The impaired risk life insurance business continues to evolve from its early days, to the point that many carriers today actually seek out applicants with certain impairments.
How this occurred, and how the business looks today is the subject here.
A few decades ago, there were no smoker/nonsmoker rate distinctions in life insurance underwriting, and females didn’t have their own rates but were rather “age rated down” from male rates. Producers, mostly career agents, went to brokerage agencies for cheap term or to underwrite a case that their primary company heavily rated or declined.
Clearly, impaired risk was focused on, and meant to imply, the health of the insured. Impaired risk brokerage wasn’t looked at as a tremendous growth opportunity but rather a necessary evil.
Since the mid-1970s, insurance carriers started to change their products. Not only did their pricing include smoker/nonsmoker distinctions but their nonsmoking underwriting classes expanded to the three, if not four, that are common today. A few years back, one carrier even had six different nonsmoker risk classifications.
As companies focused on best class pricing, the industry witnessed a race to the top of the underwriting class. After all, when computers began to become widespread, spread-sheeting companies became all the rage and insurance companies wanted to show the lowest premiums and be at the top of the spreadsheet.
The rates certainly looked good, but as the number of nonsmoker classes increased, how many individuals actually qualified for best class underwriting? How many producers became frustrated with quoting best class because it wasn’t as attainable as once thought?
Some industry experts are saying that the underwriting risk class of the average American is table D (or a rating of 200%) nonsmoker. That is surprising, to say the least.
Granted, the industry needs to understand that this refers to the health of the general population, not those who seek insurance and agree to be underwritten. But, one has to ask, can average Americans actually be that unhealthy? Spend an hour people-watching at the local mall, and you just might agree with that Table D assessment.