Applying Technology to Underwriting Transforms Process, Results in More Accurate, Faster Premium Quotes

Underwriting – assessing individual and group health risks and matching those risks with appropriate insurance premiums – plays a key role in health care, but the current processes used to arrive at appropriate rates can be slow, burdensome and inaccurate, according to Ingenix, which is working to bring technology to an often overlooked, but very important, process.

“Our mission is to facilitate the acquisition of health insurance by consumers, while at the same time increasing the speed and accuracy of underwriting,” according to Joe Romano, senior consultant at Ingenix. “The existing process is very paper-intensive and manual, but by using data, intelligence and technology, we can transform the process to provide insurance companies with greater efficiency and predictability.”

Insurance companies either seeking to grow their business through acquisition and retention or to have greater flexibility, functionality and faster rate deployment know that gains in underwriting will not only result in faster and more targeted insurance rate quotes, but also will allow them to remain nimble in a changing market, Romano said.

Incomplete data, inefficiencies undermine underwriting process

Health insurance underwriting is generally divided into two broad areas: medical underwriting and financial underwriting. Ingenix believes financial and operational improvements in both areas can be significant.

Medical underwriting, which primarily is used for individuals and small groups, relies on individual questionnaires which may be filled out incompletely or inaccurately. According to Romano, a small business employee may not want to disclose to his or her employer a spouse’s mental illness or a child’s substance abuse problem. Further, the member filling out the form may not be fully up to speed regarding the details of a child’s or a spouse’s medical condition. “Even people who are well-intentioned may be filling out these forms inaccurately and incompletely,” Romano said.

To fill information gaps, underwriters often need to collect additional information to better capture the risk profile, which requires them to make phone calls, write to physicians or seek data from other paper-intensive resources. This time-consuming process can take multiple weeks, and missing data may cause the underwriter to build in more of a margin in the rate than is necessary, depressing sales opportunities in the process.

“Underwriters, who are by nature cautious, have to make their decisions based on both the information they have – and what they don’t have,” Romano explained. They also have to take precautions against potential fraud. “There is no denying that underwriters have to take into account that people in the marketplace may be trying to ‘game’ the system.”

Financial underwriting – a process that uses historical paid claims to determine rates for groups of all sizes – generally is used for mid-sized to large groups to determine new business and renewal quotes. However, the systems used to analyze claims and establish rates can be rudimentary and cumbersome. Most underwriters use basic spreadsheets to handle large quantities of data for thousands of people, an inelegant process which does not allow them to tweak formula variables quickly or easily.

“Right now, the process is awkward,” Romano said. “Accuracy is off and speed is not even on the radar. From a sales standpoint, the underwriters are overburdened and the salespeople are pushing for quotes.”

Using technology to automate both of these processes and link system elements can drastically change both the accuracy of data used to establish insurance rates and the speed with which rates can be determined. In addition, when used correctly, the technology and associated processes can provide vital links with complementary activities performed by actuarial, customer set-up operations and clinical areas. Ingenix is using several of its technology products, in addition to intelligence from staff underwriters and actuaries, to bring underwriting to the next level.

“Ingenix is hoping to transform health care underwriting with automation technology, much like what happened with automated underwriting in the mortgage industry in 1995,” Romano said. “We can reduce the time to quote from days to minutes with products that can obtain data, use predictive modeling and deploy rates online.”

Enhancing data pool and intelligence leads to speedier outcomes

Underwriters have known for some time that predicting risk for smaller groups using claims data alone is a less-than-perfect science. Romano indicated that “someone who is healthy today could find out they are in the early stages of a cancer in six months.” Conversely, an active, healthy individual who had two knee surgeries during the past 12 months might not incur another major expense for several years. In a smaller group, it is harder to equalize these shifts, he said.

Although “none of us has a crystal ball,” he remarked, adding prescription drug data into the mix can help augment other findings to more accurately reflect risk. Ingenix’s MedPoint Prescription Profiling online tool automatically generates an individual or group’s prescription history, which includes information on prescribing physicians and possible diagnoses and eliminates the reliance on health questionnaires.

MedPoint technology combines the prescription profile data with additional claims-based findings and checks them against analytic tools – predictive modeling – to forecast a group’s future medical resource needs. An automated rating engine generates a final quote without manual intervention, reducing a three-step process to a one-step process and increasing the number of small groups receiving a final rate quote from 10 percent to 55 percent, Ingenix found.
 
The company also offers an automated rating system, StepWise, which is a sophisticated suite of applications – replacing the spreadsheet paradigm – that can automate large group, small group and individual underwriting and manage blocks of business for health plans of all sizes. StepWise enables users to maintain factor tables, formulas and business rules and realize operational efficiencies not only within underwriting but also within linked functional areas such as actuarial and sales.

These products notwithstanding, plans working with Ingenix to improve underwriting also receive input from the company’s experienced staff. “We offer plans intelligence from people who have been in the underwriting, actuarial and clinical role for many years. They understand what needs to happen and can offer a fully integrated approach, regardless of the products being used,” Romano said.

“We are looking at the whole process and will make recommendations about where automation will make a difference, how to better understand analysis, and ways to link across multiple disciplines,” he added. “With improved systems, underwriters can spend their time evaluating instead of inputting data.”

Faster quotes will become competitive advantage

Because health insurance is a sales-driven business, the underlying goal of automation is to speed the closure of a group, ensure that rates are appropriate to risk and prepare for coverage to begin. “If six plans are competing for business, the faster you can get quotes and capture your customers, the better your results are likely to be,” Romano explained. “If a broker tells a company that your plan is done quoting and another plan says it will need six weeks, the early bird may get the worm.”

Further, both brokers and consumers shopping for insurance coverage are likely to take note of significant time-to-quote differences. “After a few carriers make this change, it won’t take long for others to follow,” Romano said. “It’s like any other business – the minute one company doesn’t make you wait, it grabs market share.”

In Romano’s view, it is not the technology, but the end game that counts here. “In health insurance, regardless of who has the technology, the trends are automation, increased accuracy and speed, and if you’re on the tail end of those trends, your customers will notice.”

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