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.
