Pilotbird Lifestyle Analytics

Use of Alternative Data in Underwriting: Insurance Regulations

Posted on May 15, 2021

Insurers can use alternative data to accurately price life insurance, offer personalized and unique customer experience, and evaluate risks. Traditionally, insurance companies have gathered data through a tedious process that involves multiple interviews and medical tests.Some interviews are conducted on the phone, while others are in-person. Samples are collected to gather enough relevant and necessary data. Alternative data like electronic health records can help you replace or supplement the traditional process and accurately estimate the morbidity rates, mortality rates, and life insurance policy.

Partnerships with Alternative Data Providers

Partnering with alternative data providers can help you overcome foreseeable challenges that may hinder the traditional underwriting process. If data cannot be collected through in-person visits, insurers can collaborate with these partnerships to obtain relevant data. This data will enable you to continue underwriting and selling policies.

Use of Technology

Software applications can make it easier for you to instantly access the relevant data that you need to issue new policies and underwrite faster and at a lower price. This data can reveal more personalized information about an applicant’s health and health patterns. Currently, some insurance providers like startups are utilizing alternative data to offer some instant but simple products online.

Underwriting Life Insurance

Underwriting life insurance tries to classify mortality risk, which is a prediction of the timeframe until a person dies and the price policy. Customer information like age, weight, gender, height, prescription records, and even motor vehicle are the data underwriters use to price policy. Other data that insurance traditionally collects from customers include medical exams and blood tests, blood pressure data, and drug test. Alternative data can readily provide this information especially if a customer cannot come for an inperson appointment.

Insurance Credit Data

Credit data provides insurers with the credit history of customers like credit cards, loans, and mortgages. This data will inform you about your customer’s payment history on his or her existing accounts. You will also be able to find out if the customer has credit balances. This data will show the customer’s credit position, and you can predict his or her payment behavior in the future.Alternative data makes it possible to evaluate customer data and segment it according to prospective risk. When you have access to more data, the better it is for you. Customer data can be classified according to risks, and risk-based rates applied. The data will also enable you to offer your customers a personalized customer experience, which is good for business. You can use alternative data sources to gather this information.

Benefits of Alternative Data

Analytics can help you discover your customer characteristics like the best performing and worst performing customer and providing insight into underwriting, marketing, and pricing. You can also use credit scores like individual credit data to predict risk for a customer seeking an insurance policy. Getting information about your customer prescription records is possible with alternative data.The New York State Regulators acknowledge the benefits of alternative data and add that access to financial services is made possible through innovation and technology. FCRA also recognizes alternative data as a way to improve and accelerate the underwriting process and accurately price life insurance.

Final Thoughts

Insurance companies need to collect essential and relevant data, but traditional underwriting can be tedious for both the insurer and the customer. Alternative data sources can be used as an additional input or a supplement to the traditional methods. This data can provide a more accurate underwriting process. Whenever certain restrictions prohibit in-person medical examinations, partnerships with external alternative data sources can be helpful, and you can continue to underwrite and sell policies using these data sources. Connect with our team for an intro call or email to learn more.