Accelerated underwriting is one of the fastest growing sectors of the life insurance industry and has allowed both traditional life insurance companies and insurtechs to forego medical exams to reduce the life insurance underwriting process from as long as 12 weeks down to 48 hours. However, as accelerated underwriting has grown in size it has drawn increased regulatory scrutiny. The National Association of Insurance Commissioners (NAIC) recently formed the Accelerated Underwriting (A) Working Group to look into developing new regulations for the industry.
Accelerated underwriting was only first introduced in 2011 but has since grown in popularity as insurtechs as well as other life insurance companies see it as an opportunity to increase access to life insurance while also improving the consumer experience. Traditionally, in order to obtain a life insurance policy, an applicant would need to submit to an in-person medical exam in which they were required to provide their bodily fluids. Based on this exam and the insured’s medical records, the life insurer would offer the applicant a policy at a premium reflecting their expected mortality. Accelerated underwriters eschew this medical exam, relying instead on a range of data to underwrite life insurance. In particular, accelerated underwriters will look at an applicant’s prescription drug history, motor vehicle records and credit scores to calculate the applicant’s expected mortality in lieu of a medical exam. In theory, accelerated underwriting should benefit both the insurer and their consumers as it allows insurers to underwrite life insurance more quickly, at less cost and through a less invasive process.
However, accelerated underwriting brings a new set of concerns on how this data is used and handled. The use of more and less well-understood data could introduce hidden biases based on faulty data, resulting in a disparate impact on protected classes. There are also concerns with using data such as credit scores, which are not directly related to an applicant’s health or life expectancy, to underwrite life insurance, as well as concerns over how insurers are adequately protecting an applicant’s data privacy. Finally, there is a risk that the carriers relying on this less understood data may be systematically miscalculating an applicant’s expected mortality and putting their solvency at risk.
In order to address these concerns, the NAIC established the Accelerated Underwriting Working Group this fall. The working group is currently in information gathering mode, examining accelerated underwriting practices across the life insurance industry. By this summer, the working group hopes to determine if a white paper, model bulletin, model law or other work product is necessary to address any concerns that have been identified in the accelerated underwriting industry. The working group then plans to adopt these reforms by the NAIC 2020 Fall National Meeting. Any proposals adopted by the working group could have a direct impact on insurtechs operating in the accelerated underwriting space, and we are closely watching these developments to see how they will affect our clients.