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Between March and May 2020, Google searches for the term "life insurance” surged by 50%. This swell in interest made sense and drove a profound change in how policies were sold, given that in-person exams and visits were impossible.
The healthcare industry was overwhelmed, and governments imposed strict lockdowns to stop the spread of COVID-19. In the face of death, the question of one's mortality was suddenly unavoidable. Most people think about buying life insurance after big events like getting married or starting a family.
As we know, life insurance policies with the most substantial death benefit and lowest premiums are fully underwritten. The process to qualify for this coverage can be cumbersome and take multiple weeks. Typically, it requires an insurance advisor to meet with a client and discuss the type of policy they want (i.e., term, whole, universal), the amount of coverage, any possible riders, potential tax advantages, and the monthly premiums they will pay. Even in a pandemic, advisors could meet with clients virtually thanks to video conferencing software like Zoom or over the phone. Yet, the main requirement to get the best rate was a medical examination and copies of medical records. However, because of the lockdowns, the process ended there for a significant number of potential clients. Social distancing rules saw many doctor's offices closed to in-person meetings, so people could not get an exam or access their records. Home visits were also unavailable.
Carriers received a surge in applications for fully underwritten policies. But those applications were either rejected due to the above-mentioned issues or remained in limbo for significant periods. The situation frustrated everyone: carriers, agents, and brokers, causing many clients to be left empty-handed during a crisis.
Because of this need, advisors looked for alternative ways of acquiring coverage. And initially, many carriers had just the thing: accelerated-underwriting (AU) policies. By accelerated, carriers sought to limit the underlying health conditions of applicants who were accepted, ”knocking out” those with most pre-existing conditions. By offering a fast underwriting experience to healthy applicants, it became significantly easier to place cases. There's also no additional cost compared to a fully underwritten policy, but the ”knock out” rate often hits 50% of all applicants.
Some carriers saw growth in offering instant-issue policies. Coverage is often offered within minutes with no requirement for an examination or blood, urine, or saliva samples to test. This solution looked enticing in a pandemic shuttered environment, but the cost can easily be 50% or higher, while applicants' placement rate is rarely above 60%.
The rise of outcome-driven, advisor-led instant decision insurance
The challenge of the traditional AU and Instant-Issue products is being addressed by tools and processes that use data science and deep analytics to gather information and make policy decisions quickly and efficiently.
Outcome-driven quotations are a new concept to the traditional life quoting process; whereas most quoting tools gather only the most basic information and display quotes by price first, outcome-driven seeks to collect more information about the client, and then with a holistic profile, match the applicant to the best possible carrier in terms of placement ratio, cycle time, and price, as well as other factors.
Instant-decision life policies then take this rich information, use detailed data analytics and nearly real-time information sources, and provide an instant decision on the applicant with a policy following minutes later.
The combination of gathering information and providing a timely response has resonated with advisors in several ways. Given the time pressures, advisors know that better information equals a better outcome. Additionally, while early results show a slight increase in the price of these policies, the overall better outcome brings the value proposition to the client into focus.
Looking forward to a post-COVID world
I hope enough of the vaccine-hesitant population reconsiders, and we achieve a level of immunity that will burn the virus and its variants out. Once that happens, we can return to as close to a pre-pandemic normal as possible. But many changes brought on by the virus will likely be here to stay and some of the changes are indeed welcome.
The insurance industry continues to see strong revenue growth in 2021. Total individual life insurance sales increased by 11% year-over-year in the first quarter. That was the highest increase since 1983, while total premiums also jumped 15% from the previous year. Variable universal life and whole life policies saw the largest year-over-year premium growth, while the number of term policies saw their most significant increase in over two decades.
While direct-to-consumer insurance sales continue to make news, traditional distribution channels are more than necessary. According to a survey by LIMRA and the Boston Consulting Group, nearly 40% of consumers purchased life insurance through a hybrid approach, using both online sources and consulting with an advisor. The same survey showed that around a quarter of respondents found that talking with an advisor eased purchasing.
While it is expected that fully underwritten policies will see a rebound in sales, and placement ratios will return to normal as more jurisdictions relax social distancing rules, the growth in the industry is likely to be around these new outcomes and data-driven products. Next in terms of development will be bringing these new tools to policies with even higher death benefits across a wider swath of customers while doing away with the cumbersome purchasing process.
Scott Fergusson is the chief executive officer at Techficient, an insurtech company formed in 2020. As an independent company with strong connections to the industry, Techf has a unique platform that empowers distribution and carriers to better serve their customers and impact lives. Scott started his career at Merrill Lynch and has more than 20 years of data aggregation and analytics experience, specifically around business performance improvement and machine learning.
Read more articles by Scott Fergusson
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
