Underwriting For Settlements Has Challenges

Evaluating an insured for a life settlement involves distinct challenges, forcing an underwriter to look at the policyholder in a distinctly different, and sometimes opposite way as has been traditionally done for life insurance policies, according to the medical director of an evaluation company.

Speaking at the National Underwriter Life Settlement Summit here, Dr. Linda Goodwin of Examination Management Services, Inc., noted that underwriters for life settlements start out with a distinct disadvantage.

“You get medical records,” and other documents, she noted, but “usually you can’t ask for anything current,” as an underwriter could of a life policy applicant.

In some cases, she said, an underwriter can include a proviso in the arrangement that if the seller of the policy provides new information regarding their health then it could result in a more competitive offer, “but not always.”

Life settlement underwriters, she said, are also generally not given information about the initial purchase of the coverage, such as the value or initial price of the coverage.

Life settlements have changed the way the senior population is viewed by underwriters, according to Goodwin, in that they have brought a senior population that had been largely ignored as uninsurable into the field.

Ageism, she said, can also play a role. As an example, she noted that cancer studies have traditionally had a cutoff age of 65, despite the fact that a majority of cancer cases involve senior patients.

Studies in general are based on chronological rather than biological age, she said, adding that seniors at the same age can be vastly different in condition. A population of one-year olds will be generally equally healthy, she said, but an equal population of 85-year olds would be far more heterogeneous.

Instead of seeing the population as simply “seniors,” she said underwriters now look at them as three distinct groups of those between 65 and 74, those 74 to 84 and those who are older than 85.

“Those are very different groups,” she said. In the past, however, “they figured if you’re old, you must be sick, and if you’re really old, you’re pretty much dead.”

This can be a concern for life settlement companies because underwriters working with that traditional mindset may see more value in an insured than is actually there, she said, which could result in “excessively aggressive” bids.