Guaranteed Issue Is A Hot Topic In This Time of Rebuilding
Our world was changed on Sept. 11, 2001. We’re rediscovering the intrinsic value of our core human security industry. All of us are rebuilding, even as we cope with anxiety and look to the necessity of being ready.
Today, well look at this as it applies to life insurance for people with medical impairments.
My article on rebuilding, in the Oct. 1, 2001 issue of National Underwriter, discussed how the super-important fields of “intelligence” and “profiling” can help deal with risk. In the insurance industry, we call those concepts “underwriting” and “risk classification.”
In doing risk classification, the insurance objective is to cover as many people as possible at standard rates. However, there are always some people with health historiesthe “impaired risks”–who do not qualify for standard.
On average, 5.7% of applications are issued substandard, and 3.8% are rejected. One way to handle these cases is with substandard rating-up abilities (see my article in the Nov. 6, 2000 NU).
In this article, we will look at another way to handle these impaired risks: Guaranteed Issue. This approach–which entails writing coverage with no medical information, or sometimes very limited medical information, on the client–has become an amazingly hot topic in the industry since September 11.
(By the way: Guaranteed Issue is also a very convenient way to cover numerous people who are not impaired.)
There are many varieties of Guaranteed Issue cases. The chart on this page summarizes them.
The employer-related types are by far the most important. The key to what makes them work is this: At time of issue, they require active employment on a full-time basis, plus reasonable participation of the eligible group. The Group and Worksite examples are very familiar to us. Corporate-Owned Life Insurance may be less so. Large Amount Executive Coverage is also less familiar, but growing.
Large Amount Executive Coverage (Guaranteed Issue) is typically issued in the middle to upper age ranges. (That is where the executives are).
Intensive study is now going on, of all the forms of Guaranteed Issue mortality, with special emphasis on the Large Amount Executive Variety.
One encouraging sign: Socio-economic mortality studies, going back as far as 1960, all show that executives have far better mortality than other employees.
I will not comment at length on the individual types of Guaranteed Issue business. They are listed in the chart. They all have their place. Higher mortality than normal is expected, because of the lack of evidence of insurability, and lack of the “actively-at-work” rule.
A final thought: Most Guaranteed Issue categories can also be issued with some form of simplified evidence of insurability, such as a short-form health questionnaire. This Simplified Issue approach does reduce mortality and premium rates, but it negates the principle of Guaranteed Issue–which isnt what people are looking for in todays climate.
My assessment is, in all the Guaranteed Issue areas, the industry is continuing to rebuild and improve, as is the nation. Its a positive trend at a time when the country needs one.
John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at John M. Bragg and Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. E-mail him at firstname.lastname@example.org.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.