Clients want advisors to offer good insurance coverage in a cost-effective manner, says Elli Schochet, advisor at Al G. Brown & Associates.
People aren’t terribly concerned about how long it takes to get that coverage, he adds, because they know they’re making a major financial commitment. This is especially the case if advisors set expectations early about the process, says NewLink Group director and senior VP Byren Innes.
Applicants currently wait about a month to receive coverage, although those with no serious medical issues or risky hobbies can have applications processed in two to three weeks, says Schochet.
Complex applications are more challenging for underwriters and take about 15 to 20 days longer to assess, says Karen Cutler, VP and chief underwriter at Manulife Financial. Underwriters have to collect data and test results, and can be delayed if there are waits for doctor’s reports to come in after insurers order them.
All this creates pressure for underwriters who want to process simpler cases as quickly as they can so they have more time to focus on complex applications, she says. If that could be achieved, consumers wouldn’t have to wait as long for their policies.
To speed things up, some insurers aim to eliminate medical testing requirements for simple cases, and others want to offer products people can apply for directly. One of their aims also is to cut administrative costs.
Insurers using tech for speed
Insurers “are looking for ways to collect and process [client] information more quickly,” says Cutler. (See “Tips for insurance buyers,” this page.)
It helps that most people are better informed about their health, she says, since they can provide more details on their applications. During telephone interviews specifically, she finds people often provide a lot of detail about their health histories and, as a result, “there are more cases where [medical] issues are identified.”
However, she finds the “speed at which medicine is changing is difficult to keep up with.”
That’s why many are offering:
- more simple-issue products;
- phone meetings instead of in-person interviews; and
- digital instead of paper applications, known as Smart Applications.
For simple cases where coverage caps at $250,000, Smart Applications can take less than 20 minutes for advisors to go through with clients, says Innes. That means the advisor can either cut down on client meeting times, or spend the rest of the appointment exploring people’s goals.
He says these applications can include more detailed questions on clients’ physical states, medical histories, hobbies and occupations, for example, so “you get accurate information the first time around.”
The digital forms are also are easier to transfer to MGAs and insurers, since the advisor has already typed in the information. It saves data entry time for insurers.
But moving away from standard practices has drawbacks. As Innes points out, “If you look at simplified [and guaranteed] products, they tend to be more expensive. The [automation and streamlining] trend means customers could end up with higher premiums,” as insurers reduce medical testing and requirements, and take on more risk.
Fully underwritten policies still have the best value, he adds, saying it doesn’t always benefit clients to choose convenience over better prices, coverage and advice.
Further, Schochet cautions, too much automation could start cutting out the advisor.
Purchasing insurance without help can be risky, says Schochet. People can easily fill out applications incorrectly or choose inappropriate products.
Recently, he heard about a man who completed an online application for direct, simple-issue term insurance from a major bank. It was offering reduced prices to existing customers. The man indicated on his application that he’d previously had high blood pressure, and was declined.
But the health restrictions of the policy were unclear, the man claimed, so he didn’t know he shouldn’t have applied. Even so, the refusal was reported to the Medical Insurance Bureau (MIB) by the bank—even though the bank agreed to offer him traditional coverage afterwards.
The MIB is a non-profit organization that helps companies fight fraud, and records prior underwriting findings. Through a series of codes related to various medical conditions, it lets insurers know whether people have had past health issues and keeps a record of reported declined applications.
Insurers have access to MIB data when assessing applications, says Schochet, and they do cross-check information.
Say an insurer finds out through an MIB check that a person has a history of heart problems. If she fails to indicate that on her application, insurers might construe that as misrepresentation and dig deeper into her medical history, adds Innes. They can also check whether she’d applied for other policies and been denied.
That’s why clients can’t forget to outline their health history and old issues on applications, says Schochet. If a person had high blood pressure for years but now has it under control, she still needs to identify that previous condition.
Advisors can help clients get coverage despite past issues. Some outline old conditions in detailed cover letters that make a case for underwriting and explain why the client is applying. This step is crucial, he says, because “insurers don’t get to know the client; they just look at statistics and charts.”
Schochet is also concerned people may not look for the right amount of coverage at all if advisors aren’t in the picture. In almost two decades, he says, few clients have entered into conversations about their insurance needs without being prompted. “Insurance is generally sold, not bought,” he says.
Innes notes people often need help when comparing the costs and coverage amounts of different products. In one case, his analysis showed someone they could get a $100,000 policy for the same price as another $65,000 policy, due to banded rates.
That’s not something an uninformed consumer would be able to find out easily, he cautions.
Consumers will be squeezed
Both low-income and middle-market consumers will be squeezed by current changes.
Healthy young people can potentially benefit from automation and direct-to-customer products since they’re simple cases. However, Schochet says they may not know how much coverage to buy, or how to best integrate insurance into their overall financial plans.
And advisors are busy serving the middle market, he adds, which consists of mid-level professionals and families, who often require combinations of policies. He says their coverage needs range from $1.5 million to $5 million.
The middle market generally buys “large amounts of term insurance to cover family costs, and also looks for policies that help cover long-term needs,” says Schochet. For retirement, they’ll buy up to about $500,000 of UL coverage.
Innes says advisors would prefer to serve wealthy clients, however, who tend to be older and more focused on tax planning and advanced strategies. He adds advisors are eager to help rich clients, since they often place large volumes of expensive coverage.
As a result, the middle market is also in danger of being underserved. Due to automation and Smart Applications, advisors may spend less time with them discussing insurance. People could also gravitate toward direct and simple-issue products over traditional-issue policies if they aren’t offered advice.
Innes says advisors don’t necessarily like that direct products and bank offerings are becoming more mainstream, but concedes they will help neglected consumer markets.
“Twenty years ago, new agents looked for birth and weddings announcements; they started there, sold to [younger] people and grew with them,” he adds. “But that’s no longer the case. Advisors can be philosophical and say [lower-income] clients need attention, but they don’t always sell to them as their market is focused elsewhere.”
Tips for insurance buyers
Share these tips with clients:
› When applying for standard-issue coverage, people should highlight all habits and medical conditions on their applications. They must always stress the positives since many insurers take a longer view for traditional products, says Natasha Krivokapic, director of individual product development at Equitable Life. Your clients could be rewarded for improvements like continued weight loss or recovery from medical conditions. On simple-issue applications, there isn’t room for this type of detail.
› If clients show they’re actively improving their health, companies could offer reconsideration clauses in their offers. These clauses stipulate a person’s policy agreement will be revisited, and premiums could be adjusted down.
› On the flip side, exclusion clauses let insurers deny claims if people are flagged as high-risk during the application process due to test results or occupational hazards, for example.
› When assessing older applicants, insurers require more information than for younger clients. They need: lists of medications; contact information for doctors; information on the applicants’ lifestyles; and, often, extra medical and stress tests. Set older clients’ expectations about the process.
› Advisors should send detailed cover letters to insurers on their clients’ behalf when possible. Make your clients’ cases and include any questions for the insurer.
› If a person has a complex case, the advisor may wish to contact an underwriter or underwriting consultant for help. Some distribution companies offer this service, says NewLink Group director Byren Innes, but not many. There are many consulting underwriters in the industry, though, who charge retainers or may be willing to take a portion of sales commissions as payment. Distribution firms can also hire on-staff underwriters.
› “Insurers may check social media sites as part of the underwriting process when reviewing an application. However, an underwriting decision can’t be made based on this data unless the authenticity of statements is verified. That said, clients should always be aware of how their media posts and pictures could be construed,” says Joan Tolan, president of Joan Tolan Insurance Solutions in Toronto.
Originally published in Advisor's Edge Report
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