Extending life and health coverage to groups with previously limited access to such products is a win-win for insurers and customers. Learn about three specific approaches to making insurance more inclusive.
Insurers are increasingly interested in developing more consumer-centric products and processes and enabling more flexible underwriting decisions. This effort achieves the twin aims of increasing sales opportunities and extending insurance to previously unrepresented and underrepresented populations.
This article details three approaches that have made insurance accessible to more people: digitalizing the insurance pipeline; developing products for specific populations; and shifting from exclusions to loading during underwriting.
Digitalization automates repetitive tasks, speeds data analytics and discovery, and strengthens online product offerings. The industry’s embrace of digitalization has expanded the services and products available to customers.
In addition, the emergence of technology like OCR (optical character recognition), which converts an image of text into a machine-readable text format, has streamlined the underwriting process for insurance products. With OCR, users scan paper documents, photos, or PDFs. Then, the OCR software identifies text and processes the information to pinpoint alphabetic letters and numeric digits. The text is further transformed by Natural Language Processing (NLP), another machine learning tool that processes human language. In an insurance underwriting context, NLP identifies key information in medical reports, such as lab test results, vital signs, prescriptions, and physician statements.
An OCR-enabled underwriting tool enables more granular risk assessment by assessing complex multivariate information in various combinations within the trained model. This helps insurers provide more inclusive underwriting to applicants who, under traditional underwriting, may have been not accepted.
One of the most direct pathways for expanding insurance options for previously underserved populations is to create specialized products that respond to the needs and challenges faced by a specific group.
For example, a decade ago, insurers in South Korea identified surging demand for the protection of impaired lives. They responded by leveraging simplified issue (SI) products, which provided a new source of effective and economically feasible insurance coverage.
SI usually features only three core questions that can be answered simply for quick review and approval, reducing the time and effort required and increasing customers’ ability to obtain coverage.
SI offerings have evolved quickly in Korea over that time, becoming the gold standard in providing protection for impaired lives and enabling the Korean life insurance market to overcome what had been a significant obstacle to business growth.
Today, China faces challenges similar to those once faced in South Korea. Among the aging population in China, the proportion of impaired lives – people with diabetes, hypertension, or other chronic diseases – who can obtain insurance coverage remains low, creating a significant coverage gap.
In 2022, RGA partnered with a leading insurer in China to launch that market’s first SI critical illness (CI) product. Teams from RGA and the insurer worked together closely for four months to transplant this originally Korean concept, adapting the underwriting approach and product design specifically to the Chinese market. The result is a truly innovative product that retains the essential risk protection of traditional CI products while bringing greater access to insurance protection and financial security for people living with chronic diseases.
Another approach to make insurance more inclusive is to apply loading to an underwriting assessment instead of excluding a medical impairment from coverage. Loading refers to the process of building additional cost into the insurance policy to cover higher-than-anticipated losses from insuring a person who is prone to a form of risk.
For example, RGA has launched this approach with clients in Asia, allowing them to extend hospital cash benefit plans to customers whose medical impairments would otherwise be excluded from coverage. Insurers can now sell more products while maintaining sound risk practices.
Hospital cash benefit (HCB) policies provide payments of US$50-300 per day of hospitalization. Customers can use the payments for any type of expenses, including lost wages.
To apply loading while underwriting HCB policies, first, the insurer identifies the impairments that most frequently result in exclusion across all insureds. These past impairments could include, for example, cataracts, uterine fibroids, or non-cancerous breast conditions. Many insurers in Asia will apply a specific exclusion for such an impairment or, if an exclusion is not possible, then whole HCB coverage may be declined.
A reinsurer like RGA can instead quantify the risk, apply loading, and pass an additional premium to the direct insurer. In this arrangement, the direct insurer may ask the customer to pay additional premium and the customer will receive full coverage without exclusion.
RGA quantifies the risk by examining hospitalization outcomes from various large datasets. These datasets include hundreds of millions of patients, both healthy and impaired, from local markets and other markets. RGA underwriters then collaborate with doctors, underwriters, and actuaries to analyze risk and offer loading options for impairments. Reinsurers also look closely at other key factors, such as the nature of a disease, its recurrence risk, and the possible changes in customer behavior.
For example, under an insurer’s previous guidelines for HCB underwriting, any cataract condition would be excluded from coverage. Under a loading approach, an insured who has undergone surgery for both eyes but did not complete their recovery would still be excluded, but additional premiums could be applied when the insured has achieved a complete recovery for one eye operation or if he or she has not yet had a cataracts operation.
Loading may not work for all types of plans. Additionally, converting an exclusion to loading for common impairments might result in anti-selection risk, changes in customer behavior, or early lapse rates. Insurers and reinsurers should monitor these factors when designing products and developing underwriting manuals.
Extending life and health coverage to groups with previously limited access to such products is a win-win for insurers and customers. But the win is only possible if insurers develop solid strategies and collaborate with experienced partners to ensure such products are accessible, viable, and profitable.
