Transamerica Reinsurance

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Reprinted with permission from Best's Review

Includes comments from David Dorans, Vice President Product Consulting & Development
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Improving its private-label market for term life insurance gave Transamerica Reinsurance an entirely new perspective on automated underwriting.

While moving to reduce the program’s overhead, the Charlotte, N.C.-based subsidiary of AEGON took note of another cost-saving trend that accompanied an increase in automation. The blocks of business run through its new underwriting platform were among the company’s best-performing mortality deals, according to David Dorans, vice president of product consulting and development at Transamerica Reinsurance.

“It really kind of turned our whole logic on its head for what we looked at this thing for,” he said.

Dorans said the system paid for itself through operational efficiencies, but he likened those savings to a rounding error when compared to the larger gains in improved mortality enhancements.

The reinsurer is so confident with its system that discounts are offered to cedents who use the company’s rules-based underwriting engine.

Celent’s insurance practice recently recognized Transamerica’s underwriting approach as a model of different technology use. As for automated underwriting, the commercial and specialty line sides still have ground to make up on the personal lines, where volume has fueled growth.

While the gains achieved through automating the underwriting process can marry streams of digital data and ultimately drive business volume through quicker and better decisions, there is still hesitancy in some quarters regarding the loss of a human touch. Donald Light, a senior analyst with Celent’s insurance practice, described a certain mindset that he said can still be found in many companies.

“We’re talking here mostly about specialty business, or mid- to large-size commercial accounts, where the underwriting people think the only way you can be a good underwriter is to be one for 10 or 15 years,” Light said. “So it’s a matter of human judgment, a matter of relationships and so on.”

Light said technology vendors have become more focused on the underwriting solution. A few specific, technology driven solutions are now available to underwriting, something Light said wasn’t available until recently. Light also said the demarcation that cordoned off other segments, such as policy administration systems, has lessened as vendors try to incorporate degrees of underwriting functionality. They’re being joined by vendors who handle business process management solutions, business rules management solutions and analytics.

“All of them have looked at the underwriting process as an area where they could add a lot of value,” Light said.

The increased use of portals for policy submissions has built a framework for increased levels of automation in the decision making process, thus speeding up the transaction loop.

A straight-through processing approach that minimizes human involvement is only as efficient as its kick-out ratio, a term for the percentage of applications screened out for a human review. While Light cautioned against automating bad underwriting decisions, he said the approach can give senior management a clearer downward view of the underwriting.

“Technology provides much greater insight and transparency into the set of decisions that individual underwriters make and how they make them,” Light said. “And that’s something that’s very attractive.”

Dorans sees an attraction in the ability to electronically aggregate an applicant’s personal and medical history with lab values and other third-party sources of information used in the underwriting process.

“When it comes time to make a decision, instead of reading reams of paper images, we present a summary screen with the cogent facts that the underwriter needs to know about the case,” Dorans said.

The craft aspect of underwriting still holds importance for impaired underwriting business, such as assigning table ratings for higher-risk individuals or for the high face-amount business that gets into financing underwriting, he said.

“For preferred-risk underwriting, most of the selection really comes down to assessing any deviation of data captured from lab work, para-med histories, etc. from approved underwriting guidelines,” Dorans said. “Companies can save a lot of money by using underwriting technology for this business. And they just may be figuring that out right now.”