3 Life Sales Innovation Mysteries That Drive Actuaries Wild
December 5, 2017 by Allison Bell
Actuaries at the National Association of Insurance Commissioners are trying to figure out what words to use to talk about the new life insurance sales, underwriting and policy issue strategies, so they can analyze how the new strategies affect product performance.
The NAIC’s Life Actuarial Task Force (LATF) included two slidedecks on new life strategies in a packet of materials for task force meeting session. The task force held the session Thursday in Honolulu, at the NAIC’s fall national meeting. The NAIC is meeting in Honolulu from now until Monday.
One of the slidedecks describes actuaries’ current thinking about guaranteed issue and simplified issue life insurance programs.
Mary Bahna-Nolan, an actuary, developed that slidedeck. Bahna-Nolan is the chair of both the Life Experience Committee at the American Academy of Actuaries and the Preferred Mortality Project Oversight Group at the Society of Actuaries (SOA). She put the logos for both the academy on that slidedeck.
The second slidedeck deals with accelerated underwriting programs (AUW).
Bahna-Nolan developed the second slidedeck together with Matt Monson. That slidedeck bears only the SOA logo.
Members of the LATF group appear to be looking at the guaranteed issue, simplified issue and accelerated underwriting programs mainly because life market players and observers want to have “apples to apples” comparisons of how different types of products are doing, not because anyone has been talking about any significant problems resulting from use of the programs.
Here’s a look at three highlights from the slidedecks.
1. Actuaries whether the life insurance policy data they get for certain types of programs is really the right data.
An actuarial team asked life insurers to send it large amounts of guaranteed issue policy claim data for a study on guaranteed issue mortality, or the death rates for insureds who got covered without having to submit any health-related evidence of insurability.
One reinsurer told the team that it thinks the overall mortality rates for the data files the team received look so strange that the data files could not all have fit with the team’s definition of “guaranteed issue
Confidentiality considerations are keeping the reinsurer from disclosing the names of its guaranteed issue clients, and consideration considerations are keeping the mortality study team from naming the companies that sent it guaranteed issue policy claim data.
The reinsurer and the study team have been trying to dig as deeply as they can to figure out why the mortality rate for the data in the study looks so different from what the reinsurer expected.
2. Actuaries are wondering whether and how they can really distinguish between terms such as “simplified issue,” “simplified underwriting” and “accelerated underwriting.”
Bahna-Nolan does not try to summarize the distinctions in the slidedeck, but she notes that commenters have told the study team that the clarifying the distinctions is difficult, especially given the rapid changes happening in the marketplace.
Challenges interfering with efforts to write actuarially useful definitions include the introduction of new data sources and the wide variety of new industry programs, according Bahna-Nolan.
A program’s target market and distribution methods could also affect the performance of the products sold, according to Bahna-Nolan.
3. Actuaries are wondering whether and how they can combine data for policies sold through a number of different strategies that could be classified as accelerated underwriting (AUW) strategies.
Today, Bahna-Nolan and Monson note, about 40% of life applicants qualify to use life insurers’ AUW programs, and about 75% could qualify to use AUW processes in the future.
But “AUW methodology” could refer to use of triage programs, predictive analytics systems, artificial intelligence systems, algorithmic underwriting systems, rules engines, and tele-underwriting systems, according to the AUW slidedeck.
“There is overlap, but each [method] has distinguishing features,” the actuaries note.
Some think that AUW mortality results will be better than with conventional underwriting strategies, but some are thinking that mortality could be a little higher, according to Bahna-Nolan and Monson.
“It really depends on the structure of the program,” according to the actuaries. “Distribution channel has a huge impact.”