Why Can’t Life Insurance Companies Make Buying A Policy Easy?

Pop quiz: What goal can require a months-long application process, lots of paperwork and giving body fluids?

No, it’s not applying for astronaut training, it’s getting life insurance.

In a world where technology allows most transactions to happen almost instantaneously online, the life insurance process remains largely stuck in processes from decades ago. And that can be a real turn-off for the consumer.

“Millennials are already acquiring and accessing bank accounts, payments, foreign exchange, mortgages and other insurance products through mobile apps, aggregators and price comparison sites. The contrast with the inconvenience, time and type of questions being asked for life insurance could not be more stark,” says a report by Munich Re Automation Solutions, a provider of digital underwriting services for the insurance industry. “Traditional life insurance comes with too many barriers to entry, and too many decelerating factors.”

Hard to Turn the Ship

So why haven’t life insurance companies moved faster to adopt a more consumer-friendly process? There are several startups and even some well-established life insurance companies that have embraced technology to make buying a policy faster and easier.

Plus, the pandemic has forced many life insurance companies to shift their approach to make it more digital and streamlined.

For the most part, though, this trillion-dollar industry has been slow to change the course of its application and underwriting process. “It’s like turning the Titanic because they’re so large,” says Paul Ford, co-founder and CEO of Traffk, a digital insurance underwriting and distribution platform.

Plus, there’s a risk in making any sudden moves for an industry with a business model built largely upon mitigating risk. “Companies won’t immediately change because risk management is in the culture,” says Marc Cadin, CEO of Finseca, an organization that represents the financial security industry.

The Traditional Life Insurance Application Process

Typically, if you want to buy a medically underwritten life insurance policy, you have to fill out an application. That application can contain more than 60 questions about your health, your mental health, your family’s medical history, your occupation, your hobbies, your driving record and other personal information.

An insurance agent might call you to confirm the information you provided. Then an underwriter might call with more questions. And you’ll likely have to schedule and take a medical exam. All the while, the insurer is gathering information about you (if you grant permission, that is) from third-party sources, such as pharmaceutical databases, electronic health records and your motor vehicle report.

This process can take several weeks. Then it can take even more time for an underwriter to review the information and assign you to an underwriting risk class, which determines the rate you pay. As a result of the pandemic, some insurers have backlogs of 10 weeks, Ford says. That means it can take months to get a life insurance policy.

Risky Business

The more information insurers gather about applicants, the more accurately they can determine a person’s life insurance rate. Rates are essentially based on a calculation of how long applicants are likely to live and how much of a risk they are to insure. This allows insurers to determine which applicants should get an offer of coverage and at what price.

“An insurance company’s core job is to manage risk among the large pool of people they are insuring,” Cadin says. “If they price in a way that is too aggressive and they don’t have enough sense of what the collective medical history is among their pool, they’re going to be in trouble.”

Consider the subprime mortgage crisis that began in 2007. As with life insurance, there is an underwriting process for getting a mortgage. However, that process broke down as several lenders approved mortgages for people who traditionally would have been seen as too risky. “Because the basic underwriting process broke down in 2007 and 2008, the entire economy collapsed,” Cadin points out.

That’s an extreme example, but it highlights the importance of any underwriting process. When it comes to life insurance companies, they must have an accurate picture of the risk they’re taking on so they can be on sound-enough financial footing to pay future claims on the policies they issue.

“The last thing we want is a company making promises to be there when you need it and the company isn’t there,” Cadin says. “Underwriting is the key to holding things together.”

Hurdles to a Faster Life Insurance Process

Just because the underwriting process is critical doesn’t mean that life insurance companies shouldn’t innovate, Cadin says. But companies have faced several hurdles in adopting the technology that will allow them to innovate.

Life insurance companies are risk-averse. Some insurers have been using a process called accelerated underwriting that involves data modeling to predict applicants’ mortality risk. It’s faster than traditional underwriting. And insurers who use it often can gather enough data from third-party sources that they don’t have to rely on life insurance medical exams. But many companies have been reluctant to adopt accelerated underwriting because they’re not confident that they could maintain their underwriting standards without getting recent medical information about applicants from exams, Cadin says.

Life insurance companies face regulatory hurdles. The life insurance industry is highly regulated on the state level. That regulation has played a role in slowing down the process of adopting technology, Ford says. Depending on where an insurer is located and the states in which it sells policies, it might not be able to make changes to its underwriting process without meeting state requirements and getting approval from state regulators.

Change takes time and money. Companies have been making huge investments in technology to streamline the life insurance buying process, Cadin says. However, it takes time to move from a paper-based system to a digital process. Plus, Ford says that he has seen through his company’s experience of helping insurers develop and adopt technology that change takes time because these companies have a long, slow chain of command.

Companies That Make Buying a Policy Easier

There’s been more progress in accelerated underwriting in the past year than over the past 10 years combined, Cadin says. Both he and Ford expect life insurance companies that haven’t fully adopted a faster, more digital process for buying coverage will move quickly to do so.

You don’t have to wait for all life insurance companies to jump on the technology bandwagon. There are several companies that already have made the process of buying life insurance easier. You can apply for and get approved for fast term life insurance within a matter of minutes—likely without taking a medical test—from the following companies if you meet their qualifications (which generally means being young and healthy):

• Bestow
• Dayforward
• Ethos
• Fabric
• Haven Life
• Jenny Life
• Ladder
• Lemonade

In addition:

• Brighthouse Financial has partnered with Policygenius to offer its new SimplySelect term life product that has a simple application and streamlined underwriting process.
• Ford’s company—Traffk, which is a digital underwriting platform—is launching two digital insurance companies this year: Hero Life and Spectrum Life.
• Some life insurance companies that have been around for decades, including Lincoln Financial and Prudential, have accelerated underwriting life insurance products.

Often, the cost of a life insurance policy issued through accelerated underwriting can be comparable to that of a fully underwritten policy that requires a medical exam. The key for life insurance buyers is to get life insurance quotes from several insurers and compare the coverage they offer to get a policy that fits your needs and budget.