A routine quest to improve workflow and pare expenses has resulted in a whole new cost-reduction and profitability focus area that has generated millions of dollars for Transamerica Reinsurance clients. Read the announcement about the company being chosen runner up for its technology innovation in this year's INNovators competition.

Charlotte, N.C.-based global reinsurer Transamerica is zeroing in on "mortality management”—the upfront analysis that identifies risks associated with each life insurance applicant—to help companies determine whom they should insure and how to price each policy.

“This is an area that companies are ignoring,” says Dave Dorans, Transamerica Reinsurance VP of Product Consulting and Development. He contends that insurance companies focus their efforts on the front end processes, working with agents and producers, and the backend administration and client service.

The Greatest Opportunity

Dorans believes that over the years, most companies have not changed their view of technology and what it can do.

 

“If you look at the software, the mainframe systems and the policies and procedures they’re using for this middle piece—the piece used to actually select the risk—it’s really, for most companies, fundamentally still from the 1970s and 1980s,” says Dorans.

The Transamerica mortality management system enables better decision-making during the application process, ensuring that agents ask the right questions on applications, collect the information in the right electronic format and use the proper software to analyze it. The system enables a straightthrough processing environment in which all systems are integrated electronically.

Analysis Proves Financial Impact
The financial impact of mortality management surfaced three years ago after Transamerica conducted analysis of how its deals were performing across the 150 products it reinsures. The three products that had used the precursor to the mortality management system were three of the top four performing in the entire block.

Further Transamerica analysis of value generated by mortality management technology found that a company can generate $4 million in increased profit for every $10 million in new annual premium by reducing claims expenses by 6.6 percent over the life of the block of policies. By comparison, the company also found that improving productivity by 10 percent in underwriting and new business processing generates only $500,000 in increased profit for the same example.

 

Other companies are selling some of the individual components of mortality management, but none have put it all together, according to Dorans, who says that Transamerica’s position as a reinsurer serving the top 100 U.S. life insurance companies gives it unique perspective of the U.S. mortality experience across the whole industry.

 

“Client reaction has been fantastic,” Dorans says. “There’s definitely a little bit of shock in the beginning because there’s a lot that has to be changed. But the clients that are using it are thrilled with it. And the reality is many of them put this in for one program or one piece and now they’re trying to go back and implement it across their whole company because it’s been so successful.”

Solution Requires Executive Decision
The Transamerica mortality management system requires buy-in from the executive suite as its scope transcends several different departments. It is highly customized, and requires a six-month implementation cycle.

“If they put that whole program together, we will give them a material discount on their reinsurance,” says Dorans. “We’ve been able to offer people discounts that will amount to several million dollars over a couple years.”

Transamerica funds the purchase of the software and all the components. Costs are amortized into the reinsurance arrangement so a relatively large-scale project that typically may have a hard time getting approval becomes feasible. This bundling also makes sense from a risk-management perspective, which Transamerica recognizes by giving a discount in its reinsurance pricing.

Dorans cites an additional benefit derived from the new system: productivity gains, due to automation. A large insurer with two life underwriting teams—a term-life team and a universal-life team—applied mortality management to term life only. Underwriting for these products is essentially the same, says Doran.

Running the old and new processes live in the same building with the same inputs, the term-life insurance team saw a 40 percent increase in productivity. “You go right from a paper file trading hands to state-of-the-art technology and intelligent analysis overnight,” Dorans explains. “That’s where you can see that giant, giant transformation.”

Technology Makes It Happen
Technology firm VectorMastek, a subsidiary of MajescoMastek, has been Transamerica’s partner in the development of the mortality management system. “We work jointly on all program designs and implementations,” explains Dorans.

Harold Apple, VectorMastek senior vice president, points to companies’ need to “use technology as a strategic investment for improving revenue generation, not just a way to shave a few bucks off unit costs.”