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Facing the new competition: life insurers need to focus more on improving the speed of underwriting.

Life insurance people like to talk about competition. Some focus on new products. Others issue daily bulletins announcing lower rates, more liberal underwriting guidelines or news about some company's "sweet spot." It all sounds like the perfect platform for prosperity.

There's also the insurance company merger and acquisition phenomenon--a quite different competitive trend. While the official spin is that these are mergers, they are actually acquisitions. Calling it a merger is a polite way of letting the leaders of the acquired companies save face until the limos whisk them away into retirement.

This trend hits home in a big way when multiple insurance companies become "one," seemingly overnight. The official message is always the same. "The synergy is right," they say--although it's never quite clear what this means. Those familiar with corporate cultures might shake their heads and wonder how this is going to work, synergy notwithstanding.

Mergers certainly can be valid and beneficial, particularly where there are clear strategic advantages for two companies to join together. At the same time, some acquisitions endanger the companies' valuable expertise. In short order, what was of particular value to both agents and consumers disappears as this "new vision" comes into play. This is usually followed by layoffs, buyouts and a decimation of the unique value of the original organization. In other cases, there is simply a loss of interest in what made a company attractive to its customers.

Because of acquisition economics, laser-like attention is given to costs, driven by unrelenting analyst expectations. What follows is a concomitant loss of innovation. An atmosphere of risk avoidance envelopes everyone like an impenetrable mist on the English moors. Underwriting guidelines are tightened, as is the underwriting itself. With all eyes riveted on the profit and loss statement, little time and energy is left for leadership.

All this may sound like less than progressive thinking or lamenting the loss of some mythical past. Actually, it's far from it.

One of the most innovative approaches was Genworth's $10 million venture into underwriting technology that had the potential to handle 85% to 90% of the cases up to a certain age and policy face amount.

Unfortunately, the company backed off the project, seemingly too soon. The fact that there were bugs in the system cannot--and should not--be denied. As with anything so complex, there were big problems.

Nevertheless, this is exactly what the life industry needs, systems that can handle the underwriting of a bulk of the cases. The major benefit is that underwriters with specialized expertise would then be available to work on the 10% to 15% of the cases requiring a high level of attention.

In turn, our industry might once-and-for-all be able to deliver a policy to a customer in less than the 60 days it does currently. We demand more from UPS and FedEx than we do of ourselves. We are forced to use their services because they solved the very problem that continues to haunt our operations.

Is there really a legitimate reason why most life insurance policies cannot be delivered within a day or two after the applications and checks have been received?

Are we unaware of the dramatic changes in customer expectations? If we really believe that life insurance is one of a consumer's most important purchases, then its timely delivery may just go a long way toward demonstrating that what we sell is indeed as appropriate, beneficial and necessary as other financial products that are transacted instantly.

While we may never complete our work in nanoseconds, is a 60-day delivery defensible? Hardly. Insurance companies want to be paid in a timely manner, as do agents. Most importantly, consumers want and expect the policy they paid for to be delivered promptly.

All this is anything but academic. If we want to attract young people to the life insurance market, we need to demonstrate that we are an industry that understands their expectations.

Finally, where are the future agents? Many fine candidates opt for other segments of the financial services industry that seem more appealing.

There is so much that's of value in our industry including a 100% track record of keeping our commitments to our customers.

But we need to remember that our sales have not only been flat, but our placement ratios have been dropping over time. The money is going elsewhere. If we can't deliver, we can't be competitive.

Ronald D. Verzone is president of United Underwriters Inc. of Exeter, N.H. and a Best's Review columnist. He can be reached at
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Comment:Facing the new competition: life insurers need to focus more on improving the speed of underwriting.(Life)
Author:Verzone, Ronald D.
Publication:Best's Review
Geographic Code:1USA
Date:Nov 1, 2006
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