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Crossed wires?

An increasing number of insurers are adopting teleunderwriting in an attempt to minimise non-disclosure and make the application process more efficient. But are the different models just causing confusion? Emily Perryman reports

July 2008 Features

Over half of providers now use some form of teleunderwriting to collect medical evidence from protection applicants. The benefits of the service are said to include reduced non-disclosure, faster underwriting decisions and removing the adviser’s responsibility for collecting accurate medical information.

Some advisers, however, say they are yet to be convinced of the merits of teleunderwriting. There are concerns about the qualifications of the person undertaking the phone interview and confusion around what teleunderwriting actually is.

Part of the reason some advisers are dissatisfied is that different models of teleunderwriting exist in the market. Of the insurers that teleunderwriting provider MorganAsh says have adopted the process, roughly half use what is known as “little t” teleunderwriting and the other half use “big T” teleunderwriting. The former involves the consumer or adviser filling in an application form in the traditional manner. If further information is required, then a nurse, underwriter or customer service representative will interview them over the phone. Some insurers also refer to this process as teleinterviewing.

By contrast, during big Tteleunderwriting the customer fills in a short application form with no medical questions, and a nurse or customer service rep will then ask for their full medical details over the phone. Roy McLoughlin, senior partner at IFA firm Master Adviser, says having two processes can be very confusing.

“There is not enough information about teleunderwriting. Most insurance companies do not explain what they are doing and consumers and advisers don’t understand what the words mean,” he says.

McLoughlin also has concerns about the qualifications of the people carrying out medical interviews. Some of his clients have reported bad experiences of teleunderwriting, such as being asked questions in an inappropriate manner.

“If a client has medical problems they can feel uneasy speaking to someone they don’t know. In addition, some of the things that same sex couples have been asked have made me a bit wary about the whole process,” says McLoughlin.

POSITIVE FEEDBACK

In principle, however, most insurers and intermediaries believe that teleunderwriting is a good idea. Big T teleunderwriting reduces the need for GP reports, medicals or additional questions at a later stage, which means policies can go on risk much faster. Most reinsurers will give insurers a discount on their reinsurance rates if they use teleunderwriting, which should result in lower premiums. In addition, advisers can pass on the risk of not capturing the right lifestyle and health data onto the insurer, and save time by not having to fill in the form themselves.

Colin Last, director at Tamar IFA, says: “Teleunderwriting is a much quicker process, the underwriting decision is usually more accurate and if clients have sensitive information they don’t have to put it on a piece of paper which the IFA can look at. The feedback I have had from clients has only been positive. The application form asks for a convenient time to call, and the teleunderwriters do call at that time and are very polite and thorough.”

A recent survey by consulting firm NMG found that the use and acceptance of teleunderwriting among IFAs has grown significantly over the past year. The survey of 221 protection-orientated IFAs found that 34% had experienced teleunderwriting when writing new business, compared to 27% the previous year. Almost two thirds said teleunderwriting has led to significant or some improvement in the efficiency of new business underwriting – a rise of 10% from 2007. Looking ahead, almost three quarters of IFAs thought that efficiency will improve further in this area.

NON-DISCLOSURE

One issue that insurers are hoping teleunderwriting will really help to resolve is the non-disclosure of material health and lifestyle information. Iain Mallon, director of protection marketing at AXA, says big T teleunderwriting significantly reduces non-disclosure because it is a much smarter method than a traditional paper or electronic application. If a customer mentions a particular medical condition the teleunderwriter can immediately go through further drill-down questions to capture the information needed.

Recent research by AXA of more than 9,500 protection applications revealed that consumers are five times more likely not to disclose important medical and lifestyle information on paper applications than with teleunderwriting. It found that 5.78% of paper applications contained non-disclosure, compared to 3.48% for electronic applications and 1.23% for teleunderwriting applications.

“Paper and electronic application forms ask very confusing questions and the industry is expecting the IFA or consumer to be able to understand them. If the consumer gets it wrong, that is non-disclosure,” says Mallon.

Legal & General, which gives consumers the choice of electronic application, big T teleunderwriting and little t teleunderwriting, has also found that it gets a “slightly better” level of disclosure when consumers are interviewed over the phone.

“If the customer’s medical history is more detailed, the phone route is the better way to go because it gives us the opportunity to ask questions and clarify details,” says Roger Wells, underwriting development manager at L&G. “It comes down to the personal choice of the consumer and the agent, but there is a market for teleunderwriting. It gives us the opportunity to build a rapport with consumers directly and it gives a good impression of the insurance industry.”

OTHER CONSIDERATIONS

However, insurers recognise that teleunderwriting is not perfect and that there is no one size fits all approach. Andrew Potterton, chief medical underwriter at Unum, says he looked at introducing big T teleunderwriting but found that it over-complicated income protection (IP).

“IP is simpler than people think it is – it is the easiest risk to underwrite if the right questions are asked,” he says. “Insurers don’t need to go into such lengthy and supplementary questions.”

Unum is not against small t teleunderwriting – it will phone an applicant if it wants further information about a disclosure – but it has decided to focus on developing an electronic underwriting system instead.

“We have designed our paper application to illicit the information we need for IP and we can get to a final decision within a week. Most cases go on risk in two to three days. We are getting good results on paper, but we also realise it’s the 21st century and so we’ve elected to go down the electronic route,” says Potterton.

Meanwhile, Mike Farrell, distribution and marketing manager at progress from Royal Liver, which uses a little t system, says teleunderwriting is not the be all and end all and that insurers need to adopt other processes to reduce non-disclosure.

“Insurers need to use experts to ask the medical questions, which is why we only use people with a minimum of five years’ underwriting experience,” he says. “With big T teleunderwriting some insurers use administrative staff and if the applicant veers off the script they don’t know what to do with the additional information.”

In addition, Farrell believes insurers should obtain so-called “wet signatures” from applicants. progress from Royal Liver sends customers a copy of the application form and a transcript of the teleinterview for them to sign and send back. If they do not send it back the policy will ultimately lapse, but Farrell says the majority of people do return it in time.

“We get about 20% of applications returned with amendments. A lot of these are trivial, such as changing the job title from senior lecturer to lecturer, but around 2% are so significant that we have to offer different terms. This shows the system works because we have captured these changes at the start of the contract, not 10 years down the line,” Farrell adds.

Whatever model is adopted, more and more insurers appear to be moving away from paper and electronic applications towards teleunderwriting. The last few months have seen AEGON Scottish Equitable, Lincoln and Pioneer all introduce teleunderwriting initiatives. An announcement by Bright Grey could be just around the corner, as it says it will be adopting teleunderwriting “sooner rather than later” and “absolutely this year”.

Roger Edwards, products director at Bright Grey, says: “It was essential for us to get our electronic underwriting system in place first because this is the foundation of our underwriting going forward. Now we have it in place, teleunderwriting is the next step and it is very much a decision about how much of the end to end process goes on the phone. We are working on it now for a launch in the near future.”