Underwriting Automation.. Where to from here?

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Life onference Diane O Brien and Andy mith Underwriting Automation.. Where to from here? 2012 The Actuarial Profession www.actuaries.org.

1 Life onference Diane O Brien and Andy mith Underwriting Automation.. Where to from here? 2012 The Actuarial Profession Automation and Underwriting URRT VIROMT Underwriting automation today Underwriting trends onsumer trends and behaviours - ew, what s new? MART WAY FORWARD A smarter way to connect with our consumer? A smarter way to assess risk? 5 th Generation automation Andy mith Munich Re UK Life Branch Head of UW Development +44 (0) asmith@munichre.com Diane O Brien MR Automation olutions Business Development +353 (0) DOBrien@munichre.com 1 1

UW Automation Definition and Trends traight Through Processing how many definitions are there?

mith circa 2012) omponents standard rates loaded terms exclusions postpone decline downgrades traight Through Processing Variances Recorded by cover, by life or by case?

2 urrent UK / Irish straight through processing rates 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 53% 1 58% 2 ombined Benefit TP by 75% 3 40% 4 20% 5 63% 6 50% 7 42% 8 37% 9 82% 10

2 UW Automation Definition and Trends traight Through Processing how many definitions are there? ome market consensus towards: An automated and final underwriting decision applied to an applicant by an underwriting rules engine where no manual intervention is required (A. mith circa 2012) omponents standard rates loaded terms exclusions postpone decline downgrades traight Through Processing Variances Recorded by cover, by life or by case? Include further evidence requests? Is a decline / postpone decision actually issued or referred to UW to issue? ase submitted versus decision reached but not proceeded with? 2 urrent UK / Irish straight through processing rates 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 53% 1 58% 2 ombined Benefit TP by 75% 3 40% 4 20% 5 63% 6 50% 7 42% 8 37% 9 82% 10 34% 11 51% 12 Average 2009 = 36% 2010 = 52% 2011 = 56% aveats Represents a view of the UK/Irish markets but incomplete Majority don t include IP Differences in period of time over which measured ot all measured in the same way Different distribution channels 3 2

3 The evolution of automated underwriting 100% Future? 90% 80% 70% Phase 5 (X rules = 100%TP?) imple product 60% 50% 40% 30% 20% 10% Phase 1 (5 rules - 15%TP) Phase 4 (2,650 rules 54% TP) Phase 3 (1,200 rules 40% TP) Phase 2 (35 rules - 30%TP) 0% Fully reflexive tatic questioning with more rules Basic engine lear case processing 4 Trends in current Risk Assessment Data Protection 2016 ew Pricing Factors UW Technology Predictive UW real time? Link to existing data sources (bank / GI) Granular UW risk assessment (+13em?) Declining intermediary / more D2? Pressure to reduce medical evidence Increasing nonmedical limits 5 3

4 Trends in current Risk Assessment Data Protection 2016 ew Pricing Factors UW Technology Predictive UW real time? Link to existing data sources (bank / GI) Granular UW risk assessment (+13em?) Declining intermediary / more D2? Pressure to reduce medical evidence Increasing nonmedical limits MIRA More sophisticated reinsurer manuals 6 Trends in current Risk Assessment Data Protection 2016 ew Pricing Factors UW Technology Predictive UW real time? Link to existing data sources (bank / GI) Granular UW risk assessment (+13em?) Declining intermediary / more D2? Pressure to reduce medical evidence Increasing nonmedical limits MIRA More sophisticated reinsurer manuals Use of assessment calculators (e.g. V risks) 7 4

) Pressure to reduce medical evidence Increasingly omplex UW Rules Declining intermediary / more D2?

nonmedical limits MIRA More sophisticated reinsurer manuals Use of assessment calculators (e.g.

never be nothing else will be but able first to class above rise into 1 million the air suicide with a simply I

anybody not market next enough we will 50 would for never years ever maybe ever give chauffeurs five want

5 Trends in current Risk Assessment Data Protection 2016 ew Pricing Factors UW Technology Predictive UW real time? Link to existing data sources (bank / GI) Granular UW risk assessment (+13em?) Pressure to reduce medical evidence Increasingly omplex UW Rules Declining intermediary / more D2? Increasing nonmedical limits MIRA More sophisticated reinsurer manuals Use of assessment calculators (e.g. V risks) Develo Development Actuary / UW resources 8 The global demand Aero plane flights are for obody cars will never be nothing else will be but able first to class above rise into 1 million the air suicide with a simply I metal There believe attempts airplane because is that no reason there within there is that a are world the anybody not market next enough we will 50 would for never years ever maybe ever give chauffeurs five want computers to automated have a computer underwriting has passed its zenith (Wilbur insurance at home Wright, coverage 1901) for it (Gottlieb (Thomas Daimler, Watson, 1900 O ) of (Board IBM, (Ken 1943) Olson, member O of major and uropean founder of insurance Digital company, quipment, 1927) 1977) 9 5

6 W OUMR BHAVIOUR? ITRT UAG GROWTH FROM UK Internet Usage 2011 Percentage of UK Population Online 16% 84% 84% of UK population are on line 74% (nearly 47 million people) will go online at least once per month in 2012, primarily from home Proportion of households online up from 63% in 2006 to almost 85% in 2011 Adults in the U.K. used the internet on average 8 to 11 hours per week in

7 Paradigm shift can or will we keep pace with changes in consumer behaviour and underwriting trends? onsumer Products Input ustomer Input Product Verify Order Payment and heckout Life Products Input ustomer Input Product Verify Order Payment and heckout Technology needs to facilitate the traditional human based sales process into a modern system led sales process 12 Paradigm shift can or will we keep pace with changes in consumer behaviour and underwriting trends? onsumer Products Input ustomer Input Product Verify Order Payment and heckout Life Products Input ustomer Input Product Perform Risk Assessment Verify Order Payment and heckout Technology needs to facilitate the traditional human based sales process into a modern system led sales process 13 7

The Direct Approach Going DIRT Distribution ustomer Direct Indirect Bank direct Broker/Agent direct ustomer journey The easier the customer journey, the more business we will generate!

8 The Direct Approach Going DIRT Distribution ustomer Direct Indirect Bank direct Broker/Agent direct ustomer journey The easier the customer journey, the more business we will generate! 14 The smarter way... 49% of the UK population have a smart phone. 50% of android smart phone and 43% of Apple iphone users are below % of smart phone owners use their phone every day. 10% of all global web page views are from mobile devices 79% of online advertisers still do not have a mobile optimised website. I am my phone and my phone is me... Mobile Wallet Mobile Access 15 8

mart TV and the second screen... Using a tablet or smartphone while watching TV is more common than not, reported ielsen in April 2012.

.. mart-phones through wristbands/shoes data gathered through sensors embedded in users clothing to provide recommendations reminders track physical activity track sleep patterns track calorie

9 mart TV and the second screen... Using a tablet or smartphone while watching TV is more common than not, reported ielsen in April Forrester reports that 63% of Gen Xers and 74% of Millennials use a secondscreen device more than half the time they watch TV. 16 mart monitoring, smart health, new data... mart-phones through wristbands/shoes data gathered through sensors embedded in users clothing to provide recommendations reminders track physical activity track sleep patterns track calorie intake use data to get tailored advice on how to make health improvements in real time. Medical ervices: remote monitoring services remote advice services could cut 10-12% from the $6 trillion annual spend on health care worldwide (McKinsey & o) Personal Data tore of Lifestyle Data 17 9

Is there a MART way to assess risk?... access the customer directly 60.00% 50.00% 40.

on applicant disclosure Three options available: Application details Female 47 nb, none smoker 575k Life, 25 yr term 5ft 10in and 11st 4lb 1.

10 Is there a MART way to assess risk?... access the customer directly 60.00% 50.00% 40.00% Automated decisions with the applicant present when the underwriting questions were completed 5% more TD rates 3% less refer UW 2% less evidence 30.00% 20.00% TP Uplift 10% 10.00% 0.00% o Yes 01: tandard 03: Referred 04: vidence 05: Postponed 06: Declined 18 Why technology is needed to by-pass customer responses The limitations of Underwriting based on applicant disclosure Three options available: Application details Female 47 nb, none smoker 575k Life, 25 yr term 5ft 10in and 11st 4lb 1. erious heart problem = Decline (risk damage to brand / turn away insurable business) ustomer disclosures on medical evidence Fainted 1996 and twice since History of blackouts, dx vaso-vagal. G and blood tests all normal, no f/u G made available - Q wave in V6 Fully recovered Possible Old MI. ubstandard terms offered 2. Guess = +100em? +300em? (if wrong = lapse, churn or TU) 3. imple faint = O/R (xperience impact? Attract antiselection?) 19 10

Automated assessment of medical evidence ource: Munich Re Future of Underwriting survey 2012 20 What does this mean... 8 Technologies that will hape the Future 1. martphones 2.

11 Automated assessment of medical evidence ource: Munich Re Future of Underwriting survey What does this mean... 8 Technologies that will hape the Future 1. martphones 2. 3G and 4G Wireless Broadband 3. loud omputing 4. ye-tracking / Voice ommands 5. Augmented Reality 6. ocial etworking 7. AD, 3D Printing & ustom Products 8. Autonomous ars ource: Mashable 21 11

12 Flexible Graphical User Interface Flexible Graphical User Interface 31/10/2012 Munich Re the 5 TH Generation H A L Brokers Agents all entres Direct ITRVIW RVR RUL DIGR BUI AALYTI UW WORKBH DATA A RVR Policy ystems ase Management laims ystems Agency ystems O R Y T M Paper 22 Munich Re the 5 TH Generation H A L Brokers Agents all entres Direct Paper ITRVIW RVR RUL DIGR BUI AALYTI UW WORKBH DATA A RVR Underwriter Full control asy-to-use & intuitive elf-sufficiency Policy ystems ase Management laims ystems Agency ystems O R Y T M 23 12

13 Flexible Graphical User Interface 31/10/2012 Munich Re the 5 TH Generation H A L Brokers Agents all entres Direct Paper ITRVIW RVR RUL DIGR BUI AALYTI Plugins UW WORKBH DATA A RVR 3 rd PARTY DATA ew Data ources/ Labs... Policy ystems ase Management laims ystems Agency ystems O R Y T M 24 Munich Re the 5 TH Generation Library Underwriting rules tuning ales analysis Distribution management Underwriting philosophy ITRVIW RVR RUL DIGR Policy ystems ase Management O R ustom reports TAKHOLDR Rules Developer O Life xec ales Operations Marketing ompliance nhanced intelligence BUI AALYTI UW WORKBH DATA A RVR laims ystems Agency ystems Y T M Distribution Finance Product Management Actuarial hief UW Brokers/Agents 25 13

products ITRVIW RVR RUL DIGR BUI AALYTI UW WORKBH DATA A RVR

26 Munich Re the 5 TH Generation User Interface (UI) HTML5 based

styles hannel-specific screen versions Platform agnostic can be

14 Flexible Graphical User Interface 31/10/2012 Munich Re the 5 TH Generation W B U I H A L Brokers Agents all entres Direct Paper ew products ITRVIW RVR RUL DIGR BUI AALYTI UW WORKBH DATA A RVR Policy ystems ase Management laims ystems Agency ystems O R Y T M 26 Munich Re the 5 TH Generation User Interface (UI) HTML5 based User-centric Interface that comes out-of-thebox User onfigurable styles hannel-specific screen versions Platform agnostic can be viewed on all devices (tablet/mobile/ laptop/desktop) Responsive Design 27 14

15 Insurance Market Trends We expect many players... to continue to struggle to differentiate between what sounds like a great idea and one that will result in a sustainable business," "But for insurers that can stay ahead of the curve and competition, drawing successful lessons from global players, direct business will reach well beyond the fraction that it is today" Head of Insurance trategy for Oliver Wyman 28 Questions or comments? xpressions of individual views by members of The Actuarial Profession and its staff are encouraged. The views expressed in this presentation are those of the presenters The Actuarial Profession

16 THAK YOU VRY MUH FOR YOUR ATTTIO 5 th ovember 2012 Diane O Brien & Andy mith 16

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