaged and sent in electronic format to the underwriter’s desktop. There are plenty of vendors too. Carriers can channel all their requirements through one vendor, or ‘mix and match’ by combining services from two or more. In fact insurers can (and do) do both, taking different approaches according to type of business, channel, etc.
And now the ‘big three’ lab firms are offering so-called ‘lab scoring’ solutions. Although each offering is slightly different, these are rating scores derived from death records and lab test results. Combine these scores with other pieces of risk information, and you have a very powerful indicator of risk. So if you are using one of these lab scoring services, how much more information do you need? Just how much can you rely on the lab scores?
These are early days and none of the vendors – probably wisely – is making any bold claims, but one could surmise that the older the applicant the more cogent the lab scores become. In older age groups there are more likely to be abnormalities, and those abnormalities are more likely to be of significance. The influence of socio-economic class and lifestyle factors is likely to be less (these would tend to have made their presence felt already to a large degree), and it is recognized that the mortality of various sub-groups of lives tends to converge with the passage of time, and especially from late middle age onwards.
The profusion of risk information source options raises the important question of ‘How much do you need?’ All of it? Well maybe in an ideal world… but today combining efficiency and effectiveness has never been more important. Much of the underwriting intricacy that has developed over the years both stems from and has been driven by preferred, so in that world underwriters need to know, at minimum, the information that will enable them to place a risk in the appropriate category. But they also need to know which pieces of evidence give them the optimal blend of predictive value and cost.
Faced with the crowd of evidence options and vendor services, it’s not a bad idea to step back from time to time and consider how much is really worth it. Is the quest for knowledge about an individual risk in ever greater detail a road to nowhere? Not necessarily. But the law of diminishing returns is ever-present and there are more than the traditional ways of appraising risk. It is really a case of tailoring the whole underwriting approach – philosophy, evidence, tools and process – to the environment.
And that means segmenting the market and considering how target segments are best penetrated – product, price, channel, level of service. Essentially, what is the customer proposition? Answer that question and the underwriting philosophy and model will follow. Sometimes the right approach will need some innovation to make the most of the opportunity.
Effective penetration of the ‘middle market’ requires some of that new thinking to combine successfully effective risk management with simplicity, speed of service and low costs, so underwriters will be required to make a few careful choices from the underwriting toolbox. But there are plenty of segments between down-market and up-market, so potentially plenty of customer propositions. With so many tools in the box there are plenty of ways to appraise and stratify risk.
Some foresee a great deal of change in the underwriting landscape over the next few years. Could be they’re right.