Planning for a New “New Normal” in Life Underwriting

We are all adjusting and adapting to the new normal that is part of an effort to “flatten the curve” during the COVID-19 pandemic. Empirical evidence shows the impact this effort can have on mortality, with dramatically better results in areas that have implemented social distancing.

As life insurers stabilize themselves in a virtualized WFH environment, it will be necessary to recognize immediate successes while developing a game plan for what comes next. We are facing a period of significant change and a new array of risks, all of which insurer IT and business leaders will need to prioritize and triage.

After 9/11, something I experienced firsthand in NYC, what emerged as normal was very different than what we fondly remembered from 9/10/01. The issues and challenges we needed to address in real-time after the terrorist attacks were not part of mainstream business planning; the pivot was hard and, in some cases, jarring. That pattern will repeat.

This brings us to life insurance underwriting. There was pressure in the market to pursue fluidless underwriting options before COVID-19. That pressure will likely increase as prospects find the idea of a stranger coming into their private spaces to collect fluids for a process that they neither appreciate nor understand to be a complete non-starter.

In that light, it is worth remembering where fluid requirements came from in the first place. The AIDS crisis of the 1980s and ’90s was something we confronted early in my career. Fluid requirements were a little-used option dating back to the ’70s that suddenly became business as usual as insurers struggled to understand a new kind of risk. It was a hard pivot in a new direction brought on by a poorly understood existential threat. The change in approach came almost overnight.

The same insurers that have used fluid requirements for 35 years may now find it ineffective (given how fast a novel virus can move) and socially unacceptable. Younger consumers are already resistant to the para-med model. If older (i.e., born before 1975) individuals become similarly inclined, insurers could face another set of strong headwinds to grapple with to complement low interest rates and pervasive expense concerns that were already making 2020 look like a challenging year.

Responses to consumer rejection of fluid requirements could include changes in pricing models, changes in the use of other data to support risk assessment, better analytical tools, and new types of products. The shock that COVID-19 introduced to many parts of the insurance industry could provide an incentive to accelerate changes in approach that would have happened anyway. Novarica highlighted many of those in-flight changes in its New Normal report for life and annuity insurers.

President John F. Kennedy once said that “the best time to fix your roof is when the sun is shining.” Complementary advice may be to “hurry up when storm clouds arrive.” This advice can serve as counsel for life insurers as they plan for a reframed future.

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