Underwriting tip: leave no blanks

Think like an underwriter

The feedback seemed to have the desired effect — by the final six weeks, returned applications dropped to zero. Not only did the carrier and the MGA benefit from the reduced workload, but clients were insured much more quickly: Cycle time was cut from an average of 22 days to just 12.

Incomplete applications may result in the underwriter requesting an attending physician’s statement (APS). Despite what advisors might think, carriers do not enjoy demanding such detailed information.

“Underwriters do not like getting APSes. The average cost of an APS in Ontario is pushing $140 now. It’s a costly process to go and get an APS, we don’t like to get them, but if the app is incomplete, or we don’t have the correct information, or we know the client went to the doctor but we don’t get any details, we’re going to have to get a report.”

The current trends in underwriting are by now familiar: increasing rates of type II diabetes, and rising risk factors — including high blood pressure, cardiac disease and bad lipid counts — being found at younger ages.

All these conditions are traceable to the soaring obesity rates across Canada. In 1985, not one province had an obesity rate over 10%. By 1998, only British Columbia and Quebec reported rates under 15%.

It’s hard to ignore the value of a well-written insurance policy. As Dennis Craig, vice-president RBC Insurance, pointed out, a properly completed application and $75 a month can create $1 million in capital.

Yet he says even RBC’s simplified underwriting applications — which consist of just a handful of questions including such easy answers as name and blood pressure — still result in about 40% of applications being incomplete. Since RBC processes between 20,000 and 30,000 of these applications per year, the carrier is returning up to 12,000 applications to the advisor for completion.

“If you like to give us all the information, put it all down; we’d be happy to look at that and accept that risk,” says Craig. “If MGAs want to filter some of that and hold it back, then we go into the broker risk-sharing scenario, which I don’t think any of you want to be in.”

Another fault that Craig says is common in applications is the lack of financial statements, which demonstrate that coverage is justifiable.

Powell offered some rather common sense tips for underwriting: fill in the application with a black or blue pen, which will make it easier to read. This piece of advice may sound obvious, but Powell says some applications are still being submitted in red ink, or have been filled out with a felt-tip pen.

“I’ve seen applications come in written in crayon,” he claimed. “It makes it very tough to read.”

Advisors should avoid vague answers, such as describing a client as a “social drinker,” because the advisor’s definition of social means little to the carrier. Far more useful is a quantitative answer, such as “consumes five drinks per week.” Better still, include the client’s preference — is he a wine drinker, or is she pounding boilermakers?

In today’s heavily medicated society, most advisors know they should list the prescriptions their client may have, but far too often, Powell says, the dosage is omitted. He offers the example of anti-depressants: if the dosage is relatively low, it shouldn’t pose a barrier to approval. If the client is taking 80mg of Paxil, however, the risk will be rated significantly higher.

“Underwriters tend to be a suspicious little group,” Powell said. “If you’re missing information, that may mean the client is trying to hide something, so make sure the application is complete.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com