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Changing Strategy

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Insurance is usually thought of as a necessary evil, paying off only for one’s heirs or misfortune. That makes the general public reluctant even to think about it. The Hartford, however, has turned this on its ear. Its two most recent riders are indicative of a trend, the company says, that it intends to continue and that will make the concept of life insurance more attractive, with benefits to the insured while still living.

On March 17, the company announced a new rider that was the second in this direction: the Longevity Access rider. Longevity Access offers insureds a way to protect themselves from what is becoming a more common event than that for which life insurance was originally designed.

Brian Murphy, executive vice president of life insurance at The Hartford, says the company’s perspective for the past three years has been that life insurance, as it’s existed, has been targeted at the least likely event that can happen to a large group of people: untimely death. People live longer, he says, more often experiencing disability as they age. “And other forms of protection that have existed over the last several decades—Social Security, Medicare, Medicaid—all those are being restricted … so it becomes incumbent on individuals to take care of themselves.”

The Life Access rider—Longevity Access’s precursor, which offers a long-term care component on a life insurance policy—“was very successful,” he says, and both it and Longevity Access “address those two events” of longer life and chronic illness. Longevity Access offers eight years or more of income to covered insureds who live to age 90 or older and meet the rider’s requirements.

Murphy says when a financial planner helps someone about to retire plot out an income stream from aggregate savings, even if that income stream is tested against rate of return, rate of utilization and inflation, the plan “usually falters because it may have some rainy day money, but it’s usually a fair-weather plan.” He adds that the longevity of today’s population is not only greater than most people think it is, but it also adds to the very real danger that people will run out of money to live on.

The Hartford, says Murphy, when trying to predict longevity, can look at it from “a large numbers standpoint” unavailable to an individual trying to figure out how many years her income must last.

Such protection does have a cost, of course; Murphy says each rider will add 10% to 15% to the cost of a policy. Life Access, offering a way to get a long-term care component for people who may not be able to afford a full long-term care policy, proved to be exceptionally popular, he says, and he expects that Longevity Access will have a similar audience.

Both of these, however, are really the warm-up for the main act: tackling that attitude problem. The Hartford is at work on an underwriting process it calls Issue First, which will allow the company, about 95% of the time, to bypass the lengthy underwriting period now standard before a policy can be issued to begin coverage immediately. This is a big deal, considering that the standard underwriting period now averages, says Murphy, “48 days. And since it’s both emotional and logical,” he adds, “people can be in a totally different state of mind by the time the policy is approved.”

Murphy recalls, “When I went into business 33 years ago, it took about a week” for a policy to be approved. In the ‘80s, he says, that changed as blood and urine tests were required, which took a long time. Current requirements make the process even more lengthy.

Issue First reduces the application process to six questions. Anyone answering “yes” to either of two of those six will be disqualified. But, says Murphy, 95% of the time, the answer is “no,” and those people get immediate coverage while the rest of the underwriting process takes place, and the agent gets his commission. Underwriting may find that the price of insurability is higher; in that case, the applicant has the choice of paying more and keeping the policy, which is already in force, or canceling. If underwriting finds the price is the same, nothing needs to be done; if the price is lower, a refund is issued. Meanwhile, the coverage is already in force.

The average fulfillment time, says Murphy, is 1.48 days. That’s for a paper-based system. By May the company plans to move Issue First to the Web, with e-applications—a “Kindle experience.” While it’s too soon to say whether it will affect policy pricing—and what effect it might have on insurance agents if people can buy their coverage without a middle man—Murphy says the change will allow the company to offer coverage through platforms it has no access to today.