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Shopping Impaired Risk Products: Where To Go From Here?

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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.

The days of when agents could work with BGAs representing only 1 or 2 insurers are long over, he stresses. “There is no way only one insurance company can present the best option or alternative for the producer and client on every case.”

Also long gone are the days when agents and BGAs could build a case file, copy it, and send the same set of papers to 6 or 8 direct companies at the same time, Dworkin says.

“Now, placing these cases entails a lot more phone work and direct contact up front,” he says.

(Note: At the BGA level, e-mail has become a key part of this preliminary work, notes Felton of Tennessee. “We now routinely e-mail case summaries to the underwriters and get responses back in 24-hours–not one month, as when done on paper.” If an insurance company is interested in an e-summary, the BGA then sends out the full file. This has further increased the competitiveness in the market, he says. Agents therefore need to provide good information up front, he adds, so the BGA can write strong e-mail inquiries.)

Market Complexities

There is a lot more complexity in the market, too, points out Dworkin. For instance, companies today have different term and permanent products available at different price points, for advanced or simplistic needs, and some want to write only in certain target markets. Several may have the same reinsurance company, and some may have no reinsurance at all or not for certain products–and that affects product design, pricing and underwriting.

Getting the best placement requires staying on top of all this and knowing in advance which case will have the best chance at which company, he says. That’s what BGAs do, he says.

In this market, underwriting has become “even more of an art” than in years past, Herman points out.

To benefit from that, agents should work with professionals who have the underwriting expertise to do the medical analysis and line up the arguments before going to market, he suggests.

Environmental Factors

Herman sees some other environmental factors that are also impacting shopping in today’s market. These include:

o Rise of the life settlement market in the last 6 years. Companies are becoming more conservative so as to align their underwriting with that of the settlement companies and thus avoid the adverse selection that results from underwriting arbitrage. This conservatism means agents should present the strongest arguments possible for their cases, Herman says.

o Rise in use of informal applications. Reviewing all of these apps has greatly increased the workload in the home office, he says. Therefore, agents should be working with BGAs who can help them deliver case information with clarity, brevity, accuracy, and convincing arguments, he says.

o Shortage of experienced home office underwriters. In recent years, some leading underwriters have moved on to BGAs and settlement companies, he says, and others just left the business, citing burnout and pressure. So, submitting clear, concise materials to the companies is all the more important, he concludes.

o Reduced use of table shaving programs but increased use of specific underwriting credit programs. It requires a specialist to keep up with all the changes, says Herman.

Shopping impaired risk cases is not something that many agents can do on their own, contends Felton of Tennessee.

It’s not that this is impossible. Some agents do go solo on certain cases, he allows, and they place such business through personal producing general agents.

But this has its limits. Due to today’s greater than ever complexity, higher face amounts, increased competition, etc., agents often find they really need the resources of a BGA with access to multiple markets, products and resources, Felton says.

Not shopping has problems, too. What happens if the primary company doesn’t want to accept a particular impaired risk case, doesn’t have a suitable product or can’t offer coverage at a competitive price?

“The agent has to decide what is most important: to keep the contract with the primary company, or go outside to other markets,” says Felton. It’s not always an easy choice to make, he says, but it is one that agents are continually confronting.

BGA Pressures

BGAs have pressures too, points out Dworkin.

“We are facing more challenges than ever to present the best options to the producer; for example, the best options for short-pay products, guaranteed for life products, or coverage for certain periods.

“To be effective at this, we have to understand the client very well, and since we don’t sell direct, we have to see the client through the eyes for the producer. That means we are in direct partnership with the producer, more so than ever.

“In addition, we have to be very accurate in the way we represent the client to the company.

“So shopping cases is a team approach in today’s market, more so than ever.”


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