Insurers as Technologists.

Some insurers are using technology for more than just selling insurance--they're providing high-tech services to help other carriers underwrite policies.

For some major carriers, the lines are blurring between offering insurance and providing technology. Insurers like Hartford Life and Lincoln Re are at the forefront of assisted underwriting software, providing their clients or producers with high-tech tools that streamline the underwriting process to give them a competitive edge.

Lincoln Re, Fort Wayne, Ind., has two patented systems, an automated new-business system and one that enables almost instantaneous assessment of mortality risk. Hartford Life says its software can shave weeks off the individual-life application process, making the whole procedure easier for stockbrokers, financial planners and bank investment representatives who are not full-time agents.

By extending this kind of technological helping hand, these companies also are realizing substantial rewards--an outcome that the rest of the industry is duly noting. Lincoln Re, for example, estimates that between 1997 and 2000 one-fourth to one-third of its new reinsurance premiums were driven by the company's ability to help insurers develop new products or modify old products using the Lincoln Mortality System.

When the mortality system was introduced in 1993, "we were far and away the first," said Tracy Choka, second vice president and director of the underwriting research and development team at Lincoln Re. "In the past two to three years, I think our competitors have been trying to deliver the same type of tool." The system is used to price Lincoln Re's own business, as well as help reinsurance clients that want to get into the super-competitive term insurance market.

Robert Hartwig, chief economist of the Insurance Information institute, said that this is becoming a very competitive field as insurers and reinsurers develop all sorts of proprietary underwriting software.

"It's an inevitable and probably favorable trend," he said of the increasing use of this software in both the life and property/casualty realms. "This can be used to enhance speed and increase production, and to contemplate situations we humans can't always fathom."

However, he cautioned, while no software can replace or supplant the human underwriter, it can free him or her to spend more time on devising ways to provide coverage to previously uninsurable segments of the population.

Pervasive Technology

In a recent interview with Best's Review, Jon Boscia, president, chief executive officer and director of Lincoln National Corp., parent of Lincoln Re, called that company the "Intel of the insurance industry," a reference to the pervasiveness of Lincoln Re's technology. "The end result is that one out of every four policies being issued in North America has Lincoln on the inside of it now with our technology," Boscia said.

"Certainly, we have licensed Lincoln Underwriting System to several companies that have a lot of policy power," said Tom Riehm, second vice president and director of Lincoln Re's Underwriting Services Department, which works directly with client insurance companies to underwrite life policies using Lincoln's underwriting tool. Companies that have not licensed the Lincoln Underwriting System can outsource their underwriting through Underwriting Services to take advantage of the underwriting system.

In addition, Riehm said, the underwriting system collects data that can be used in updating the mortality system. This data, along with additional research, is used to modify the system periodically, giving the tool the most up-to-date information from which to develop mortality and pricing assumptions. The combination of having so many reinsurance clients using the Lincoln Re systems means "we do have a lot of coverage," Riehm said.

One way that Lincoln Re has used its underwriting and mortality systems is to work with organizations that are trying to enter the life insurance business. Lincoln Re helped a major mutual fund company enter the term life insurance business in 1996. The company already sold variable annuities manufactured by its life insurance subsidiary. Initially, the term product had only a single level of preferred. After a couple of years, there was interest in a more competitively priced preferred product, Riehm said.

Lincoln was able to assist. "Using data that was collected in the Lincoln Underwriting System, we ran a rather extensive study through our research-and-development area performing an analysis of their medical and nonmedical risk factors--cholesterol, family history, blood pressures--all the factors that help in defining a preferred risk," Riehm said. "With these risk-factor distributions, we were able to run this through the Lincoln Mortality System. This provided the information that resulted in the development of second level of preferred."

This illustrates how Lincoln's systems work hand in hand, Riehm said. "We have the ability to capture the information and then have another tool that works to the customer's benefit," he said.

An Underwriting Guide

Lincoln National Risk Management Inc., a subsidiary of Lincoln National Corp., began marketing the underwriting system in the late 1980s. Using an insurer's own underwriting parameters, the system can automatically approve clean applications and define and deal with clear-cut underwriting problems. Backed up by research compiled by Lincoln Re, the modules can guide underwriters through the detailed decisions needed to underwrite impaired cases and suggest ratings.

"We developed the process to be able to bring in data electronically from a variety of different sources and then to be able to process a lot of that data for a life insurance application," Riehm said. For example, when an applicant for life insurance needs a blood study performed as part of the underwriting requirement, the blood sample is sent to a lab for processing and the results transmitted electronically to Lincoln Re.

"We receive data feed from them, and the data then goes through a process that we call initial underwriting," Riehm said. This is an automated process to screen the results, he added. If, for instance, a higher-than-normal cholesterol level surfaces, "this would cause the application to be referred to an underwriter," he said. "But if the results were all clear, that blood could be processed and no one would have to look at it. So what you have at the very least are some efficiencies."

The Lincoln Mortality System "originated as our reinsurance pricing tool, which we used in-house to price reinsurance quotes on life insurance business," Choka said. In recent years, however, the system has evolved into a tool that Lincoln Re deploys for use with clients needing assistance in setting their mortality assumptions as they price preferred products, she said. Because preferred products look at family medical history and such risk factors as cholesterol levels, the applicant's height, weight and build, the objective is to provide the most competitive, lowest-priced product for an underwriting class by balancing underwriting, pricing and marketing.

This system also has come in handy for clients in the wake of Regulation Triple X, which has a provision that forced insurers to increase their reserves for level-premium term life policies. "With the research-and-development work we do and build into the mortality system, we've been able to help companies determine their 'X factors,'" said Steve Habegger, second vice president account executive with Lincoln Re. The Lincoln Mortality System was used extensively late in 1999 to help clients develop Triple X compliant term products, and the company's sales of term insurance in 2000, in particular during the first two quarters, were very heavy because of the Regulation Triple X pipeline, Boscia said.

Lincoln Re does not sell or give away this technology, but uses it in-house as a service for only its preferred clients. "I think almost everyone would like to use it if we can come to terms on a reinsurance arrangement," Habegger said. "It's kind of a hands-on way for them to get access to the research-and-development work we do."

For example, a life insurance company trying to make its product more competitive and get more people to qualify for a preferred level must consider which testing requirements will work best for their product. "We can help them answer questions that would surround those issues as far as the impact that changing preferred criteria is going to have on mortality, or the impact of deciding not to get blood or deciding to use saliva testing or deciding to not get treadmill exams-what is the cost give-up in mortality terms of doing that," Habegger said. "And subsequently, specifically on the preferred, what type of qualification rate you're going to get on your applicants, what percentage of the population is going to be able to meet this cholesterol requirement, this blood-pressure requirement, this family-history requirement."

This goes beyond just technology, Choka said, noting that the Lincoln Mortality System draws on a database that has more than 80 years of research experience with epidemiologists and other medical researchers, to make sure it has a strong understanding of the relationships among risk factors and mortality.

Simplified Selling

At Hartford Life, a major goal is to issue individual life policies faster, so the company has automated its information-gathering with an internal technology it calls TeleLink. TeleLink was launched in December 2000, some six months after the company introduced its new Internet-based application-request system. It's all part of Hartford Life's strategy to simplify the selling of life insurance for financial professionals.

Brokers can access the Internet-based application-request system, called e-App Request, on Hartford's Web site (www.thehartford.com). The system can be used with Hartford Life's individual life insurance products, including variable universal life, universal life and term life.

"It starts from a kind of a system flow with the e-App, with the concept being to provide something much simpler to use-it's not paper intensive," said Michael Keeler, vice president and director of life administration for Hartford Life. "It's a request for application rather than an actual insurance application."

This allows a broker to go online at the Hartford Web site, key in preliminary information about a client-including name, age, address and type of plan-and then e-mail the information to the carrier at its home office. "We then will pull that out of a database and follow the request for application up with a telephone call using the TeleLink system," Keeler said.

TeleLink, which is used only by Hartford Life employees, has streamlined the carrier's in-house telephone-based underwriting process by taking interviewers step by step through a series of underwriting questions for life insurance applicants, the company said. After the information is entered, the system automatically completes the applications, medical exam requests and other paperwork.

The company decided to take this approach because feedback from the broker community indicated that brokers were not comfortable asking their clients health questions on the insurance application. "That's not been a significant portion of their relationship to date, and they would prefer to have the insurance experts ask the insurance-type questions," Keeler said. "So, we've shifted that work from the broker to our home-office staff."

The Hartford Life staff views the application online and asks appropriate follow-up questions so that call-backs are minimized. This speeds up the process considerably, he noted. "The more information we gather online, the fewer requirements we have to order and the faster turnaround we have," he said.

Other companies have processes that are supported by tele-interviewing, but most of the competition contracts for this service, Keeler said.

Converting Leads to Sales

Parent company Hartford Financial Services Group, one of the nation's largest insurance and financial-services companies, also is working with a lead-generation program that it makes available to independent agents selling auto insurance. Called the Prospector lead program, it allows agents to locate pre-scored, prequalified prospects in targeted ZIP codes. The leads are generated in partnership with Choice-Point, the business data provider. The 3-year-old program is seeing a conversion ratio of close to 2%. "For every 100 solicitations, we're writing two new insurance policies," said David H. Moore, assistant vice president for personal insurance marketing. "That's considered excellent." It's five or six times what most direct-mail responses generate, he added.

ChoicePoint and Hartford think this is working well, because the program offers prequalified, pre-scored leads; co-brand mailings with the well-known Hartford name; and a premium gift to all respondents who desire a quote. In targeting premier- and superior-scored leads, Hartford is acquiring "an exceptional class of business in terms of loss-ratio performance," Moore said. "So we are targeting business that we want to write. It's profitable business for us, and it's profitable business for the agents as well."

In December, the company added an optional telemarketing component at the request of agents who lack the staff or other resources to follow up on mailings. The new service makes telephone contact on behalf of the agency. This feature promises even better results, company officials said. "The prospect gets a quick one-two punch in terms of direct mail and a quick telemarketing follow-up," Moore said, adding that this function is outsourced through Choice-point. With this additional feature, Hartford expects to at least double its former sales-conversion rate. "So we believe that conservatively we'll be closing 4% of all the solicitations," Moore said.

Hartford's program is made available to independent agents to sell Hartford products, but the company is "sure at times they are quoting other carriers," Moore said. "We don't have empirical data to support that, but we know it happens." However, Hartford feels that because of the value of the program, it gets its fair share of business and is helping its agents grow. "So it all adds up to the fact that our agents are more committed to us than to the program," Moore said.

About 300 agents used Prospector last year, and Moore expects that number to grow to at least 700 agents in 2001. Most of Hartford's agents didn't have the staff to handle telemarketing or the funds to invest in hiring an outside telemarketing firm, so the insurer-provided program removed the cost barrier, Moore said.

A number of competitors are offering similar tools, he acknowledged. "Ours is not the cheapest program in terms of the cost of a lead," he said, "but because of the way that we qualify the lead and pre-score the lead, we can differentiate ourselves from our competitors." Typically, an agent may pay $1.10 for a lead, and there are even some programs that sell names for as little as 50 cents each. "You can buy cheaper programs, but they are not as effective in terms of ultimate conversion of sale," Moore said.

Expanded Technology

Hartford Life says it plans to expand the technology it already offers. The company is introducing greater automation in its TeleLink system to speed up the application process even more. This involves "automation in terms of ordering requirements--the systems capable of ordering the necessary requirements at given points of time during the interview process," Keeler said. "We're looking to fully automate that capability with the different vendors."

Plans also call for use of image and work-flow technology.

"Once all of our systems are connected with TeleLink and we have imaging to support it, we've got a very fast paperless environment," Keeler said. "And that's something that's really not too far down the road for us."