Author Wants To Share Some Reader Reaction
To The Editor:
My article, Speeding Up Underwriting Will Help Banks Penetrate Mid-Market, which ran in the July 23 edition, stirred up some thoughtful comment. In addition to William Nowlan's letter in the August 27 edition, I received two other letters directly. The correspondence has been sufficiently interesting, and I want to share the highlights with your readers.
All of the correspondents questioned whether the underwriting process could be sped up with the only sacrifice being an acceptance of 4% of the applicants at a "mere" 100% increase in mortality. Since the new underwriting tools my article discussed (primarily access to motor vehicle, credit and prescription meds history) are new, they have not yet been thoroughly vetted by insurers. Thus, the cost of abandoning slow methods (APSs, parameds and fluids) in favor of fast methods has not yet been determined.
The assumption I used was based upon the Life Insurers Fact Book, 2000 statistics which show that only about 5% of all policies are declined and about 5% are issued substandard.I have no reason to think that all the extra policies that would be written standard, using the new tools, would have been otherwise declined. I would expect that some of them would have been issued substandard. Thus the 100% increase in mortality for 4% of the business seemed reasonable.
Continuing in this vein, one of my correspondents stated that qualitatively, bank business has turned out to be vasty different from his firm's traditional core business. "The most striking feature of this business," he states, "has been its apparent high degree of anti-selection."
Not every firm hashad such negative experience with banks. I suspect that this situation is primarily a fault of thesales approach and sales training. No product can be profitable if there is not a good spread of risks, even with thorough underwriting.
A number ofmy National Underwriter articles in the past (I would particularly suggest looking at the one in the April 2, 2001 edition) have addressed bank sales models.
Finally, a correspondentsaid, "I'd love to know if you have any specific suggestions on how a company could reduce its underwriting and issue costs by 50%." Half of this firm's issue costscome from underwriting. Even if expert underwriting software is in place,some cases will have to go to the underwriters, so this entire cost cannot be eliminated.
