Glenn Waldman, CLU

How do underwriters evaluate risk? They assess mortality risk by utilizing several sources: life insurance exam requirements, attending physician statements, Medical Information Bureau reports, pharmacological records, Department of Motor Vehicle reports, personal history interviews, and face-to-face inspections (for jumbo cases).

I like to compare underwriting life insurance risks to evaluating an applicant as a credit risk for either a home loan or mortgage. The latter analyzes income, savings, current debt and debt service (debt history and repayment), and credit reports. The underwriting decision is predicated on the amount of mortgage loan requested relative to the borrower’s ability to repay the loan.

Both types of underwriters essentially include the positives in the “plus column” and subtract the negatives from the “minus column” to determine the final underwriting decision. We all know, regardless of life or mortgage underwriting, the risk assessment can range between an approval for “best” rates to a declination.

For the risk evaluation process, underwriters generally make their decision based upon facts. Seldom are underwriters concerned with or plugged into what is needed to make the sale or underwrite the case with a specific underwriting offer in mind.

So how can the BGA influence the final underwriting decision? How can the BGA take a case from a declination to an offer that results in a life insurance sale? Can a decision be influenced so that it results in an offer that matches the pricing or budget objectives previously established before the underwriting process even began? In short, can a BGA “make lemonade out of lemons”?

Let me share a few examples of how a knowledgeable BGA can influence the outcome of a case using a creative underwriting solution.

Case One: Male, age 49, diagnosed with a rare disease called Zollinger-Ellison Syndrome (ZE).

Zollinger-Ellison Syndrome is a disease in which the body secretes an over-abundance of gastrin (a major physiological regulator of gastric acid secretion). ZE is caused by tumors, usually found in the head of the pancreas and upper small intestine. These gastrinomas occur as single tumors or as multiple tumors. About one-third to one-half of gastrinomas are cancerous (malignant). They spread to the liver and lymph nodes, resulting in significantly reduced life expectancy. ZE had up to this point resulted in declinations!

The proposed insured was treated at the National Institute of Health (NIH) by a physician who had medically managed more than 200 ZE patients internationally. The agent indicated that his client would be willing to assist in any way necessary with the underwriting process for $5 million of universal life.

The insured introduced us to his physician at NIH, who became our advocate and shared his recent study, which demonstrated that some forms of ZE were better than others and resulted in better life expectancy. Prior to the new study, reports indicated that once diagnosed with ZE most patients died in less than 10 years. The new study, which was unpublished, projected life expectancies greater than 15 years.

The study and specific medical history of the insured was submitted to several large insurers. One carrier’s medical director had a background in research, embraced this study as it related to the insured, and made a Table F offer. The result was a final sale for $5 million of universal life.

Case Two: Female, age 70-plus, with a history of bipolar depression, previous suicide attempts, irregular heartbeat, diabetes, and recently diagnosed Parkinson’s disease, who has a live-in health provider.

Many times we see life risks which appear uninsurable, but in reality just do not present well to the underwriter. This is when videotaping can be useful.

The live-in attendant was a licensed health care professional (non-family member) who was paid weekly by the children of the insured (a wealthy family wanting to take care of their mother).

The history and facts of the case indicated a decline. Subsequently, we asked the agent to interview the insured and the live-in caregiver. The video tape was presented along with the attending physician statement to several insurers. Sometimes one picture is worth a thousand words—the result, a placeable offer which resulted in a $1.8 million universal life sale.

Using a video tape can be helpful when the primary underwriting hurdle is a questionable medical history of memory deficiency or memory loss.

Case Three: Male, age 65-plus, diagnosed with chronic lymphocytic leukemia (CLL) for 20 years.

Most insureds with a medical diagnosis of CLL are never standard. Even the best cases of CLL with a remote diagnosis and best staging at diagnosis (stage zero) are normally rated up between four and eight tables.

This client was diagnosed with CLL 20 years prior and was a stage zero at diagnosis. His blood studies (CBCs), although somewhat abnormal, demonstrated a stable pattern of minimally elevated platelet and white blood cell counts. We obtained a Table B offer from a reputable insurer. The best offer ever seen by the insured, however, was still unacceptable. The client felt he deserved a standard offer. Subsequently, we flew the insured to the underwriter who made the Table B offer. The result of that meeting was a revised offer of standard for UL only and Table B if the insured still wanted to buy term. Result: The final sale was $5 million of universal life on a male age 65-plus.

The above cases are but a few success stories using creative underwriting techniques to achieve the desired result. There have been several cases with different methodology used to help underwriters focus their efforts. Many times an experienced BGA can find a creative underwriting solution to cases that may appear unsalvageable. We just have to think outside the box to keep making lemonade out of lemons.

Before we can determine how life insurance applications will be underwritten in the not too distant future, we need to visit and examine how life insurance applications were underwritten 30 or 40 years ago. I can relate to this because I started in the business June 1, 1971.

In those days a large case was considered to be $100,000 of death benefit, and almost all life applications required a physician’s examination and a resting EKG. Larger cases—more than $1 million of death benefit—required a stress EKG and chest x-rays; blood studies may have been required for policies that exceeded $5 million of death benefit.

Jet Issue programs were non-existent, and the same could be said for cognitive testing for applicants over age 70. Inspections were usually face to face, and there was heavy reliance on attending physician statements (APSs) to evaluate risk selection.

The discovery of AIDS changed the dynamics of life underwriting. As a result, today most insurers require blood tests for any death benefit that exceeds $100,000. This has opened a whole new world in screening for cardiac, diabetic and kidney function impairments.

The ability to assess life expectancy has increased tenfold. Currently it is common to see rate classes to include super preferred, preferred plus, preferred, standard plus and standard risk classifications before a table rating is added.

Today we are seeing the use of personal health interviews (PHIs) versus face-to-face interviews, which are quicker to arrange and complete and more cost efficient. Another tool being employed in the underwriting process is screening for pharmacological records to cross check with information provided on the life insurance exam and APS.

Personally, I have seen a “lack of candor” being displayed for paramedical exams. With the ability to use pharmacological records and the Medical Inspection Bureau (MIB), risk selection and screening is improving on a daily basis. APSs still play a vital role in risk identification and selection, especially in the older age market and higher death benefit cases. In addition, cognitive testing on insurance exams performed by MDs and parameds for applicants over age 70 is now commonplace.

The future of insurance underwriting will be based on technological enhancements and the drive to increase cost efficiency, while not sacrificing information, to determine proper risk selection.

EKGs, stress EKGs and APSs, although informative, have proven to be expensive tools for analyzing risk selection. In the future, insurers will rely more heavily on blood studies and, to a large extent, eliminate the use of EKGs and APSs for most ages and death benefits under $1 million. A good example of this is a blood test called NT-proBNP, which screens for the full range of cardiac impairments. Normal range for this test is between zero and 460.

Last year I had a case involving a female over age 70 with a history of cancer, but no prior cardiac history. None of her APSs indicated there were cardiac issues, but her NT-proBNP on the insurance exam exceeded 1,260. Her application was declined and her agent recommended she submit to a complete cardiac evaluation by her own personal physician, who practices within a nationally recognized medical facility.

In the course of her evaluation, her physician determined that she actually had an allergic reaction to current medications, which produced the abnormal NT-proBNP reading. Her medications were altered and she subsequently tested within normal limits for this study—and is now back on track for standard ns approval.

In the course of solving this underwriting conundrum, we also determined that several insurance companies have a more liberal interpretation of this blood test. Even an NT-proBNP of 500 to 1,000 may be acceptable with supporting evidence that includes a negative thallium stress test and no cardiac criticism in the APS.

In the near future another blood study may be used; called Cystatin C, it is a screening test for kidney function and renal insufficiency. I asked Hank George, a well-known impaired risk consultant in the insurance industry, about this test. He indicated that when Cystatin C and NT-proBNP tests are combined, the need for stress tests and resting EKGs are eliminated.

The birth of computerized underwriting programs is another landmark in underwriting clients. Hank George advised me that a growing number of insurers have “underwriting engines,” which greatly reduce the need for human underwriters on cleaner cases. In fact, these “straight-through-processing” systems can approve from 40 to 75 percent of all applications submitted. They will automatically identify a case that requires an in-depth analysis, and transfer it to the traditional underwriting process.

The need to reduce expenses in the current economic climate is essential.

I firmly believe we are in the middle of the perfect storm. Insurers need to increase profitability and decrease distribution cost. Reinsurers, faced with accepting new underwriting tests in place of the tried and true need to feel that the information they are getting is sufficient to adequately assess risk selection. Once the storm clouds clear and everyone accepts the needed changes, a new routine will be established.

In the meantime, it would be advisable for any agent today to align himself with a brokerage general agency that can facilitate the transmission of insurance exams, applications, and even policy issue and delivery for small term cases and annuities. For larger face amounts and more complex cases, agents need particularly experienced assistance to reduce underwriting problems and take over “damage control” along the way.