Why Facultative Matters

It is an exciting time to be an underwriter. Just ask Jaime Correa, Senior Vice President, Head of U.S. Mortality Markets Underwriting at RGA. For much of his 35-year career in insurance, Correa has been involved with underwriting operations, and he currently heads the RGA team tasked with facultative (case-by-case) underwriting. As RGA approaches a milestone – the 3 millionth U.S. facultative case submitted – Correa reflects on the transformational changes that have taken place in the industry and argues that the highly specialized art of facultative underwriting is as relevant as ever.

Why does full facultative underwriting (fac) service matter in today’s market?

I think some of our competitors may view underwriting almost as a necessary evil – but RGA sees it as a core business. RGA’s U.S. Mortality Markets generate roughly a quarter of new reinsurance cessions through underwriting.  

The reason is simple. Underwriting is foundational. Many of the innovations in the industry – and certainly at RGA – focus on underwriting. Our new TransUnion TrueRisk^® Life product, for example, is an underwriting tool; it uses credit data to score risk to make better underwriting decisions. Predictive modeling, a widespread industry trend, helps improve underwriting through tools such as RGA’s Dynamic Risk Selector. Of course, these solutions also apply actuarial expertise. But the purpose is better, faster underwriting, closer to the point of sale.  

As we look ahead, the practice of underwriting is going to become more entwined with the application of new technologies and data sources. We will need to continually refine and integrate facultative underwriting expertise into these solutions to compete and succeed.

How did RGA’s dominance in facultative underwriting come about?

Fac has given us keen insight into risk, but it’s the willingness to act on those insights for the benefit of client underwriters that matters.

• Take the Year-End Success (YES) program. RGA realized many years ago that clients were becoming overwhelmed by case volumes at year-end, so we extended hours and assigned underwriters to be on call on weekends through December to help clients handle the overflow..
• Time service is another example of what makes us different. When we first formed, it was critical to distinguish ourselves from the all of the other reinsurers in the market. At the time, the U.S. insurance business moved only as fast as the U.S. Postal Service. We realized that sending couriers to the airport to pick up express mail would provide a three-hour jump on the competition. We were able to make some offers before competitors received the same cases. In fact, RGA was the first to commit to quoting cases within 24 hours, back in 1978.
• ASAP (Automated Selection and Assessment Program) technology is another example. It was built on AURA, our electronic underwriting and rules platform, and gives clients the opportunity to bind us on standard and low substandard fac case without time-consuming paperwork. It was recognized for innovation excellence by AM Best and others.

RGA got our first reinsurance deal simply because a client called us up and asked for help. Back then, we had no underwriters. We had no manual. But we worked it out. Our ‘can do’ attitude gave us an advantage. Today it still does.

The push for accelerated underwriting has led some to question the future of facultative insurance. What is your view?

First, it’s understandable that accelerated underwriting is such a focus if you look at what’s going on in the industry.  Up until the early 2000’s, companies were ceding 70-90% of mortality risk to reinsurers. That has changed significantly. Now the industry is ceding about 20-30%. But the one constant has been fac at RGA, and from fac we’re getting the opportunity to bid on automatic pools.

Why is that?

Think about how difficult it can be to apply for life insurance today: If you ever decide you want to go out and buy a policy, say for $250,000, your application process can take up to two months with tests. And after all that, the premiums may not be what you applied for. This is not what customers expect from a purchasing experience in the age of Amazon. 

In this business, no one can afford to be the outlier, the slow adopter, because you are left with the worst risks. So carriers are, justifiably, focused on using real-time data analytics to streamline the insurance purchasing process. These days, all anyone is talking about is how to make solid pricing decisions closer to the point of sale. So, if you look forward, most submissions are going to be underwritten and issued when people apply. For these cases, the focus will be on getting the application efficiently processed and priced, and that’s where you are looking at automation.

But 20-30% of submissions are still going to be low substandard to declines. A skilled underwriter is going to need to look at these applications on a facultative basis. That is why I say there is always going to be a need for facultative. It will be a long time before machines can do this work.

As longevity increases and medicine advances, insurers seem to be entering new – and uncharted – territory. Where do you see fac going in the next 20-40 years?

In 2014, On the Risk interviewed about 2,300 North American underwriters and about one quarter said they were within 5-10 years of retirement. Think about that. We will be losing a significant population of experienced underwriters within 2-7 years. Companies are scrambling to fill the gap. Technology may help fill the void. Consider Electronic Health Records (EHRs). EHRs are both a blessing and a curse. They are very comprehensive, but it is not unusual for a patient’s file to reach 1,000 and even 2,000 pages. How can we use artificial intelligence to filter through all this information and highlight what the underwriter needs to know?

We approach this milestone of the 3 millionth U.S. case at a remarkable period for underwriting and insurance. RGA has logged 10 years of 100,000+ cases in each year. No one else can come anywhere close to saying this, and it speaks to what we have built here, to the hard work of everyone involved in Fac at RGA over the years. Can we use this experience data to better assess risk? What new products can come out of this? What new insights? I think that’s going to be the opportunity for RGA, and our clients, moving forward.