To combat the decline of life insurance ownership in the United States, Principal Financial Group is shortening the sales process through a homegrown automated underwriting system. INN spoke with Greg Linde, VP of individual life, about the tactical and strategic implications of the project and benefits to the insurer, agents and consumers.
INN: What was the problem you were trying to solve?
Greg Linde: Life insurance ownership in the United States is declining. Today less than 50 percent of households own individual life insurance; 40 years ago that number was close to 80 percent. There are likely several reasons for this trend, but we believe one is that the acquisition process is too long and too cumbersome. We are trying to make it shorter, less cumbersome and, as it pertains to bodily fluids, less invasive. Part of the reason life insurance ownership is declining is that we, the industry, haven't made fundamental changes to the way we sell insurance. People don't want to wait and they don't want to subject themselves to that kind of process. There are other reasons, too, such as the complexity of the products. But we are trying to fundamentally change the way we do business, and part of our strategy is to turn things around faster and be easier to work with when it comes to underwriting.
INN: What did you do?
GL: We worked with Deloitte to develop our automated underwriting algorithm, which we created in Java. This is not a vendor package. Data readiness was a critical component of the project, as were our business process management capabilities. We start with four sources of information: the telephone interview, a motor vehicle report, the Medical Information Bureau and a pharmaceutical database. Then we run the algorithm against them. We tested a lot of algorithms and variables, including traditional and non-traditional sources of underwriting data. We could have built an algorithm using publicly available marketing data, but we had a couple concerns. One was public acceptance. The other is we want to stay compliant with Fair Credit Reporting Act regulations. We have to verify the sources of our data. Some of those sources were predictive, but we decided not to go down that path.
INN: Is it working?
GL: We've just rolled it out, but we get anecdotal evidence every day. A client, who also is a producer, submitted an app one day, completed a phone interview two hours later and the next day had approval and a life insurance policy. That typically would have taken 35 days. So, it's also making people more productive. If they don't have to wait, they don't have to do all that follow-up. And producers get paid faster, so they can spend more time finding clients, selling and coming up with solutions and less time on the back end after the sale has been made.
INN: How does it help the company? Is it strategic or tactical?
GL: Not all of our competitors have a program like this, and as far as producers are concerned, most carriers don't either. Others will follow, but it's a real differentiator for us and the broker. Maybe the broker's competition can't offer this type of program. Strategically, we have always tried to differentiate in the underwriting process, through the people we hire and an express processing team for clean cases. We've had an in-house phone interviewing system for 17 years, so instead of the producer having to complete the medical interview, a phone interviewer does it. When we do the interviews in-house, it eliminates a significant need to get attending physicians' statements, which drags out the process.
INN: What surprised you doing this project?
GL: One surprise was how fast underwriters accepted it. Sometimes people have a reluctance to change, but people from underwriting and actuarial asked good questions. It's not easy to design an algorithm and put it into production, but we didn't underestimate it. We didn't design a new product or change the pricing. These are off-the-shelf products with preferred and super-preferred pricing.
INN: What kind of ROI do you anticipate?
GL: This was a sizable investment. The project took two years and more than 100 people worked on it. We are looking for a five-year payback. It's going to increase productivity, drive more business and help us achieve our mortality objectives. If we did it again, we'd have a better idea what specific skill sets it would take and the ideal sequence of events.
INN: How do producers benefit?
GL: We reduced turnaround time immensely. The product set, the premium and all the variables being equal, producers would rather do business where they can get approval in two to four days. It allows clients to get coverage quicker, easier and more professionally and producers get paid faster.
