Shopping Impaired Risk Products: Where To Go From Here?

Shopping impaired risk cases–i.e., searching the life insurance market for the best product, company, rate, etc. for the situation–requires more sophisticated skills than ever, say brokerage general agents.

The same is true for shopping jumbo life insurance cases, they say.

Twenty-five years ago, when several BGAs started up their own trade group–the National Association of Independent Life Brokerage Agencies–shopping was a big part of the BGA’s business, says Gary S. Dworkin, president of Dworkin Associates, Inc., a BGA in Rochester, N.H.

In fact, agents’ need for access to competitive markets in specialized cases “was the spark for the BGA profession,” he says. Seeing that BGAs had extensive access to companies, agents decided “it was better to place an impaired risk case (via shopping) than to have a decline,” he says.

Shopping Is Even More Important

Today, shopping is even more relevant than back then, contends Dworkin. The insurance business is changing, he says, and agents now, more than ever, need access to multiple markets, competitive products and prices, and underwriting expertise.

They need this access not only to be effective in placing cases with heart disease, cancer, diabetes and other conditions (cases their primary carriers may not want or be able to handle, he says), but also for placing jumbo life policies (with face amounts of $750,000+) where competitive pricing, complex arrangements, and underwriting skill are integral elements.

There was a time when the idea of shopping any insurance case was frowned upon by traditional insurance interests, points out John Felton, president of Tennessee Brokerage Agency, a BGA in Knoxville, Tenn., and the 2007 chairman of NAILBA.

Not any more.

In fact, Felton says, over half the life insurance written in the United States today is placed through BGAs, much of it due to BGAs shopping for the best product, company and price on behalf of the writing agent and the client.

Shopping has always been important, contends Mark Rosen, president of Underwriters Brokerage Service, a BGA in Pittsburg, Pa. In the early 1980s, much of it focused on term insurance cases, impaired risk term cases, and replacement term cases, he says.

Today, in addition to shopping term and impaired risk cases, agents are shopping cases involving permanent life insurance, he says. They are also doing more shopping “up front” on new (as opposed to replacement) term cases, he says. Meanwhile, shopping for replacement life insurance has dwindled in the wake of rising “level term” life sales that entail coverage running 10-20 years or more.

In fact, Rosen adds, shopping now seems to be occurring with virtually every kind of case and product.

He thinks the changing business environment has a lot to do with this.

“The environment is increasingly competitive; the products are very complicated; and there are more and more savvy consumers who need and want the right product at the right price,” he explains.

It’s also being spurred on by the Internet, says Felton of Tennessee. Applicants can now go to Web sites to get their own rates on term insurance, even rates reflecting health impairments, he explains. “So, agents have to keep up with that or they will lose the case.”

(BGAs have to keep up, too, he adds. His own BGA firm did that by building a Web site for agents, where they can enter and shop cases right on the site.)

Furthermore, there are more and more large cases coming in for life insurance at older ages (60s-80s), says Rosen. Such cases entail more complexity in underwriting and tax planning, and therefore greater skill in finding the right product, he indicates. Also, because there is more money in the older age life market than at the younger ages, “there is more competition, too.”

If they hope to get such cases accepted, agents need to be sure the cases are properly packaged and presented to the underwriters, Rosen says. BGAs help them do this.

Another complication comes from new illnesses, says Felton. “Ten years ago, for instance, we never saw sleep apnea, but now it’s on a lot of apps.” Agents shop for assistance with these cases, he says.

Reinsurance Consolidation

The “tremendous consolidation” among reinsurers has had a major impact on shopping, says Laurence Herman, president of Herman Agency Inc., Oakbrook, Ill.

“Twenty-five years ago, there used to be 20 or so major reinsurers, but today there are only 6,” he notes. “That gives the upper hand in pricing to the remaining reinsurers. It also gives the reinsurers a stronger say regarding underwriting at the direct companies.” This affects how companies treat cases, and that can trigger more intense shopping in the market.

For instance, Herman says, if a reinsurer doesn’t like the primary company’s decisions, the reinsurer might impose onerous terms on the case, decide not to participate, or even terminate its agreement altogether. As a result, direct companies have become increasingly “conservative” and “by the book,” Herman says.

One example: A few years ago, direct companies made per-case “business exceptions” due to borderline ratings and/or business relationship factors, he says. “But today, exceptions are few and far between.” So, agents shop more–to find alternatives.

Still, business relationships are extremely important, says Dworkin of New Hampshire. To get the best placement, distribution needs to work as partners with the companies,” he says. It’s a matter of “BGAs rolling up their sleeves with the companies and finding ways to develop alternatives for the producer.”

As for producers, they need not only to be aware of the reinsurance situation, but also recognize that it’s to their advantage to work with BGAs which maintain multiple company relationships.