Since life insurance underwriting is an imperfect “science,” it offers both opportunities for surprisingly good outcomes and disappointing setbacks. It’s well known that one company’s good risk is another company’s decline or highly rated case.
Because of the potential disparity in responses to a case, advisors are faced with the daunting task of aligning a particular client’s case with the right company, with the right product, and at the best price and underwriting available. To further complicate the task, it’s increasingly necessary to shop the client’s file to achieve this objective, as insurance companies continue to fine-tune their underwriting using highly sophisticated and continuously evolving data and analytical techniques.
Of particular importance to advisors and their clients are the many changes that affect client underwriting, specifically where there was prior underwriting with adverse results. Those results may or may not have been appropriate at the time, and the policy may be in force or not taken. Fortunately, there are favorable conditions today for advisors to present their clients with ways to improve a prior life insurance result, each one offering underwriting enhancements sufficient to overcome the prior adverse insurance underwriting decision.
1. A Client’s Medical Status
It’s incumbent upon advisors to take seriously today’s opportunities to review their in-force policies, including rated policies and previously rated offers. Here’s why:
• It’s quite possible that a client’s medical status can improve with the passage of time.
• In the same way, a medical condition can stabilize, opening the way for an enhanced offer.
• This also applies to the improved stability of a particular diagnosis.
• Aggressive and successful treatment can improve a medical condition leading to new, more favorable offers.
• Positive changes or improvements in testing and lab results can lead to a better offer.
• New (previously unused) testing may come to be introduced by the client’s physician or requested by an insurance company to obtain a better offer.
2. The Insurance Company Outlook
Life insurance companies are far from static when it comes to their mortality experience. Most companies review their actuarial history annually with their reinsurers to evaluate the results, and they adjust to new medical treatment realities and the implications for mortality enhancement.
3. Medical and Technological Outlook
Life companies are continually coming up with new medical testing that is helpful in underwriting. At the same time, clinicians have access to new medications, advanced testing, state-of-the-art diagnostic tools and comprehensive medical care which, when taken together, serve to improve patients’ health prognosis, longevity and mortality.
Although many in our industry view life insurance companies as staid and stodgy, they agonizingly crunch numbers, along with their reinsurers, to evaluate, catalogue and assure profit margins, as well as offering the most competitive underwriting.
4. Insurance Company Niches
Each life company has its own unique underwriting approach. This means they can and do view the same set of medical information differently, even quite differently at times. For example, one company may see a set of facts indicating a particular impairment, while the next company, reviewing the same facts, does not have a problem. This is not a matter of the way underwriters from two companies perceive the same information. The difference depends on the individual underwriting positions of the insurance companies involved.
Insurance companies assign a greater or lesser risk rating for a particular impairment compared to the competition, and they have proprietary risk crediting programs and table reduction programs that can come into play and benefit clients. These programs become more liberal, more highly refined and more flexible each year.
The niches life insurance companies may champion include coronary artery disease, prostate and breast cancers, multiple impairment cases, sleep apnea using CPAP, gastric bypass surgery, tobacco usage, marijuana usage, alcohol abuse history, depression and anxiety.
Here are two sample cases with two quite different conclusions:
Case #1. After establishing the client’s need, the advisor pre-underwrote this jumbo case according to his usual methodology with pre-submission of the APS file, and shopping the market for the most appropriate, best-priced products. The client signed the formal application and completed the insurance exam and needed labs. The labs revealed elevated lipids and elevated liver functions that were four to eight times normal ranges. The company made an offer that was 100 percent or more above standard rates. Understandably, this came as a shock to both the broker and the client.
While important indicators for health, these blood panels can be dynamic and volatile. The client visited his physician, who re-checked and confirmed the labs. After obtaining his client’s approval, the broker shared the information with his own personal physician, who subsequently consulted with the client regarding the current lab status.
The consulting physician recognized that excessive ibuprofen use, overly vigorous exercise before the test, and poor dietary control were most likely the cause for the poor labs. The client heeded the consulting physician’s advice, and all but one lab returned to a normal range. The remaining lab had reduced from eight times normal to 1.5 times normal. The consultant also wrote a helpful letter to the company.
The result: The company approved the client at preferred non-smoker rates five weeks later for a $50 million policy with an annual premium of $560,000. This case had a positive ending as the client was led through a challenging situation.
Case #2. Fifteen years ago, a 61-year-old life insurance broker was diagnosed with hemochromatosis. Then, two years ago, he wanted to improve his term life Standard non-smoker policy rates. Medically, he required a complete blood transfusion every three years to reduce his iron levels. Fortunately, his liver functions were consistently in the normal range. By working with competitive carriers in the term life market, it came as a surprise that one carrier offered a Preferred Plus non-smoker policy for $2 million based on presenting a long history.
Recently, the same broker wanted an incremental $500,000 permanent life policy from the same carrier at the existing Preferred best rate, which turned out to be Standard non-smoker. Another company came through with a Preferred rate for the UL coverage based on an exceptional, stable, asymptomatic history with spotless labs. There were also two with Standard plus rates, while the others were Standard.
Takeaway: In spite of the opportunities for improving rate outcomes, it’s the missed ones that deserve our attention. There are times when an advisor receives a tremendous offer, one that’s much better than anyone might reasonably expect. When this occurs, it’s important to recognize that this is an unusual and, quite possibly, a unique opportunity. While the offer is on the table, it’s time for a client to take full advantage of it by maximizing the coverage. Later can be too late.
Large cases can be challenging, but if we approach them thoughtfully and thoroughly they can produce extraordinary results for clients and advisors.