Wanted: DI Policies For Marginally Impaired Risks

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New disability income policies should be developed specifically for marginally impaired risks who would benefit from re-underwriting consideration some time after policy issue.

As you will see, the need for such products is clearly evident in todays DI marketplace.

These policies would fill the void that exists between the industrys standard products and those in the impaired risk domain (i.e., DI policies for people with mild to moderate medical conditions that preclude issuing coverage as standard).

Lets first review the existing marketplace. When a client has been declined for DI insurance, underwriters, agents, brokers, and ultimately insurers, all have a responsibility to advise the client about the reasons for the declination.

If impaired risk market options are available to the client, the marketers also have a responsibility to advise the client of this. (Yes, rates for such products are sometimes double those in the standard market. But some individuals may be so fearful about their medical condition that they would rather pay the higher premium than go without coverage.)

I would like to believe that todays agent-brokerage network does attempt to find a place for coverage for all rejected applicants.

But what happens if the prospect has a medical condition that is improving day-by-day, but whose current profile falls just outside of standard underwriting criteria, causing a declination?

What do you do then? And what does the underwriter do? Does the underwriter go beyond the call of duty and notify you, as agent or broker, about when the applicant can be reconsidered and under what circumstances? Does the insurer have a responsibility to advise clients about the possibility of qualifying for new or replacement DI coverage, say, within three to five years?

As things now stand, I believe most agents, brokers, and insurers do not provide their clients with this valuable information. The majority, I am afraid to say, looks at a rejected application as a lost sale, not a potential future sale.

To their credit, some agents and brokers do attempt to look for alternative sources of coverage in the impaired risk market. Unfortunately, such efforts are sporadic, as far as I can tell, and many are unconstructive at best.

There is a related problem in todays market that bears on this topic of marginally impaired risks. That has to do with what happens after a DI policy is issued.

Typically, the client is forgotten about, once the contract is issuedunless the client initiates a contact.

This situation results from various market pressures. For instance, during the life of the policy, the concern of most agents and brokers is not to ruffle the clients feathers or give the appearance of being pushy or greedy.

In addition, various regulations require that disclosure be given to the client and insurer that it is in the clients best interest to buy the current (or replacement) policy.

The effect of these factors is to discourage agents and brokers from going back to the client later on, even if the medical condition has in fact improved. Their concern is that such moves may create the impression, in the eyes of “outsiders,” that the producer may be harming the client by trying to sell him or her another DI. This concern exists even though, in many instances, the producer believes it may actually be in the clients best interests to offer another DI.

Such contacts become all the more problematic in orphan policy situations, where 1) the original agent has moved on; 2) the broker is now emphasizing a different line of business; and/or 3) the insurer has bailed out of the market altogether.

The result is that todays DI industry lacks any concerted effort to move marginally impaired clients back into standard coverage.

This is so, despite the fact that it is possible for some insurers (especially the larger ones) to rate marginally impaired risks for future placement considerations; and despite the fact that some companies already offer standard and substandard DIs and so could use that framework to build a quasi-standard DI.

I would like to challenge the industry to begin looking at meeting this marginally impaired risk need as an obligation to clients whose conditions have improved over the years.

This can be done by deciding to re-underwrite marginally impaired individuals every three to five years. Or the insurers could develop entirely new products, specifically geared to this market, with re-underwriting strategies built into the pricing and policy design.

, CLU, ChFC, is general manager in the Miami office of IMI/Risk, an insurance and reinsurance solutions firm. He can be emailed at keith.ouellette@riskw.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 25, 2002. Copyright 2002 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.


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