Among the many changes in today’s life insurance market, none is more significant than that in the large case market. Underwriting guidelines, reinsurance markets, carrier capacity, and special advanced planning and product support all play a large part in this ever-evolving and competitive marketplace.
Producers in the large case market must constantly monitor these changes and adapt to best serve their clients. This article reviews new developments in the market for large cases–those with target premiums of $250,000 and higher–and highlights a critical process in closing large cases successfully.
Implicit in closing large cases is the ability to navigate through an often complex underwriting process. For that reason, it is important for the producer to contact an experienced senior underwriter to discuss preliminary medical and financial information. Inevitably, special medical situations will arise and certain impairments will be uncovered. The producer must develop as much of the medical assessment ahead of time so as not to risk limiting the ability of the client to obtain the desired coverage and the company’s ability to offer that coverage.
A carrier’s retention must also be factored into the large case process. With the reinsurance market changing, carriers are expected to retain much of the risk. In working with a carrier that has large retention and auto-binding limits, the producer may be able to obtain an offer without additional involvement in the reinsurance marketplace.
Those carriers with lower single life and second-to-die retention amounts may not be equipped to offer competitive underwriting and premium quotes, as they may need automatic or facultative reinsurance treaties. These carrier limitations may severely impact the availability of underwriting offers. Producers should consider working with carriers that have a minimum of $20 million of retention on single life cases and $25 million on second-to-die cases.
Certain producer groups have special case units, which are particularly helpful in the large case arena. These groups typically are staffed with their own experienced underwriters who have existing relationships with carrier underwriting departments.
Advanced sales support
Given the large face amounts involved in large cases, nearly all prospective transactions require advanced planning support. In an ever-changing tax and political landscape, producers need assistance with concepts ranging from basic wealth transfer to those involving the most sophisticated planning techniques. Even more helpful is an arrangement where the advanced sales team works directly with the underwriting and illustration teams to ensure cases move smoothly through the process.
Producer groups that have developed working relationships with carriers’ advanced markets teams have proven extremely helpful to producers. While some carriers specialize in the nonqualified deferred compensation market, others may have expertise in premium financing, split dollar or other advanced estate planning strategies. Working with a dedicated team that understands these strengths saves the producer valuable time and energy.
It seems that all too frequently we are introduced to a new product claiming to “serve the large case marketplace.” Producers need to ask important questions, however, as to whether the carrier and its product really are suited to this market. Examples include:
o Has the carrier demonstrated a commitment to the market, or is this an “experiment?”
o Has the carrier sold a block of business in the past?
o What is the carrier’s experience in maintaining its cost of insurance rates?
o Does the product serve the large marketplace by offering riders associated with advanced planning strategies? This might include cash value enhancement or return of premium riders.
A product team familiar with a strong group of carrier products is important. A diversified selection of carrier and product alternatives positions the producer to provide the best and most appropriate needs-based coverage.
Assume the producer meets the client, a 75-year-old female with a net worth of $50 million and $5 million of in-force coverage. To meet the client’s objectives, the producer recommends purchasing an additional $30 million of coverage using a universal life contract with lapse protection guarantees.
During the fact-finding, the producer also discovers the client was diagnosed two years ago with adult onset diabetes. The diabetes is well controlled by Glucophage, an oral medication. No acute or chronic complications from the diabetes are evident.
To assist in the placement of the case, both product experts and underwriters will begin matching the case facts with carriers (and corresponding contracts) that have the necessary capacity and reinsurance treaties. In doing so, the team will determine which carriers have appropriate auto-bind, jumbo and in-house retention limits. For those carriers with significant limits, the product and underwriting team experts will discuss potential product alternatives with you and “bench mark” the premium costs.
Additionally, the underwriting team will work to ensure financial underwriting and medical underwriting issues are handled appropriately. In doing so, the team will use existing relationships with carrier underwriting departments and its familiarity with the different carriers’ policies, procedures, preferences and strengths. The team will also assist producers in constructing a cover letter, bringing to light the most positive aspects of the client’s health and lifestyle.
Finally, based on the client’s desire to pay as little gift tax as possible, the advanced markets team may suggest various planning strategies for the producer to consider. In this case, for example, a private financing technique may meet the client’s needs.
Along with its own internal illustration systems, the advanced markets department uses strategic relationships with carriers specializing in this strategy. Working with carriers familiar with specific strategies may give the producer access to turnkey marketing kits to assist in presenting a product and strategy to package the case for presentation to the client.
Based on the coordinated efforts of the producer and large case team, the client obtains policies from two carriers, both with significant retention and auto-bind limits, who agree to split the case. Thanks to the help of the special case team underwriting department, the carriers also offer a standard rating. The client also finds a cost-effective and tax efficient way to pay for the premium due to the assistance of the team’s advanced markets staff.
Producers should consider working with special large case teams that can assist them in navigating these sometimes confusing and complicated waters. In addition, producers should be sure to work with carriers that are committed to this market for the long run and which offer knowledge and experience handling large cases.
Producers who have a “client-centric” focus on matching the best product to meet the client’s needs, and who have access to strong assistance and advocacy during the placement process, will experience tremendous success in this dynamic marketplace.