Lifecos turn to data analytics

Toronto-based Manulife Financial Corp. announced in early February that it would no longer require nicotine testing or blood, urine and other biometric data for eligible applicants between the ages of 18 and 40 on individual life insurance policies of up to $1 million.

The insurer first implemented some of the underwriting changes on term policies in May 2016 and has now extended the program to all life insurance products in an effort to make underwriting faster and less intrusive for clients.

“The real impetus to change here is that consumer expectations have been changing,” says Karen Cutler, vice president and chief underwriter with Manulife. “We really want to focus on making the customer experience significantly better than it has been in the past.”

Although clients who have certain chronic health conditions will still undergo traditional medical underwriting, Manulife estimates that 80% of applicants will be able to complete the full underwriting process solely on the basis of the application.

Toronto-based Sun Life Assurance Co. of Canada made similar underwriting changes in November 2016, announcing that medical exams, electrocardiograms, oral fluid samples and urine HIV tests would no longer be routinely required for either critical illness (CI) or life insurance.

The insurer estimates that less than half of life insurance applicants and less than a quarter of CI applicants now require medical testing, including older clients and those applying for higher coverage amounts.

Some other insurers are also innovating in this area. Saint-Hyacinthe, Que.-based Humania Assurance Inc., for example, launched a new life insurance program called HuGO in October 2016, which lets clients get approved for up to $1 million of fully underwritten term coverage in as little as 15 minutes.

The changes are made possible by data analytics, which help insurers identify those applicants who face a higher level of risk and, therefore, require medical testing.

“Rather than testing 100% of the population, we can test a much smaller proportion of the population as a result,” Cutler says.

Joshua Harris, financial advisor with Harris & Partners Financial Inc. in Markham, Ont., says the changes could entice more clients to apply for life insurance.

“It makes a massive difference in accessibility for clients,” says Harris, noting that many of his clients shy away from medical tests.

Harris works primarily with millennials, and even though they’re young and healthy, he says, many of them choose to pay more for policies that don’t require medical tests. Some are concerned that the tests will reveal a health issue that they aren’t aware of, he notes, and others say they’re too busy.

“A lot of the younger clients get intimidated by the tests, and some end up not getting the insurance at all,” Harris says. “This makes it more accessible.”

However, the underwriting changes also raise some concerns. Lawrence Geller, president of Campbellville, Ont.-based L.I. Geller Insurance Agencies Ltd., fears that if insurers conduct less testing, they’ll be more likely to find reasons to rescind policies at the time of claim, as they could uncover things in a client’s medical records that weren’t disclosed on the application.

“Unless the insurer gives an undertaking not to reunderwrite at the time of claim, there are a lot of potential problems,” says Geller. “I think it will result in more rescinded policies.”

Harris agrees that eliminating medical tests creates a risk that clients could inadvertently exclude medical details on the application – due to memory lapse, for example – that the insurer could use later to challenge claims. Even though many of his clients prefer to avoid medical tests, he feels more comfortable when full medical underwriting is done.

“Information [could] slip through the cracks,” Harris says. “It will be very interesting to see, years from now, when the claims start coming in, how many of them are investigated by the insurance companies.”

At Manulife, Cutler says, policies underwritten without medical tests will go through the same adjudication process that exists for all claims. As part of that process, she says, if information is provided at the time of the claim that differs from the information provided on the insurance application, the company would pursue “clarification of the discrepancy.”

“The intent of this was never to push underwriting to claims,” Cutler says. “We expect that our clients are answering the questions truthfully. We don’t anticipate any changes at claim time.”

Harris suspects that the changes could result in a higher volume of claims in general, as insurers will have less information about a client’s health – including possible health issues of which clients themselves aren’t aware.

“If someone has high cholesterol, but he or she doesn’t know it yet, that’s something [the insurance company] would find in the bloodwork,” he says.

Battling insurance fraud could also be a challenge for insurers under the new underwriting parameters, particularly in the absence of nicotine testing. At least 5%-15% of applicants who say they do not smoke when applying for insurance actually test positive for the chemical compound found in tobacco, according to a report from Paris-based global reinsurer SCOR SE.

If applicants know that an insurer doesn’t test for tobacco, the report says, that proportion could rise further, which could lead to a higher-than-expected level of claims and, in turn, higher premiums for all clients.

Manulife has addressed this risk by building an analytics tool that helps identify applicants who are more likely to smoke – even if they say they don’t – based on factors such as occupation and geographical location. Those individuals, which Cutler estimates will comprise less than 2% of the population, will be required to take a nicotine test.

“Most smokers tell us that they’re smokers. There’s a certain number of people who don’t tell us they’re smokers,” Cutler says. “What this model does, is it helps us identify those people.”

The underwriting process is likely to continue to evolve as more insurers embrace data analytics, according to the SCOR report.

“What life insurers can accomplish digitally continues to become more far-reaching, simpler and faster, so underwriting will increasingly depend on algorithms and e-data,” the report says.

Harris says that despite his reservations, he considers the move to modernize the underwriting process a positive development that will help motivate more clients to get coverage: “It’s the right path toward the future.”

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