‘We underwrite now so we can pay your claims later’

Leza Wells, Chief Product Actuary at FMI

Ask any life insurance customer what their biggest pain is, and they’ll probably tell you it’s the onboarding and application process. The endless forms. The medical tests. The waiting. Whether it be for income protection, critical illness or life cover, the process is often an arduous one. It’s a major reason why people put it off – sometimes until it’s too late.

If it’s any consolation, assessing a customer’s risk is not much fun for the insurer either. We’re constantly being challenged to transform the risk assessment process (known in the trade as underwriting) to create a simpler, friendlier customer experience. How can we fast-track client onboarding? How do we cut down on manual processes, and reduce the need for expensive medical tests? 

At FMI (a division of Bidvest Life Ltd), we’re doing our best to make the process as quick and painless as possible. We’re removing manual processes and digitising wherever we can. But for the foreseeable future, underwriting’s not going away: it’s a critical part of managing our risk. A customer’s risk profile determines their premiums, and the more medical data an insurer has on each client, the fairer their pricing will be to their specific health status. 

An insurance market where there is no underwriting of individual risks would be similar to a medical scheme where everyone pays the same rate, regardless of their health. What happens then is that the healthy subsidise the unhealthy. This sounds great in a utopian world. It doesn’t work in a competitive marketplace, and results in price increases if healthy people decide to exit the scheme or self-insure, as we currently see in the medical aid industry. 

So what are we doing about it? At FMI, we’re always looking to reduce the number of tests and questionnaires asked at underwriting stage to speed things up. To do this successfully, we rely on accurate, honest and appropriate disclosure from our customers – and unfortunately, we’re living in a time where individuals are increasingly not making full disclosure, often purely by accident. 

The impact of reducing medical requirements and questions upfront is that we then need to do checks at claims stage. For an insurer, there’s nothing worse than having to decline a claim, even for the most valid reasons. We exist to support customers in their critical time of need, and declining claims for whatever reason threatens that relationship. That’s why we want our customers to not only choose the right cover for their particular needs, but to make sure they understand the terms of their cover too and disclose appropriately. 

Right now, we’re looking at alternative ways to assess risk using alternative data sources.  This is a trend we are seeing internationally and it’s certainly an important part of our future. The trick is to find or develop appropriate data sources in South Africa. 

For now, our message to customers remains simple. The application stage – including the associated underwriting process - is a critical step to ensure your premiums stay affordable and your claims get paid. Bear with the process as we work to improve it. Because having your income covered for injury, illness and death is the most critical insurance of all.