A recent article published by ThinkAdvisor highlights a lawsuit brought against Voya Financial Advisors by a 94-year-old policyholder, Carolyn Hawkins. Hawkins alleges that her fixed-premium universal life policy experienced unexpected premium hikes, leaving her unable to maintain it. The misrepresentation of the policy by financial advisors resulted in severe consequences for Hawkins, who had initially expected stable premiums.
The suit illustrates the need for insurers to pay close attention to high-risk policies to avoid adverse lapse rates and negative customer experience. Universal life lapses pose a significant financial challenge for insurers. Beyond the immediate loss of premiums, lapses trigger a domino effect of rising administrative costs, a less healthy insured pool, squeezed margins, and potential premium increases due to cost of insurance. The cumulative impact can be substantial, affecting both the insurer’s bottom line and customer satisfaction.
IT leaders have a crucial role to play in mitigating the occurrence and impact of universal life lapses. By leveraging technology and data-driven processes, insurers can proactively a range of issues that can affect policy lapses and the business processes around them:
- Identifying At-Risk Policyholders: Data analytics can be a powerful tool in predicting policyholders at risk of lapsing on their universal life premiums. By developing predictive models that analyze various data points such as payment history, policyholder demographics, policy details, and external data sources (with proper consent), insurers can proactively identify policies that may be at a higher risk of lapse. This early identification allows for targeted interventions and support to help policyholders maintain their coverage.
- Streamlining Lapse Processing: Automating manual workflows associated with lapse notifications, cancellations, and cash value calculations can significantly reduce administrative costs and improve efficiency. By reviewing existing process designs against modern ancillary technologies and emerging industry services, carriers can identify opportunities to streamline processes and eliminate unnecessary complexity. Simplifying lapse processing not only reduces operational costs but also ensures timely and accurate handling of lapse-related tasks.
- Optimizing Customer Communications: Effective communication is key to educating policyholders about their premium options and the potential consequences of lapse. Modern customer communications management (CCM) tools enable targeted and personalized communication across various channels. However, the sheer volume of templates and forms accumulated over time, often based on product versions and individual state requirements, can pose a significant challenge for business and IT organizations. Leveraging AI-assisted creation and conversion capabilities offered by modern CCM toolsets can help overcome this hurdle, enabling the delivery of timely and relevant communications that improve customer understanding and potentially prevent misunderstandings that could lead to legal actions.
- Enhancing Block Management: By leveraging data insights and decision frameworks aligned with business practices and needs, insurers can optimize cost structures for block administration. Implementing legacy platform strategies, integrating product replacements, exploring reinsurance options, and improving operational servicing can collectively contribute to a holistic improvement in the financial performance of the block. IT plays a crucial role in enabling these enhancements through data integration, system modernization, and process automation.
Investing in IT solutions for lapse management is not just about reducing administrative costs; it’s about fostering better customer relationships and improving policy retention. By collaborating with business stakeholders, IT leaders can develop a comprehensive strategy to address the financial challenges posed by universal life lapses. From predictive analytics to streamlined processes and enhanced customer communication, technology can be a powerful ally in mitigating the impact of lapses and ensuring the long-term sustainability of universal life insurance offerings.
To discuss more about the options available for IT leaders to provide solutions for lapse management and other critical Life policy servicing challenges, please feel free to reach out to me at any time.
