Transforming Underwriting in the Life Insurance Industry

Abstract

Life insurance provides trillions of dollars of financial security for hundreds of millions of individuals and families worldwide. Life insurance companies must accurately assess individual-level mortality risk to simultaneously maintain financial strength and price their products competitively. The traditional underwriting process used to assess this risk is based on manually examining an applicant’s health, behavioral, and financial profile. The existence of large historical data sets provides an unprecedented opportunity for artificial intelligence and machine learning to transform underwriting in the life insurance industry. We present an overview of how a rich application data set and survival modeling were combined to develop a life score that has been deployed in an algorithmic underwriting system at MassMutual, an American mutual life insurance company serving millions of clients. Through a novel evaluation framework, we show that the life score outperforms traditional underwriting by 6% on the basis of claims. We describe how engagement with actuaries, medical doctors, underwriters, and reinsurers was paramount to building an algorithmic underwriting system with a predictive model at its core. Finally, we provide details of the deployed system and highlight its value, which includes saving millions of dollars in operational efficiency while driving the decisions behind tens of billions of dollars of benefits.