The buzz in the life insurance market is about all the hot new permanent insurance products and the new bells and whistles available to policyholders, from extended death benefit guarantees and return-of-premium features to long term care riders and beyond.
These products and features conjure all sorts of estate-planning and wealth-transfer possibilities that carriers, agents and planners alike enthusiastically promote, not only for their ability to address the needs of a much broader range of consumers, but because they represent huge new opportunities for capturing market share.
What goes largely unnoticed amid all the activity on the product side are the underwriting trends that make these next-generation policy designs and features financially feasible for insurance companies to offer and financially feasible for people – even those who not too long ago would have been deemed “uninsurable” because of health or age factors – to purchase. Insurance companies are fast adopting progressive underwriting strategies and practices that better reflect the medical, health and lifestyle realities of today’s seniors.
“Insurance is all about the law of large numbers,” says Roland G. Paradis, FALU, CLU, second vice president and leader of the brokerage underwriting and new business team at Lincoln Financial Group. And today, according to Paradis, who also serves as chairman of the board of governors for the Academy of Life Underwriting, insurance carriers are applying that law much more efficiently in large part because new developments on the underwriting side give them a better grasp of the numbers and data that really matter in assessing risk.
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Widely viewed as a cold-hearted science in which human morbidity and mortality are boiled down into hard financial data, life insurance underwriting is showing its softer side, say veteran industry observers, with:
- Less-intrusive screening practices.
- More communication along each link of the chain, from carrier to consumer, including more opportunities for advisors to interact with underwriters on behalf of clients.
- Wider latitude among carriers to insure applicants of advanced age or with health conditions.
“As an industry,” Paradis says, “we are constantly altering the requirements we are looking at in order to properly assess risk.”
In the end, he says, that flexibility can benefit carriers, consumers and advisors alike.
Among all the changes occurring in life insurance underwriting practices, carriers’ embrace of advanced medical screening processes is having perhaps the most profound impact, according to Paradis. “The biggest trend I’m seeing right now is a change in the tools and requirements underwriters and insurers are using to assess risk.”
Screening tests such as the SMA-12 blood test panel are obsolete, he says, “because the protective value just wasn’t there. Now insurance companies are honing in on the different tests they should be offering [to applicants] at different age levels.” Those tests are generally at least as accurate as, but less intrusive, than their predecessors. They include a simple mouth swab that tests oral fluids for HIV plus a person’s glucose and cholesterol levels; a simple finger stick test that draws a small amount of blood to test for nicotine (tobacco) usage, the presence of illegal drugs such as cocaine, and other health factors; and a skin test to measure cholesterol.
Carriers are using advanced testing practices as a means to gain an edge over their competitors, attempting to lure applicants with the promise of less onerous screening practices. As a result, procedures and processes that started at one or two companies are now being implemented industry-wide, Paradis says. And the advances are likely to continue. “There’s so much on the horizon at this point,” he says, including new chemical studies that identify enzymes indicative of the body’s ability to process “bad” cholesterol and new techniques for measuring the plaque in a person’s arteries.
The new tests mean applicants are no longer subjected to unpopular screening tests, such as those that require physical exertion or extraction of a large amount of blood.
“Everyone is looking for ways to cause the least amount of disruption in a proposed insured’s life,” Paradis says. “How many 72-year-olds are going to want to go through the treadmill test?”
The trend toward kinder, gentler underwriting practices goes beyond medical tests, observes advisor and insurance specialist Scott Harris of the Carta Group in Syracuse, N.Y. “One of the biggest changes [in life insurance underwriting] I see is how insurance carriers are going to more of a lifestyle-type model in underwriting life policies. They’re not emphasizing morbidity factors as much. Instead, they want to know how active people are – whether they’re walking three miles a day, driving themselves places, those kinds of things.”