Advisors can influence underwriting outcome

(October 2008) It’s the unpleasant scenario far too many advisors face: you have a client ready to commit to a new life or health policy, but the client’s health is questionable. Yet many advisors are not adequately helping their clients to increase their odds of a better underwriting result, according to the medical director of one Canada’s largest insurers.

While the process of underwriting in general is becoming more streamlined and automated, advisors still need to pay attention to field underwriting techniques for the rapidly aging boomer demographic, says Dr. Bruce Empringham, vice-president and medical director for Great West Life, London Life and Canada Life.

Empringham was one of the keynote speakers at HUB Day in Toronto on Tuesday, which is hosted by HUB Financial. He explained that boomers control most of the wealth in the country and, as a result, drive the most lucrative insurance sales. As advisors continue to serve these clients, they are serving a demographic increasingly susceptible to health problems and therefore a greater likelihood of high-rated or declined policies.

“The leading edge of the boomer generation is now 62 years old. They’ve got lots of health problems and we need to figure out how to underwrite them,” Empringham says.

Before offering suggestion on how to improve a client’s underwriting odds, Empringham says advisors have to manage the expectations of their clients, particularly if they have pre-existing health conditions.

“I regularly get clients who we pull out all the stops for and we use our rating reductions program to take 50 points off. Often we will see a case where the client had double-bypass surgery two years ago and we do everything we can and we come back with a +75 offer and the client turns it down because they are expecting standard,” he says. “As clients get older, not everyone is going to have a standard rating. It’s part of the job of advisors to manage that relationship.”

Empringham says advisors know their clients far better than the underwriters or nurses who work on behalf of an insurer, so they are in the best position to understand what’s wrong with their client and what proactive steps they can take to improve the underwriting process.

“You know way more about these people than a nurse is going to find out in five minutes,” he says. “Especially on a big case, if you have a $100,000 premium — which happens from time to time — these people don’t tend to walk in from the street and give it to you right away. Most likely they have known you for a long time.”

Likely the most important information an advisor has is how well clients have been managing their health condition. Empringham says background information on when clients were diagnosed and how well they manage their condition is extremely valuable qualitative information that will factor strongly in an underwriter’s decision.

“The longer they have been stable, the better they are from an insurance perspective. As an example, if you’ve got a client who was diagnosed with multiple sclerosis last year and now they walk with a cane and they are prone to falling down — we’re going to be concerned about that case,” he says. “Whereas, if you’ve got a client who’s been living with MS for 20 years and the condition hasn’t changed, we’re less likely to be worried about that.”

Medical underwriters will typically be unconcerned about the medication a client is on; rather they are concerned about how clients manage their condition, Empringham adds.

“We also have guys, and they tend to be guys, who come in and say something like, I had a heart attack five years ago, and now I’m taking care of myself and feel great, so I haven’t had to see a doctor since then. That’s also concerning from an underwriting point of view,” he says. “We ask questions like how much of their medication has changed, is their condition stable? Have they been seeing a specialist and following their recommendations?”

All of this type of information should be disclosed to the underwriters, preferably in a cover letter, Empringham says.

“We only know what you tell us. You’ve got to remember that you’re the relationship experts. Sometimes things become common knowledge to you, and you forget to put them in,” he says. “If you can put a cover letter together and get that out to the reinsurer in particular, what ends up happening is that not only gives us more information we can use to underwrite, but it gives them the impression that you want to disclose, which is a great thing when it comes to underwriting.”

The next area where an advisor can provide value-added service is in preparation for the medical tests that the insurance company usually administers. Empringham says the blood test administered during that examination will only be testing for five things.

“We test for your blood sugar, we test for your blood lipids, we test your liver, we test your kidneys and for HIV. That’s it,” he says. “Number one thing is, tell your clients to stop eating after supper until the next morning, because that gives us the best picture. I don’t know about other companies, but our company does not insist that clients fast. We are in the business of selling products; we’re not going to say, buy our product but don’t eat.”

Empringham says because they don’t insist clients fast, there is some leeway in how they examine the blood. For example on blood cholesterol, they only start getting concerned if the client tests a seven, which is a level where a doctor would traditionally start prescribing some form of medication.

“The reason we do that is because we know we are not getting perfect results. We are actually adding a buffer. A doctor can’t do that — it’s called malpractice. It’s the same with sugar levels; there are different sugar levels depending on how long ago you ate. That’s all well established,” he says. “You want to get your clients that ‘glamour shot’ — and that’s all the blood testing is — a snapshot of your client’s health. I’m telling clients to do their best to eat the night before, book the test in the morning and when you’re relaxed, so your blood pressure test is better.”

Empringham says advisors also need to remind clients that, even if they are fasting, they still need to take their medication. Clients who are smokers should avoid smoking before meeting with the nurse.

“We’ve had people come in who are fasting, but their blood pressure sucks because they didn’t take their blood pressure pill,” he says. “If your clients are smokers, they’re not going to fool our smoking tests. They still shouldn’t smoke before the blood test because it raises your blood pressure, which is not what you want to have happen when the nurse comes by.”

Finally, Empringham noted that advisors and their clients need to understand that insurers want to approve them for coverage, because that’s the way everyone gets paid. He notes that even from when he started in the business, the rates on a lot of chronic illnesses and conditions have come down.

For example, Empringham, says clients who have beaten most forms of cancer are likely still insurable. It’s a case-by-case assessment, but he says there are few examples where the client will get an automatic decline.

The same goes for heart disease — which he says will kill half the population in Canada. Empringham says when he started in the insurance industry, clients typically had to pay an extra $15 for every $1000 coverage for seven years after bypass surgery, plus permanent extras.

“The temporary extras are long gone and the permanent extras have come down,” he says. “Colitis is now at rated +100, and when I started it used to be at +200.”

The one major exception is diabetes, which Empringham suspects is underpriced. He anticipates with the advent of insulin pumps the mortality rates for Type I juvenile diabetes will decrease, but he thinks the industry is too lax on Type II or later-onset diabetes applications, inferring there may be increases on that in the future.

“When I started in the business I said we were underpriced on diabetes; I think we’re still underpriced, particularly on Type II diabetes. We are way too lenient on them,” he says.

Empringham says advisors should be educating themselves about the ins and outs of the different types of health conditions and what the likelihood of a decline will be. This allows them to effectively manage the expectations of clients before they go through the application process.

One of the resources they can look to are the underwriting departments of their carriers, he says.

“I’m bonused on sales, not declines. We want your business, so my job becomes helping you, to get that business,” he says.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(10/22/08)

Mark Noble