This survey was undertaken by sending questionnaires to 55 North American life and health insurers.
Of that group, 45 responded. Not bad.
It is ﬁrmly against my policy to name companies in the context of any survey or to make them identiﬁable in any way based on their responses. Sufﬁce to say that the majority of the TOP TWENTY life carriers are here.
For much of this underwriter’s 30 years of practice, he had to endure being denounced as head of “the sales prevention department” by angry producers who tired of waiting weeks (if not months) for a “thumbs up” on new business.
Those days will soon be gone…forever.
Before I delve into this essay, four observations are necessary for perspective.
My apologies to the spirit of Ray Bradbury for appropriating the title of one of his many stellar works of fiction (more than a few of which I confess to having devoured in my youth).
The venerable life insurance industry awoke one morning to find itself transformed into a financial services industry. Unfortunately, no one thought to tell those who stand astride the flow of new premium assuring that the ratio of actual-to-expected mortality remains far less than one. In other words, underwriting was—and to a great extent still is—out of step with the financial services concept.
In the mid-19th century, two disgruntled German economists wrestled with provocative questions about the prevailing human condition. They ranted about chains of humankind’s own making and the unrealized potential of Earth’s most evolved species.
In a contemporary context, their insights ring true—that context being the current state of the life and health underwriting “profession” and self-imposed chains that tether its practitioners.
This underwriter takes no joy in putting profession in quotation marks. Nevertheless,those who relentlessly turn their collective backs on reality, huddling in a self-deluding netherworld of coulda and shoulda, bring this sorry judgment upon themselves.
Does nondisclosure equal antiselection? Not always. This underwriter would broadly define antiselection as a state that exists when the proposed insured is aware of facts in his health habits (or lack thereof), medical history, avocations, and other scenarios that are intentionally not disclosed at the time of application. These facts are, by inference, material and would have lead to adverse underwriting action if they had been revealed.
In North America, life and health risk management is undergoing a dramatic transformation.
The new millennium brought with it great opportunities and unique challenges for our industry. This article will focus on those aspects of opportunity and challenge that have come together to catalyze what can only be described as the ongoing “metamorphosis” of how North American life and health insurers appraise insurability and process new business.
In the last quarter of the twentieth-century, the life insurance industry undertook the first of two radical modifications in its approach to determining insurability. Which, of course, was to distinguish cigarette smokers from non-users of this prevalent nicotine delivery system, in terms of how life insurance was priced, marketed, and underwritten.
Smoker/non-smoker, as it evolved between the late seventies and the early nineties, was warmly received by most customers and, in fact, even applauded by some outside our industry. (A refreshing change, if you will, from how the risk selection process had been perceived previously.)
The second radical innovation was preferred, which expanded upon smoker/non-smoker, employing a bevy of then-innovative factors, measurable with conventional underwriting requirements, to create a one-dimensional profile of the proposed insured, driven largely by physical measurements and laboratory tests.
Simply stated, if one met stated preferred criteria (or, came close and had an assertively tenacious advocate), one was held to be preferred and afforded a lower premium than a mere standard risk.