Uncovering the Hidden Truth: The Growing Challenge of Nondisclosure in Life Insurance

One of the most pressing issues for life insurance carriers, as they migrate to digital and accelerated underwriting, is the rising prevalence of nondisclosure and material misrepresentation.

According to industry estimates, over 7% of life insurance policies written contain some form of non- or under-disclosure, leading to approximately 17% of claims filed being affected, with a staggering $15 billion in claims costs per year.

The statistics surrounding nondisclosure paint a concerning picture of the industry’s current state. For instance, consider the case of a 40-year-old male smoker, who could end up paying up to five times more than a non-smoker for a $500,000 20-year term life policy. Shockingly, in 2021, over 43% of individuals testing positive for cotinine, a byproduct of nicotine, denied tobacco usage at the time of application, marking a significant increase from previous years. Tobacco nondisclosure alone is estimated to be a $4 billion problem and continues to grow.

However, tobacco usage is just one aspect of the larger issue of nondisclosure. From lying about alcohol consumption (+20% of adults lie to their doctor about alcohol consumption) to concealing risky hobbies and understating weight (~18% of applicants fail to declare they are obese), applicants may omit critical information to secure lower premiums or policy approval. With the inclusion of family history, medical history, and other underwriting factors, the incentive for applicants to provide inaccurate information becomes even greater.

Previously, carriers could catch this kind of nondisclosure during the medical exam portion of the underwriting process. As the proposed insured’s expectations change and carriers move away from medical exams to accelerated underwriting, these risks are magnified.

Turning Behavioral Data into Real-Time Action

In response, innovative solutions are emerging to help carriers combat nondisclosure effectively. ForMotiv offers a Nondisclosure Solution designed to identify high-risk behaviors during the digital application process. By analyzing digital applicants’ real-time behavioral data, carriers can pinpoint instances of policy manipulation and take appropriate actions, such as asking additional questions or requiring further data checks.

One notable area where ForMotiv’s solution has proven to be highly effective is in enhancing accelerated underwriting, specifically in identifying additional instances of material misrepresentation and nondisclosure that have been missed by other third-party data checks. On average, we’re finding between 4-6 cases of material misrepresentation per 1000 applications, many of which are found to be uninsurable risks that would have otherwise gone undetected.

Furthermore, ForMotiv’s real-time actionable intelligence enables carriers to dynamically determine the next-best action for the applicant, such as triggering additional medical reviews or exams. As carriers harness the power of behavioral intent data, the accuracy of risk assessment models improves, paving the way for more sophisticated use cases, increased face amounts, and enhanced underwriting capabilities.

Upon identifying an application with a heightened risk of misrepresentation or non-disclosure, ForMotiv enables carriers to take immediate, targeted actions to intervene. These interventions can vary based on the nature and severity of the identified risks, including:

  • Enhanced Verification: Triggering additional questions or requiring the submission of supplementary documents to verify the accuracy of the information provided.
  • Application Review: Redirecting applications for manual review by underwriting specialists who can assess the potential risks more thoroughly.
  • Tailored Communication: Engaging directly with applicants through call centers or digital communication channels to clarify or gather more information about specific responses.
  • Risk-Based Pricing Adjustments: Adjusting policy terms or pricing based on the assessed risk, ensuring that premiums accurately reflect the level of risk associated with the applicant.
  • Fraud Prevention Alerts: In cases where the risk of fraud is high, carriers can choose to halt the application process and conduct a comprehensive investigation.

By enabling these real-time interventions, ForMotiv not only aids carriers in mitigating the risks associated with online applications but also helps maintain a smooth and transparent application process for genuine customers. This dual benefit underscores the value of ForMotiv’s solution in today’s digital-first insurance market.

Enhanced Nondisclosure Explorer

With ForMotiv’s new offline Nondisclosure Explorer, carriers can easily examine individual applications with an elevated level of risk. This powerful new update zooms in on applications where at least one potential nondisclosure behavior was triggered, offering carriers an enhanced view of individual application risk.

In conclusion, the prevalence of nondisclosure in the life insurance industry underscores the importance of robust solutions to mitigate risk and ensure fair and accurate underwriting processes. By leveraging advanced technologies and real-time data analytics, carriers can stay ahead of the curve.

To learn more about our Nondisclosure Solution, please get in touch.