Explore how the use of Post-Issue Audits in managing mortality can help underwriters navigate certain challenges. Revolutionize underwriting with Post-Issue Audits and DigitalOwl's innovative platform.
How has the insurance industry changed in the last decade? Change can take time, especially in the world of insurance. However, one tool in particular has steadily helped change the industry. The Post-Issue Audit, or more commonly referred to as Post-Issue Monitoring, has taken the insurance world by storm and has become one of the most beneficial tools for underwriters. In this blog, we’ll help you understand how Post-Issue Monitoring has changed the insurance industry and how well-planned audits can help manage mortality for underwriters. We’ll also discuss the future of technology in the insurance industry as well as the benefits of AI for insurance professionals.
Evolving Underwriting Strategies
For the last 10 years or so, the entire insurance industry has been on a quest to reverse the trend of flat or even declining sales. One prevailing theory is that the industry needs to streamline the process and even give clients the instant gratification (i.e. instant issue) they’re accustomed to from most of their other consumer experiences.
To that end, carriers are experimenting with new data sources and underwriting techniques and even targeting new markets and distribution channels. While all of these changes are driving meaningful change, they also introduce risk. We’ve moved from an industry that rarely changed anything — and if we did change in most instances we were simply adding new data sources — to a world where most changes tend to reduce the rigor of our underwriting process.
So how do you know that all those changes are working? How do you know the mortality results you’re producing are actually in line with your pricing assumptions? And can you afford to wait 5-10 years to find out? Increasingly, the industry response is a resounding “No, we can’t afford to wait.” We need to make sure we’re monitoring for mortality slippage early and often — and then taking action, if warranted, to modify our underwriting process and pricing.
For many veterans in the industry, we did very little post-issue monitoring throughout our early careers. The reason being, we had very few changes in our underwriting approach, and most of the changes were to add additional evidence, not take it away (i.e. adding RX data). But with the implementation of Accelerated Underwriting, which reduced the level of underwriting requirements — and as carriers continued to experiment with new data sources, markets, and distribution channels — monitoring of mortality slippage has become an important part of our risk management process.
Monitor vs. Manage
Post-Issue Monitoring can be classified into two approaches: monitoring and managing. Monitoring involves analyzing a small, random sample (around 5-10%) to assess actual-to-expected (A/E) mortality ratios. Managing entails actively investigating and addressing potential misrepresentations or fraud, often with a larger sample size. Carriers can choose between random and targeted audits depending on their specific objectives.
It’s better for all parties to monitor and address mortality slippage as early as possible in the process, and a live rescission is always preferable to a claim’s denial. As you craft your approach, it’s wise to discuss the program design with your legal team in advance. Bringing them in for advice early and often will help ensure you’re making the best decisions and adhering to statutes that can vary widely by state.
The Toolkit of Options
In the insurance industry, we are witnessing an evolution from simple monitoring to active fraud management. Fortunately, underwriters have a number of tools at their disposal including: Random Holdouts, Data Sources (Plan F, RX recheck, medical billing, clinical labs), Electronic Medical Records (EMR), and Attending Physician Statement (APS). Each solution comes with its own pros and cons, and the choice depends on the carrier's resources, objectives, and customer experience goals.
For example, while Random Holdouts are great at measuring lab and exam slippage, they often make both clients and agents anxious, and they can significantly slow the sales process. Data Sources such as Plan F and RX recheck are fast, inexpensive, and can make up for any lag in reporting, but they often don’t provide the whole story an underwriter needs to make an informed decision. EMR and APS provide comprehensive data and minimal agent/client impact, but they can be quite time-consuming to review, potentially erasing the savings carriers anticipated when developing their Accelerated Underwriting or Simplified Issue program.
Fortunately new technology advances such as the use of artificial intelligence can mitigate the burden of reading lengthy medical records.
Post-Issue Audits vs. Underwriting Requirements
So how much time can AI save? We conducted a cost-benefit analysis and found that, on average, it can take an underwriter around 60 hours to complete a single Post-Issue Audit with 100 APS and 30 potential mis-rep cases to review. However, with the DigitalOwl PIA tool, reviewing the same amount of records with our tools can reduce the time spent on a single Post-Issue Audit from 60 hours to around 17
hours; a 72% reduction
Given the challenges with underwriting staffing, carriers have a number of options for how to use these savings. Some choose to deploy those hours back to regular production underwriting and some to other special projects or Underwriter Quality Audits. But the most common solution we’re seeing is to increase the number of post-issue APSs. The mortality savings from additional monitoring can be significant and play a key role in your overall Accelerated Underwriting or Simplified Issue program pricing.
Options After Post-Issue Audits
Once a misrepresentation is identified through a Post-Issue Audit, life carriers have several options to address the issue. Some carriers may choose to ignore the misrepresentation and accept the risk while others will pursue a recission. An important point to consider is that if you choose to accept the risk, that may greatly limit your ability to contest if a claim were to arise during the contestable period. Another interesting approach used by some carriers is to limit conservation activity if payments were to lapse. You should always do whatever is required contractually, but perhaps nothing extra.
It’s also critically important to evaluate whether you need to make changes to your underwriting requirements and/or pricing if you find a misalignment with pricing. There is no one-size-fits-all approach, and carriers must carefully consider the most appropriate course of action in each case. Depending on the degree of mortality slippage, carriers may want to consider some of the following actions:
Add or modify application questions
Add additional data sources
Increase the number of post-issue audits or random hold-outs
Increase or decrease pricing
The Challenge and Solutions
While medical records (APS/EMR) are considered by most to be the gold standard, they can introduce multiple challenges to underwriting teams that are often already stressed with day-to-day processing. However, these challenges can be mitigated with the right data and technology solutions.
Tools like Artificial Intelligence (AI) can streamline Post-Issue Audits by using technology to identify cases with potential misrepresentations. With machine models, you can automate the analysis of the large quantities of data embedded in medical records and zero in on the items most likely to be misrepresented; typically tobacco use, weight, and significant medical impairments — which are typically the items most likely missed when you are underwriting without medical records or blood profiles and exams.
After talking to many customers struggling with the increasing volume of Post-Issue Audits, DigitalOwl has developed a tool specifically designed to streamline the time it takes to complete audits. DigitalOwl uses a proprietary AI model to extract all the data from your medical records and produce a comprehensive summary (Digital Underwriting Abstract). Then the AI extracts a subset of the data (BMI, tobacco and significant medical conditions) so your auditors can quickly identify cases that are squeaky clean from those with potential misrepresentations. If there are potential mis-reps, the auditors can then use the Underwriting Abstract to quickly validate the findings; with just 1 or 2 clicks, they can locate the exact page of the APS where the relevant information was detailed.
Conclusion: Embrace the Future of Post-Issue Audits with DigitalOwl
In the ever-evolving world of life insurance, the importance of monitoring mortality slippage via Post-Issue Audits cannot be overstated. It is a critical tool that enables life carriers to manage mortality effectively by ensuring their actual results match the original pricing assumptions.
At DigitalOwl, we understand the challenges that life carriers face when it comes to Post-Issue Audits, and we are here to provide a groundbreaking solution. Our AI-powered InsurTech platform is at the forefront of the industry, revolutionizing the way medical data is reviewed and understood. We offer an unmatched suite of tools that empower insurance professionals to transform complex medical data into meaningful, human-readable summaries and reports in a matter of hours, not days.
If you’re looking to learn more about Post-Issue Audits and how they can benefit your business, then be sure to view our on-demand webinar A Better Way to PIA: Strategies for Effective Post-Issue Audits. This webinar provides even more knowledge and insight into the benefits Post-Issue Audits provide for insurance professionals. You can also get more information from our other blog regarding PIA: Strategies for Effective Post-Issue Monitoring.
Contact us to learn more about our AI for Post-Issue Audits and see what DigitalOwl can do for you today!