Shopping online is the norm these days, but buying life insurance seems like a logical exception to the trend – after all, it seems unlikely the internet would be able to administer a physical or analyze blood and urine anytime soon.

But automated underwriting is taking off in a big way, according to industry analysts including Boston-based Aite Group, which released a report highlighting the trend last month. More emphasis on streamlined, remote interactions could be important for the U.S. life industry, which can use online underwriting to gain easier access to the long-overlooked middle-class market, as well as cater to younger customers’ shopping habits.

The idea of underwriting a policy through web channels has been around for years, said Clark Troy, research director for Aite Group. But, he added, only in the past couple of years has the U.S. industry really started to buy the software and put it to work.

By contrast, automated underwriting has been far more common overseas in places like the United Kingdom, Australia and South Africa.

But interest is rising in the U.S. From 2010 through the end of the first quarter of 2011, 16 automated underwriting programs were reportedly sold to U.S. insurers, according to Aite, a rate that outpaced companies operating overseas.

In addition, more software ventures are launching automated underwriting products to sell: California-based PlanetSoft, which has locations in Connecticut and New Hampshire, recently launched LifeGuide as a way for insurers to streamline sales of middle-market, individual policies.

A survey released in 2009 by the Society of Actuaries showed that the idea of digital underwriting was on insurers’ minds at the time. With 87 companies responding, nearly 50 percent were considering adopting automated underwriting, and 30 percent were currently using a system. Only about 20 percent said they had no plans to look into it.

The new interest has a few root causes, Troy said. Beginning in 2010, insurers started shaking off the turmoil of the recession and looking for new strategies – some doubled down on the high-end customers, while others turned to the middle-class. More importantly, insurers started to have more confidence in available data sources that can verify customer responses and give a clearer picture of would-be policyholders’ health and life expectancy.

The Medical Information Bureau (MIB), a nonprofit collective where life, health and disability insurance companies share policyholder information – with the policyholder’s authorization – can confirm customers’ responses. In addition, consultants such as Seattle-based Milliman provide databases with vast amounts of prescription information on individuals, so insurers can confirm customers’ health conditions based on what medication they’re taking.

Of prominent insurers taking the plunge, the report focuses on MetLife most notably launching a Rapid eUnderwriting program in 2010, which draws its information on a phone interview with customers and databases such as MIB’s.

Similar Strategy

If that strategy sounds similar to direct sales in the property/casualty industry, that’s because it is, said Shesh Rau, managing director of Chicago-based vendor Step Solutions. Companies selling p/c insurance have long had loads of public information available to them – including theft rates for the person’s type of car or location, his or her credit score and driving record. But now these health databases are becoming more widespread and reliable, and insurers can now take advantage.

Launched in 2009, Rau said his company is still relatively new, and has seen strong interest from life companies looking to find an easier way to sell middle-market policies. This type of process can be used for a host of life insurance sales, but his company’s clients tend to use automated processes for policies of $600,000 or less, he said.

Such is the major strength of automated underwriting. Insurance companies, agents and brokers have long focused on wealthier clientele, as a single policy from a rich individual yields a veritable windfall of commissions and fees compared to multiple polices sold to the middle-class.

But the middle-market is seen as a vast, promising field – it’s just a matter of getting to it. An automated system may provide the answer in cheaper, faster underwriting.

“A face amount of $500,000 is just not worth it, doing it in person,” Rau said. Online underwriting also takes solid aim at a younger demographic that has been raised in an era of convenient online shopping, he added. If a company gets those clients at age 35 or younger, it will have better luck keeping them as they accumulate wealth and gravitate toward more complicated products down the road.

Insurance companies have long talked about how to sell efficiently to the middle market, said Ernest Testa, chairman of New York-based Resonant Insurance Technologies, a relative newcomer to automated underwriting.

Still, for some traditional life insurers, the idea lacks appeal: Rose Conneely, senior vice president for Woburn-based Savings Bank Life Insurance, said her company still requires a medical exam for its life insurance products. That sound underwriting means less-expensive insurance for the customer, which is a big selling point and tends to keep those customers around for the duration of the policy.

“We seem to have a pretty good niche,” she said.