The impaired risk life market has changed significantly in the past 12 months. While some companies have become more aggressive across the board, others are tightening underwriting standards and targeting their underwriting to focus on particular risks. We are currently seeing several major carriers making very aggressive offers. Someone who is truly uninsurable will always be uninsurable, but some carriers are “sharpening the pencil” when necessary to place a case.
The handful of insurers with ultraconservative financial ratings are the least likely to be aggressive on impaired risks, but several very large A+ companies in the “second tier” of financial strength are underwriting quite aggressively. Insurance companies need a constant stream of new premium to fund their day-to-day operations and to keep their ratings up.
In the current economic environment, life insurers are asking the same question as individual producers: “Where can I find more premium?” This makes the impaired risk market very appealing to some carriers and most producers.
Our experience shows that life companies can be divided into three categories:
• Carriers with very firm underwriting guidelines who will not deviate from their manual;
• Carriers that will make minor deviations from normal underwriting criteria; and
• Carriers which are very aggressive and flexible in their underwriting approach.
The key to success in the impaired risk life market is knowing which category particular companies fall into, understanding the particular underwriting niches and “sweet spots” for specific insurers, and having a good relationship with the underwriters at the companies you deal with.
Impaired risk life underwriting is a moving target, and it requires some effort to stay on top of the various contenders and their focus at any given time. There are still a few table shaving programs out there, and more insurers are adopting “good health credits,” which can lead to a better offer for clients with some impairment where they have evidence of a healthy lifestyle. Recently we had a client who was 6’0”, 305 lbs., with mild sleep apnea.
While most carriers said Table 6 to 7 as a starting point, one major insurer said Table 3 and then applied their table shaving program to bring the client to Standard.
Do I need a specialist?
Agents who have direct access to a dozen or more insurers, and have the in-house infrastructure to support ordering medical records, drafting underwriting summaries, and shopping a case to multiple carriers probably don’t need a broker. However, even the most experienced agent will from time to time run into a case that he can’t place with his primary company, and a specialized impaired risk broker may be very useful.
Agents and advisors who work in the senior, estate planning and business planning markets can also make use of an impaired risk specialist. The jumbo life cases that come out of these markets typically involve large amounts of insurance on older clients, and the medical impairments that cause ratings or declines in life cases are much more common at older ages. A competent impaired risk broker can be the difference between walking away empty-handed, and walking away with a big commission check.
The biggest challenge in placing medical risks is often getting full, complete information on a particular risk. Insurers, and by extension underwriters, don’t like uncertainty and tend to decline cases if the details are murky.
The most difficult medical risks are recent cancer and mental health history. Assessing a cancer case requires technical details such as the type of cancer, grade, Gleason score, metastasis, lymph node involvement, and other factors specific to particular cancers. To get an accurate assessment, one needs to know the type of treatment, date of last treatment, and a copy of the pathology report which should contain all of the relevant details on the cancer itself.
Cancer underwriting is challenging because it is largely rule-based and requires a specific set of input data. Mental health underwriting, including drug and alcohol abuse, is challenging because it is exactly the opposite — very qualitative, with few hard underwriting rules that can be applied, and it is difficult to gather objective quantitative data to assess a mental health risk. Drug and alcohol cases require information such as the type, amount, and frequency of use, any related criminal history, any history of inpatient or outpatient treatment, and full disclosure of any current usage.
Full disclosure is essential
Underwriters don’t like to be surprised. It is always easier to get a case through underwriting if the relevant challenges are admitted up front on the application and discussed in a detailed cover letter. Carriers are much more reluctant to make concessions on impaired risks if they discover the impairment on their own, through MIB, database searches, or buried in medical records. Some companies actually have different underwriting guidelines based on how they find out about a particular underwriting factor.
A few companies will allow non-smoker rates for cigar smokers, even with lab results that show nicotine in the urine, if it is admitted up front on the application. If the client denies tobacco use, and the insurer finds out about it when the lab results come in, it’s too late for the client to claim he’s a cigar user and get non-smoker rates.
Non-medical underwriting is much more stable than medical underwriting. Dangerous occupations and avocations such as scuba diving or private aviation have remained largely the same over the past few years. There are a few insurers who view these kinds of risks more favorably, and there are a handful of insurers who are better on issues such as foreign travel or active duty military with deployment orders. We have seen some liberalization in the moving violations area, so shop around and you might find a company who will be more “forgiving” than another.
The flood of premium financing, STOLI and IOLI in the past few years has led insurers to rediscover the art of financial underwriting. Five years ago, the only restrictions on how much you could write on an individual were jumbo limits and the client’s willingness to pay the premium. This year, insurers are looking closely at financial justification and insurable interest. Your best ally in this kind of case is a broker who the carriers know was not involved in questionable transactions. We are finding it easier to move through financial underwriting because of our reputation for never playing in gray areas. If the underwriters know your broker has a history of sending up non-recourse premium finance business and not admitting it up front, expect every file to go under a microscope for financial review.
Keys to success
When dealing with impaired risk, don’t over-engage the client. High-net-worth and mass-affluent clients have a limited tolerance for paperwork and examinations, so it is critical to get as much information up front as possible.
If you know a client has a particular impairment, ask your broker for a medical questionnaire specific to that impairment. This kind of questionnaire lets you ask the right questions up front and doesn’t require a signature. You can gather this information over the phone and pass it along to your broker, who should talk to 15 or 20 underwriters about the case before you even collect an application. After this process, you’ll be able to give the client an idea of the range of possible outcomes and take a formal application for the company that looks most likely to make a good offer.
Whenever you take a formal application, make sure your broker supplies you with a generic HIPAA authorization for the client to sign. This form allows your broker to send the full medical file to any of the companies listed on the form. If your primary company rates or declines the risk, the case can be shopped without going back to the client for additional signatures.
The impaired risk life market is vibrant and constantly evolving. Agents who need help should not hesitate to call on a competent, specialized broker who can assist with difficult-to-place business. Those of you working in the senior, estate planning and business markets will find that an impaired risk broker can be the ally you need to win big cases.
John A. Creekmore, CFP, CLU, ChFC, CEBS, is a 29-year veteran of the insurance industry and the CEO of Creekmore Insurance Group, an Oviedo, Fla.-based full-service life insurance brokerage specializing in impaired risk and jumbo life cases.
Matthew A. Treskovich, MBA, CLU, ChFC, FLMI, is the resident physicist, CFO, and oversees the new business and underwriting department.