The revolution in impaired risk underwriting

Insurers have developed mathematical algorithms to determine where they can speed up the underwriting process

More insurance companies are improving their rate classifications for a variety of risks due to improved mortality data and clients experiencing more promising long-term health. (Photo: iStock) More insurance companies are improving their rate classifications for a variety of risks due to improved mortality data and clients experiencing more promising long-term health. (Photo: iStock)

Impaired risk underwriting isn’t what it used to be. Advances in medical technology, big data, and information sharing are transforming it from a 1970 Plymouth into tomorrow’s Tesla.

These dramatic changes are ushering in new processes, fostering enhanced metrics, and paving the way for underwriting methods that are innovative, refreshing and far-reaching — both for clients and for advisors.

Related: IT makeover: NU panelists explore innovations in underwriting

Enormous strides in medical technology are making available new and improved clinical testing, evaluation and diagnostics. Couple these striking enhancements with improved underwriting knowledge and understanding, and life insurance underwriters have the ability to make better offers.

Here is how these methodologies contribute to improvements in IR underwriting.

Prescription database: Using this database can help determine the reality of a client's medical status without ordering an attending physician statement (APS). This can be helpful when it’s unlikely that an APS review will add significant additional information. Quite often an acceptable offer can be made when it seems that there is relative clarity in the client’s medical status.

Big data: Information about a client’s habits, lifestyle and status that may or may not add up to various risk factors is now instantly available. Access to this information can be invaluable for both simplified and full underwriting, as it provides information on the risk that was unavailable or difficult to access previously.

Interviews, the Internet, MIB and consumer files: Taken together, these four factors are critical underwriting components. Use of the Internet helps to ferret out lifestyle evidence that can contribute to making or breaking a case. MIB searches and personal interviews have long been used and are still essential components in building the client’s file. Access to various other databases can provide the underwriter with information that was difficult or impossible to obtain previously. These information sources speed cases along and help to minimize underwriting requirements.

Various manuals: Historically, companies would use a single manual to assist in assessing a risk. Some larger life companies had proprietary manuals built for their use. Now, it’s not unusual for companies to have two or three manuals. And several companies have four manuals for risk assessment. Using strengths from various manuals can make for very aggressive offers with competitive pricing, which can mean the difference in placing the case or not getting the business.

Up-to-date medical research and testing: There is an accelerating trend in the quality of diagnostic tools for underwriting such significant risks as cancer, heart disease and diabetes. These tools help clinicians and underwriters recognize and classify the medical issues faced by patients and proposed insureds. New medical and drug treatments are continuously coming online, and have accelerated the pace with which patients' health outlook, status and prognosis can improve. Carriers have removed requirements for echocardiograms, with many substantially reducing their requirements for an EKG, and substituting the NT-Pro BNP blood testing at certain ages. All of these factors have a positive effect on mortality and help the underwriter make better offers.

Personal habits: The outlook for improvements when dealing with personal habits remains a mixed bag.

Alcohol abuse: The position of life carriers regarding alcohol abuse is relatively unchanged. A mild or moderate abuser can secure a mild or moderate rating. Anything more severe typically will be rejected, requiring some years of sobriety and abstinence to obtain an offer. In addition to the use of the APS, driving records and interviews, there are multiple lab markers used to help in evaluating the applicant's usage.

Addiction and abuse of narcotics: Drug abuse has become more prevalent, and is challenging when making offers. Offers are made, but the compliance and control are necessary. 

Underwriting marijuana and cigar usage: Coverage options continue to improve so that preferred nonsmoker offers are available.

See also: Marijuana from an underwriting perspective

Driving under the influence: The circumstances, occurrence dates, current habits and particular carrier niches all impact offerings. In other words, the details are important.

All in all, more insurance companies are improving their rate classifications for a variety of risks. This is due to improved mortality data, as well as treatment protocols that are more promising for patients’ long-term health. (Photo: iStock)All in all, more insurance companies are improving their rate classifications for a variety of risks. (Photo: iStock)

Other notable recent offer improvements

      • Seniors over age 70 now available with multiple credits; better with acute coronary syndrome
      • Sleep apneas. Some are now available at preferred rates
      • Asthma. Can secure preferred rates
      • Prostate cancer. Using watchful waiting over age 65. Previously uninsurable clients can not get standard ratings
      • Hepatitis C. Using new drugs, previously a declination or highly rated can be cured. These clients can now secure standard or even preferred rates
      • Cancer. Certain cancers can receive preferred nonsmoker treatment
      • Diabetes. Preferred rates are now possible for an increasing number of well-controlled diabetics
      • Heart Disease. Single vessel coronary artery disease can get preferred nonsmoker rates
      • HIV. Clients with HIV can now get offers from some companies. This is an example of companies considering a previously uninsurable medical scenario because of historical data and medical advances

Related: 9 factors that affect longevity

Companies have developed mathematical algorithms to determine where they can speed up the underwriting process, improving costs while they are saving time. The life insurance industry has been trending toward doing less testing, especially when blood and urine tests are no longer needed.

They have also downgraded the need for a physician's exam to a paramedical exam and more often, we can expect to see downgrades to no exam at all. Simplified underwriting can use automated underwriting techniques to make offers that range from preferred classes to clients that get offered policies with moderate ratings.

Projections for future trends

      • There will be an acceleration of the use of new and improved testing by both clinicians and insurance companies to help improve mortality.
      • Companies will find more pathways to avoid ordering attending physician statements, relying on personal health interviews and searching various databases for relevant information. However, some companies are avoiding personal inspections and gathering what they feel is sufficient information from multiple databases.
      • Predictive modeling becomes more important and more useful in evaluating mortality than ever expected.
      • More companies will avoid using EKGs
      • Companies will have their own, unique methodologies for evaluating labs
      • Medical breakthroughs will allow better mortality and offers where previously there were none
      • More clinicians working with gene testing are having an impact on client offers.

It’s becoming clear that companies will be relying on their own resources to refine their modus operandi in underwriting a case. This means they will make good, profitable offers while maintaining an appropriate and workable market share.

Life insurance companies will find advanced selection techniques that save time and money. This is good news for advisors and their clients. Clients will benefit from a long-awaited streamlining of the underwriting process by receiving better offers, those that best reflect their real health, while advisors will deliver the best possible products at a highly competitive cost.

See also:

The advisor's role in financial underwriting

Life insurers use technology, data to streamline underwriting

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