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Life Health > Life Insurance

Crystal Ball Underwriting, Or What Is The Client's Intent?

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A new rung tops the high net worth underwriting ladder, as clients’ intentions are being analyzed, along with financial and mortality risk. This matter of “intention” is relevant yet nebulous. Egregious practices by some have made underwriting of routine insurance planning more difficult.

Clients’ intentions are brought into question most often when cases are financed because of the wreckage investor-originated life insurance has left behind and the fact that hybrid financing requires less skin in the game. Carriers find themselves trying to bring evidence to light to not only evaluate mortality risk and financial justification but also the client’s intent for the purchase.

This additional scrutiny can put carriers and agents at opposing corners of the ring, resulting in a no-win situation. Alternatively, with some preparation, agents and advisors can adopt appropriate measures of responsibility, present the case comprehensively and allay carriers’ fears.

Data collection

In addition to the evidence they traditionally provide to assess cases, advanced markets departments are underwriting, too. They request and review trusts, explain gifting and exit strategies, and frequently ask for copies of estate plans.

By indicating premium finance on applications, you can be assured the carrier will make requests for such plan documents, yet they are not listed as usual and customary underwriting requirements; the carrier will often ask for them after the case has been in review. As distributors, we are crying out for carrier partners to make these requirements known–specifically, consistently and proactively.

In addition to sales strategies being underwritten (financed or not), financial underwriting is being more closely scrutinized. Basic field underwriting taught us to answer two questions when applying for insurance: (1) What is the purpose of the insurance? (2) How did you arrive at the amount applied for?

Answers to these questions are critical to paint the picture for underwriters; regrettably answers are not often straightforward.

Complicating factors

Graying population. Answers to underwriting questions are complicated with older clients, who may be applying for insurance for the last time. Buying the maximum amount they need or foresee can make sense, given the long sales cycle for large, complex cases. Agents are asked to secure as much coverage as the advisors recommend. And the advisor community would be remiss in not suggesting the insurability itself be insured.

It’s common to see disparities between what the advisors think the client’s ultimate net worth will be at life expectancy and what the carriers determine it to be. (Even the most liberal carriers only allow assets to be projected by 75% of the life expectancy and for many no projection is permitted over age 80).

Advisors play a critical role. Today’s agents are often taking direction from advisors, such as CPAs and estate planning attorneys, and are frequently one or two steps removed from clients. However, following traditional processes, carriers are asking agents, and rightfully so, to answer their questions. Agents need to work with advisors, who work with trustees, who work with insureds. Agents need help in knowing how to set advisors’ expectations. Agents’ credibility is on the line.

Wear and tear. The underwriting push and pull is more grueling for agents, distributors and underwriters. Underwriters are scrutinized by managers, managers by executives, and executives by reinsurers. The schizophrenic quandary has underwriters walking a “responsibly aggressive” tightrope between protecting mortality experience and booking premium.

Cherry-picking. Distributors, carriers and agents are all looking for business. But carriers peer into a barrel of applications, struggling to determine which ones aren’t intended to settle. Should carriers cast doubt on the barrel full of 75-year old women applying for $10 million of coverage? Until we prove the legitimacy of the cases, they will have no choice but to seek the ripest cases from the barrel. The onus is on us to show them why our case is the one to pick.

Settlements are settled in. While some carriers resist, most understand the marketplace reality and that settlements are discussed routinely, at dinner parties or with agents/advisors. The industry policy purports that clients should not be coerced to buy with intent to sell, but the industry also acknowledges that settlements may be discussed as part of the holistic policy review and/or estate planning process. Such discussions could be the fiduciary responsibility of the agent/advising team in certain jurisdictions, while in others a best practice.

“Attestation” shouldn’t be scary. Insurance applications’ attestations to address settlements have incorrectly created fear in agents. We recommend that customers be upfront about these discussions. Settlements are here to stay; adding in regulations, transparency and structure furthers their credibility.

Reinsurers’ role. Marketplace challenges aren’t limited to carriers and distributors. Reinsurers are becoming over-retained on risks for which retrocessionaires are refusing payment. Therefore, they are auditing large auto-bind cases to ensure sufficient financial underwriting was completed before issue, passing the buck up and down the line to address pre-sale data collection and post-sale audits.

Inside the crystal ball

Can we definitively underwrite intention and determine intent of older-aged clients? That’s like believing the fortune teller can predict one’s future. However, we as a field community can improve trust and credibility required for strong relationships by following basic steps. Among them:

Responsible Distribution

o Be fastidious with preparing cases.

o Pre-empt objections by answering anticipated questions upfront.

o Find an underwriting partner who has a deep understanding of complicating factors.

Courteous Carriers

o Believe in your product pricing–or fix it.

o Foster tighter communication between underwriting and advanced markets departments.

o Tell us who makes the decision: underwriters or advanced markets attorneys?

o Recognize that clean and well thought-out estate planning cases may also end up in the secondary market.

Getting it right

Every case we as advisors do is hard, and we work hard to earn our commissions. But working hard shouldn’t be confused with doing everything right. Carriers still need to accept the market realities and adjust expectations and guidelines to manage them so that agents and distributors are required to clean up their collective acts.

In addition, distributors with cleaner acts who are managing cases according to carriers’ guidelines should be provided an underwriting advantage over those who are not. Remember: The message from the fortune teller’s ball varies depending on what you want to hear. I can say with certainty we won’t fully underwrite intention, but I do predict we’ll spend a lot of time trying.

Teague Wright is executive vice president, The Potomac Group, a Crump Company based in Harrisburg, Pa. She can be reached at [email protected]


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