Life Insurance
Decoding the Connection

• Jeff Roberts
• March 2019
• 

Photo courtesy of Bill White.

Key Points

• Transformation: The race to transform the purchasing process and reduce friction such as the paramedical exam is the industry’s holy grail.
• Convenience Matters: Half of all consumers say they are more likely to purchase life insurance if it’s priced without a physical examination.
• Unprotected Public: About 20% of USAA members and nearly 40% of the U.S. population do not carry life insurance.

The F-14 Tomcat was a vulnerable target, flying low over war-torn Bosnia-Herzegovina.

The threat of being shot out of the sky loomed over the mission.

At such low altitudes, Bill White's fighter jet was within range of the Bosnian Serbs' sophisticated surface-to-air missile systems.

But the orders for the radar intercept officer and his pilot were clear: Fly cover for other Navy aircraft photographing Serb positions during the 1994 NATO reconnaissance mission.

“That was a dicey situation,” said White, sounding less like a USAA life insurance executive and more like the Naval flight officer he once was. “They had a lot of advanced weaponry.”

So White understands risk.

And the retired captain and Naval Academy graduate can speak with authority when he says he understands the men and women who serve in the United States military.

USAA's vice president for life insurance and investment products was one of them, a back-seat navigator, weapons officer and communications specialist in the two-seat, aircraft carrier-based F-14. He served in Iraq as well as in the Balkans.

White's latest mission is developing innovative life, annuity, investment and health products to meet the financial protection and retirement needs of the multiline insurer's distinct customer base. Its clients—USAA calls them members—are 12.8 million current and former military personnel and their families.

The race to transform the customer experience and reduce friction is the industry's holy grail, White says. It requires the design of appealing product solutions and the eventual phasing out of invasive paramedical tests.

“Essentially what you're trying to find is data that is a substitute for a medical exam,” said White, sitting at a banquet table inside a midtown Manhattan hotel ballroom. “That's what everybody's trying to decode. That's the it—figuring out that connection.

“If we were to figure out the algorithm, the code that is the substitute for a blood test and urinalysis and measuring somebody's body mass index, that would be the big learning.”

Innovation has long been a driver for USAA, thanks to the special needs of its customers.

It was one of the first U.S. life insurers to allow applicants to digitally transfer their electronic health records. It was the first U.S. financial institution to offer facial and voice recognition on a mobile app to protect against identity theft. And it offers a fully digital application process.

But redefining the customer experience and making affordable products easy to buy remains an elusive target for the industry as a whole.

The obstacles are considerable.

The time-consuming application process. Harrowing paper forms. The obtrusive paramedical exam and fluid screens. Complex policy terms.

They help explain why 20% of USAA members and nearly 40% of Americans do not carry life insurance.

“Sometimes people just give up and say, 'This process is just too hard,'” said White, who leads the integrated solutions team within USAA's Financial Advice and Solutions Group, which is responsible for product innovation, management and development.

Once a staple of nearly every American family's financial plan, life insurance continues to fall on the public's priority list.

Insurers have struggled to engage consumers enough to get them to initiate—and then follow through with—the lengthy and intimidating application process, even as survey after survey shows they understand the product's value.

Reducing or eliminating those tension points while still offering substantial protection just might be critical to maintaining the industry's relevance.

“If you don't like change, you'll like irrelevance even less,” LIMRA CEO David Levenson warned life insurers in October.

The Quandary

White needs a coffee.

It's a rainy Monday morning in Times Square, and he's in town for a life insurance conference.

In between meetings and presentations on the need to engage apathetic consumers and improve the buying experience, White squeezes in a caffeine boost at a chain café.

While waiting for his order—simple brewed coffee, not an espresso or latte—he explained the quandary USAA and the entire industry face.

“We need the best information to give people the lowest price,” said White, who served in the Navy from 1990 to 2000 and then in the Navy Reserve from 2000 to 2015. “And right now, a blood test, urinalysis and medical records when we need them still provide the best information.”

The son of a schoolteacher-turned-principal mom and a dad who was an accountant and community college night school professor, White said he has “a curiosity and affinity for financial planning.”

The central New York native joined USAA in 2013 after earning his MBA from the University of North Carolina while still on active duty. He then worked 13 years at GE Capital and Genworth Financial.

He came to USAA to be closer to the customer. And that's exactly where the paradigm needs to change.

Life insurers recognize the need to leverage technology and data to simplify an application process that could take weeks to months, and substitute for the medical test when possible to meet evolving consumer expectations.

They have already tapped into medical, prescription and financial data to inform and accelerate underwriting. Wearables that track heart rate, sleep patterns, exercise and other factors are increasingly being employed as well.

And there is great potential for the use of genetic information to augment underwriting in the future.

After all, 50% of consumers say they are more likely to purchase life insurance if it's priced without a physical examination, according to the 2018 Insurance Barometer Study by Life Happens and LIMRA.

The wait and inconvenience are daunting headwinds in an age when nearly everything is easily accessible and other industries are designed to satisfy customers.

“You have to immerse yourself in the reality of your customers,” Levenson said.

USAA's Rob Schaffer, vice president for life and health solutions, agrees.

“When the process elongates, and we make it more complicated and more difficult, it stops people from getting the coverage they need,” he said. “The complication of getting through the process for those who have decided to get life insurance is the No. 1 constraint.”

The problem is, offering a faster, smoother experience has proven largely elusive, especially when price still matters more than anything to consumers.

The most common reason people do not buy life insurance is its cost, according to the LIMRA study. USAA's own data also indicates expense is the top concern.

That is why the insurer cut rates in the fall of 2018 for its term life by an average of 13% in 39 states.

Even if American consumers routinely overestimate premiums by a factor of two or three, according to LIMRA, the cost is a very real purchasing barrier.

And while multiple life insurers have delivered accelerated underwriting options in the past two to three years, the large majority of simplified issue policies are more expensive and offer less coverage than standard life.

That's by design. The elevated premiums protect insurers from what they do not know.

Conversely, paramedical exams and fluid tests are inconvenient, but offer “protected value,” according to White—precise information about applicants' health that technology and data analytics cannot currently match.

“We're going to strive to remove that barrier when we can, but our priority is the lowest price and having the best information,” said White, who speaks at a relaxed pace, with each word carefully selected. “So we're going to be cautious and thoughtful about taking those risks.

“I think the medical exams are going to be around for some time, especially for larger policies and complex health issues.”

The reason is simple: An underwriting mistake made with products that provide six- and seven-figure guaranteed protection over decades can have profound consequences.

“When you buy any life insurance policy, there's a risk transfer. And that is a large risk transfer,” White said. “If you pay $500 a year for a $500,000 policy and the insurance company gets that wrong, it costs us half-a-million dollars.

“It is very important that the math works. But there's a lot of hopefulness.”

Experimentation

The hope stems from experimentation.

USAA launched a recent initiative to “constantly test” a large control sample of its applicants, experimenting “in the background to learn and understand how it's working,” White said.

The insurer is moving cautiously, waiving the medical exam in only a limited number of cases.

It has learned that there's “a cost for doing these things. There are trade-offs,” White said. “You save money in that you don't have to pay for the exam. But there is a cost to that lack of information.

“We're trying to determine the situations where we can skip the medical exam and still offer a great price. It's really too soon to tell what we've learned. Time will tell who gets it right.”

Someone will have to do just that as the life space continues to redefine itself in the 21st century.

Insurers will continue to increase their reliance on big data to inform their underwriting in lieu of medical exams to entice new applicants. So the race to innovate without sacrificing accuracy is paramount.

But experimentation is nothing new for USAA.

If necessity is the mother of invention, its well-defined, but nomadic customer base that moves from military base to military base has driven innovation through its unique needs.

The insurer was designed to conduct business over the phone and now through the web and smartphones, not an agency system. That has helped make it adaptable enough to meet emerging needs.

For instance, USAA developed the remote deposit capture technology in 2005 that is now standard for people depositing checks in banks no matter where they are.

“About 30% of our term life insurance comes through without a phone call,” White said. “We've really simplified the application process. A member jumps on our mobile app or website and buys it.

“If you are in good health, you can do the whole thing in five minutes or less.”

In 2017, USAA became one of the first U.S. insurers to allow customers to send their electronic health records directly to the company to expedite the application process.

It has seen an average reduction of 30 days in obtaining the data by cutting out an inefficient and lengthy paper system.

The insurer accomplished this by making its patient portal compatible with the Blue Button electronic health records technology used by the Department of Defense and Veterans Affairs.

“Typically to get a medical record, it's going to take at least a couple of weeks, and in some cases, a couple of months,” White said. “If you can log in and basically hand us the records, you've just eliminated all that time. We were the first ones to do that.”

In 2014, USAA became the first U.S. financial institution to offer facial and voice recognition on a mobile app to protect against fraud and identity theft. Members were able to access information on their smartwatches the next year.

And for more than a decade, USAA—which cracked the Fortune 100 last year with reported revenue of $30 billion in 2017—has offered accelerated underwriting for deploying military personnel without higher rates.

“The key was members asked for it,” White said. “You can always underwrite quickly. You just have to charge more. Our answer was faster at the same price. That's the difference.”

Of course, there are complications that come with covering those who are sent off to the battlefield. Post-traumatic stress disorder and a higher rate of suicide than the general population are two examples.

“It's affecting every single life insurance company. It does affect USAA more than most because we serve the military community,” White said. “We underwrite and make offers to many members who have been treated for post-traumatic stress.”

'Nerve-Racking and Intense'

The Iraqi pilots would stay just out of reach.

They flew at the edge of the no-fly zone just to prod the Navy fighter jets patrolling southern Iraq in the years following the Gulf War.

“They would test it,” said White, who has a coffee mug on his desk at USAA's San Antonio headquarters that bears his wings and call sign, “Snack,” thanks to his habit of carrying food everywhere. “They would get close to the border of where they weren't supposed to be, and we would warn them.”

White completed more than 1,000 flight hours and more than 200 carrier landings.

He served on three aircraft carriers—the USS George Washington, the USS John F. Kennedy and the USS John C. Stennis.

But missions could be less stressful than the carrier landings.

Taking off in daylight with good weather “is about as fun as it gets,” White said. “It's a great ride. The view is terrific. The speed is a rush.”

Retired in 2006, the F-14 could reach speeds of 1,500 mph.

But landing on the USS George Washington's 1,092-foot flight deck at night in bad weather was “the worst day of your life.”

Limited visibility made timing the landing and catching one of the carrier's four arresting wires that keep planes from careening off the deck into the sea considerably more difficult.

“It's nerve-racking and intense,” said White, who was not a Navy pilot, but earned a civilian pilot's license on his own while he was on active duty. “In fact, some studies in the Vietnam War actually showed that the heart rate of pilots was highest landing at night rather than in combat.”

And with the F-14 carrying heavy payloads of bombs and missiles during combat missions, low fuel was a frequent concern as they came in over the Adriatic Sea or the Persian Gulf.

“You have a very narrow window,” White said. “When you fly in combat, you have a lot less wiggle room. That can be pretty nerve-racking.”

But the great moments outweighed the anxious ones, like the time his father, Don, visited him on the USS Stennis.

“It was a brand new ship, and it was going through what was called a shakedown cruise,” White said. “You fly every day. You drop bombs, shoot missiles. We have to put the ship through its paces. I asked permission and got my dad to walk aboard.

“So he got to see me fly off and land on the carrier. And then he and I actually got to fly off the carrier together in [a C-2 cargo plane]. That was really meaningful for both of us.”

And there was one other bright side in his 10 years of active duty.

“As far as I know, nobody shot at me,” White said, stifling a laugh.