Under the radar

The buzz in the life insurance market is about all the hot new permanent insurance products and the new bells and whistles available to policyholders, from extended death benefit guarantees and return-of-premium features to long term care riders and beyond.

These products and features conjure all sorts of estate-planning and wealth-transfer possibilities that carriers, agents and planners alike enthusiastically promote, not only for their ability to address the needs of a much broader range of consumers, but because they represent huge new opportunities for capturing market share.

What goes largely unnoticed amid all the activity on the product side are the underwriting trends that make these next-generation policy designs and features financially feasible for insurance companies to offer and financially feasible for people – even those who not too long ago would have been deemed "uninsurable" because of health or age factors – to purchase. Insurance companies are fast adopting progressive underwriting strategies and practices that better reflect the medical, health and lifestyle realities of today's seniors.

"Insurance is all about the law of large numbers," says Roland G. Paradis, FALU, CLU, second vice president and leader of the brokerage underwriting and new business team at Lincoln Financial Group. And today, according to Paradis, who also serves as chairman of the board of governors for the Academy of Life Underwriting, insurance carriers are applying that law much more efficiently in large part because new developments on the underwriting side give them a better grasp of the numbers and data that really matter in assessing risk.

Widely viewed as a cold-hearted science in which human morbidity and mortality are boiled down into hard financial data, life insurance underwriting is showing its softer side, say veteran industry observers, with:

Less-intrusive screening practices.
More communication along each link of the chain, from carrier to consumer, including more opportunities for advisors to interact with underwriters on behalf of clients.
Wider latitude among carriers to insure applicants of advanced age or with health conditions.

"As an industry," Paradis says, "we are constantly altering the requirements we are looking at in order to properly assess risk."

In the end, he says, that flexibility can benefit carriers, consumers and advisors alike.

Screen tests

Among all the changes occurring in life insurance underwriting practices, carriers' embrace of advanced medical screening processes is having perhaps the most profound impact, according to Paradis. "The biggest trend I'm seeing right now is a change in the tools and requirements underwriters and insurers are using to assess risk."

Screening tests such as the SMA-12 blood test panel are obsolete, he says, "because the protective value just wasn't there. Now insurance companies are honing in on the different tests they should be offering [to applicants] at different age levels." Those tests are generally at least as accurate as, but less intrusive, than their predecessors. They include a simple mouth swab that tests oral fluids for HIV plus a person's glucose and cholesterol levels; a simple finger stick test that draws a small amount of blood to test for nicotine (tobacco) usage, the presence of illegal drugs such as cocaine, and other health factors; and a skin test to measure cholesterol.

Carriers are using advanced testing practices as a means to gain an edge over their competitors, attempting to lure applicants with the promise of less onerous screening practices. As a result, procedures and processes that started at one or two companies are now being implemented industry-wide, Paradis says. And the advances are likely to continue. "There's so much on the horizon at this point," he says, including new chemical studies that identify enzymes indicative of the body's ability to process "bad" cholesterol and new techniques for measuring the plaque in a person's arteries.

The new tests mean applicants are no longer subjected to unpopular screening tests, such as those that require physical exertion or extraction of a large amount of blood.

"Everyone is looking for ways to cause the least amount of disruption in a proposed insured's life," Paradis says. "How many 72-year-olds are going to want to go through the treadmill test?"

Open communication

The trend toward kinder, gentler underwriting practices goes beyond medical tests, observes advisor and insurance specialist Scott Harris of the Carta Group in Syracuse, N.Y. "One of the biggest changes [in life insurance underwriting] I see is how insurance carriers are going to more of a lifestyle-type model in underwriting life policies. They're not emphasizing morbidity factors as much. Instead, they want to know how active people are – whether they're walking three miles a day, driving themselves places, those kinds of things."

The growing emphasis on lifestyle-related health factors reflects an increasing desire among insurers and their home office underwriters to develop more complete, better-rounded profiles of their life insurance applicants, Harris says. To that end, carriers now allow – and often encourage – greater communication between their underwriting departments and advisors and agents in the field. No longer are underwriters shielded from direct contact with advisors.

"Today they're much more willing to be interactive. From the producer side, there's a lot more interaction between us and underwriting [departments]. We can call them and have a dialogue with them about a specific client, which used to be taboo. Now, the more information you, the advisor, can give them about a client, the better. It helps the company make better business decisions about its applicants."

As these new lines of communications open, it's becoming common practice for advisors to include with a life insurance application a detailed cover letter written to the underwriter, explaining more fully any relevant details that could make the applicant more appealing to insure.

"The cover letter," Harris explains, "is a way to turn my client from a black-and-white piece of paper into someone who's a real person in the eyes of the underwriter."

In an effort to more efficiently assess risk, insurers not only are encouraging underwriting departments to be more open to external communications with advisors, they also are promoting greater information exchange internally across and among their underwriting, claims and actuarial departments, says Sharon B. Smith, FALU, FLMI, principal at Amalfi Consulting in Oakville, Ont. "With more communication between those sides of the house, there's more opportunity for sharing of information and data mining," says Smith, an ALU board member and past president of the Association of Home Office Underwriters. "Each side gets a better understanding of how the others work. That produces a better result for the company."

Insuring the uninsurable

Taken together, these trends – advanced medical screening practices, greater emphasis on healthy lifestyle and a more open, communication-based underwriting process – bode well for seniors in the market for life insurance, Harris says. Bottom line: Age and certain health conditions no longer may preclude people from affordably securing life insurance coverage. "We now have carriers aggressively writing life insurance policies on 80- and even 85-year-olds, and I think that's a good thing."

In terms of the industry's ability to provide policies to people who previously were deemed uninsurable, "it's gotten substantially better," Paradis says. "You go back 30 years and no one would have considered giving coverage to anyone who has had breast cancer, has coronary artery disease or has had bypass surgery. But with all the advances in early detection and treatment, in cases like that we may not only be able to cover the person, we can sometimes cover them at standard rates."

Even 10 or 15 years ago, notes Harris, a person with hypertension, diabetes, cardiac issues, a cancer history and the like would have had difficulty securing any kind of permanent life insurance coverage. But thanks to a modernized underwriting approach, "it's easier for them to get coverage today, and even to have their policy issued on a standard basis or better."

Life insurance underwriters are showing a softer side at just the right time, with the front edge of the baby boomer generation having recently hit age 60, signaling a potentially huge influx of demand for life insurance products from a generation of some 78 million people, many of whom will be seeking tax-favored estate planning and wealth transfer tools. Because of that, Harris says, "we're starting to see insurance carriers really focus on developing life insurance products for the older individual in the senior marketplace."

But with a range of new issues looming on the underwriting front, carriers will need to focus on more than just product development. Global climate change, stem cell research, disease pandemics and foreign travel are among many issues that loom large for life insurance underwriters. And of course, they also will be grappling with the general populace's ever-lengthening average life expectancy.

From the perspective of the home office underwriting department, "You better have your ducks in a row in order to make assessments on these types of things," Paridis says.

"It's an unsettling time we live in," Harris adds. Amid that kind of turmoil, it's nice to have an underwriter on your side.

Under the radar

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Under the radar

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