The coronavirus accelerates a no-exam trend in life insurance
Checking out the caveats of accelerated underwriting
Big data is playing a prominent role in life insurance this year.
Interest in coverage has surged during the pandemic, but for many people, social distancing mandates took the life insurance medical exam off the table.
As consumers look for quick, noninvasive ways to buy policies, insurers have turned to accelerated underwriting, a process that uses algorithms instead of exams to evaluate applicants.
While accelerated underwriting isn’t new, more than a third of life insurers have expanded it due to the pandemic, according to a study by the Society of Actuaries.
And no-exam life insurance appeals to many people.
“They want it to be fast and easy,” says Gina Birchall, chief operating officer for the life insurance trade group LIMRA.
Accelerated underwriting can help you get life insurance quickly online, but there are caveats. What you gain in speed, you may lose in flexibility and price.
How big data has changed life insurance
Traditionally, buying life insurance was a lengthy process involving bloodwork, urine samples and long waits for approval.
“It was probably the hardest or most difficult product to buy left in the modern economy,” says
Brooks Tingle, president and CEO of John Hancock Insurance.
This changed as the world became steeped in big data.
Insurers now typically check your prescription drug history and data from the MIB Group, an information-sharing service for insurers.
Companies may also consider non-medical data, such as your credit history, driving record and shopping habits.
Algorithms then combine these data points to quickly determine eligibility and cost of coverage. This data can be tricky to dissect, but industry experts expect the trend to grow.
“The more information we have, the deeper the data that we have, the more capable we are of making sound decisions,” says Jackie Morales, chief insurance officer for Bestow, an insurer that uses accelerated underwriting.
How accelerated underwriting works
Companies typically use accelerated underwriting techniques in two ways:
1. To fast-track healthy people’s applications. Many major carriers approve low-risk applicants based on big data and then require medical exams for everyone else, says Jeremy Hallett, CEO of Quotacy, a life insurance broker.
On average, it takes nine days for an insurer to reach a final decision using accelerated underwriting instead of the traditional 27,
according to LIMRA. These policies are considered fully underwritten, even if you don’t take an exam.
2. To provide instant answers. Insurers like Bestow use information from your application and big data algorithms to assess risk, and never require a medical exam. Coverage is not guaranteed, but the application process is fast and you often get an answer within minutes.
Accelerated underwriting is not to be confused with “simplified issue” life insurance, which considers the answers on your application but doesn’t tap into big data. These policies typically cost more and offer less coverage than standard policies because they rely on limited information.
What to consider when choosing a policy
When you shop for life insurance, be sure to ask how the policy is priced. Both instant-answer and fully underwritten policies have pros and cons, and your specific needs will dictate what is right for you.
Before you apply, ask yourself these questions:
How fast do you want coverage?
If speed is paramount, consider instant-answer policies that solely use big data and never require an exam. You will get an answer quickly, although the answer may be no.
“What big data is providing people is speed,” says Bestow’s Morales. Nearly 85% of people who apply for a Bestow policy do so on a mobile device, she says.
While accelerated underwriting isn’t new, more than a third of life insurers have expanded it due to the pandemic, according to a study by the Society of Actuaries.
How much do you want to pay?
A policy with full medical underwriting is likely to be the cheapest option. If the insurer chooses to use accelerated underwriting to fast-track your application, you are not penalized; your price and product will likely be the same as if you had taken the exam, Hallett says.
Instant-answer policies may not offer rates in the cheapest brackets since the insurer doesn’t have the option of a medical exam to get more information. But Morales says, “Some people will trade off that ability to get a fast decision at a reasonable price.”
Do you want flexibility?
Fully underwritten life insurance may offer more options, such as the ability to convert from term to permanent coverage. This is not always true of policies that rely solely on your application information and big data.
“When you at least have that medical exam as a possibility,” Hallett says, “you get a more robust product.”