Special Report by Daniela Cambone - Besides the skyrocketing premiums, advisors are facing another challenge with the critical illness product: the extremely tight underwriting is making it a much harder product to sell.
“The problem is insurers have gone from loose underwriting to being completely paranoid,” says David Benamron, director of living benefits for the Montreal-based managing general agency (MGA), Copoloff Insurance Agencies. “Critical illness underwriting has become three-fold more difficult than last year,” he states.
Mr. Benamron, also a part-time advisor, says that before he sold 25 critical illness insurance (CI) policies a year. Now, he sells only five or six due to the tougher underwriting.
When CI was first launched, insurers needed sales and they wanted to introduce the product, says Mr. Benamron. So, underwriting was rather lax, he adds.
Today, it is a different story. “Even if one member of the family has had cancer, the client will not qualify. I even saw one case where someone travelling to the Middle East got rated on CI, because the insurer thought they could contract a disease! How do you explain that to the client? There is no logic, that is the problem,” Mr. Benamron adds.
Now, he rarely fills out CI applications. “I don’t want to aggravate the client by pumping him up to believe that he will be covered, only to have to turn him down later…I still talk about the product but I will try to look for products where underwriting will not be an issue,” he says. One product Mr. Benamron is fond of is Unity Life’s simplified issue, Health Security Plus. It does not ask for height or weight, which already makes it a bit easier to qualify, he says.
Half of all cases declined
And at the recent World Critical Illness Insurance Conference held in Toronto, the topic of tighter underwriting was prevalent. Attendee, Jean Roux, a mutual fund advisor with the financial planning firm, Investment Planning Counsel of Canada, says that in his experience selling CI, 30% of his cases were rated before. “Now I feel it is over 50% – so it went from 1/3 to 1/2 of the cases,” he says, adding, “If you are over 45-years-old, you have to be so squeaky clean that it is virtually impossible to find someone that is not rated or not excluded.”
However, the tighter underwriting will not scare him from selling CI insurance. “I firmly believe in the product. I tell my clients that I am from the investment side and no matter how hard I work to do a good portfolio, if I don’t take care of the engine of the investment – which is working – through the protection of disability insurance (DI) or CI, well the work I do on the investment side is worthless.”
Kim Stanley, a CI expert and founder of Brampton-Ontario’s Canadian Living Benefits Centre, says that the problem is the reinsurer. “They dominate the market so they get to set the rules. We are seeing premiums increase. To justify this they are putting more bells and whistles on the products. The same thing with underwriting. The reinsurer gets to say, ‘this is how we get to underwrite,’ so there is no more shopping of the market. If you are declined by one, you are done, because it is the same reinsurer looking at it,” she says. “So it has become a real issue.”
Exclusions, not declines
She suggests we look to the United Kingdom where they do more exclusions than declines. We can exclude clients from certain illnesses rather than give them a total decline, Ms. Stanley says. “We hardly do that here. It is all or nothing in Canada.”
Advisors should also work on their field underwriting, she advises. “It is a 50-50 split of agents who are good at filling out applications. Any agent having sold CI for two to three years have their minds wrapped around full medical disclosure. You have to ask tough questions, probing questions. You get good at it through trial and error.”
When asked whether insurers should be educating advisors on how to better fill-out CI applications, Ms. Stanley simply answers, “One would think…They don’t tell us anything; it took a long time for insurers to admit to MGAs that they have travel exclusions. Insurers never teach how to properly underwrite.”
She adds, “Not all agents are detailed-oriented so they just say life insurance is easy. You can’t do that with CI; you have to be patient, persistent and listen to the client. Be prepared to spend time with them.”
Bhupinder Anand, a United Kingdom-based advisor and a speaker at the conference, says that tighter underwriting is a definite reality. “Before premiums progressively jumped. Now if you are dealing with someone over 60, it gets crazy,” he says. “In the past it was fairly comfortable to get a million pounds ($2.3 CAN) of coverage, now we are struggling to get half a million of cover. You need a really good story to get a million and they’ll turn the guy inside out twice!” remarks Mr. Anand, a two-time winner of the U.K.’s advisor of the year award.
So, will tougher underwriting steer advisors away from the product? Mr. Anand does not believe so. “I don’t think it is an issue because ultimately it is what is right for the client. If you have a case where the client has a particular issue, then get as much information as possible to help the underwriter. Second, manage the client expectations and say to him, ‘based upon what you told me, the premium I just told you may not be the actual premium you end up with,’” says Mr. Anand.
In order to avoid disappointing clients, Farhang Nikoo, branch manager for the Investment Planning Counsel of Canada, says that he pre-qualifies clients before he sends the applications. “I see if they are overweight, I see what they do at home. You have to give the underwriter the most information possible,” he says.
Get the full portrait
That is also what Sean Long, conference speaker and founder of www.criticalillnesslearning.com, preached during his speech. In front of a standing-room only session of 360-plus people, Mr. Long, emphasized that advisors should submit to underwriters not just a small picture of a client, but the full portrait.
“The more information and detail you give, the better,” he says. For example, if a client is suffering depression, he may be declined. But if you explain that his wife and child died in a car accident the outcome may be different. “Paint a picture for the underwriter, bore them to death with the details,” he advises.
Mr. Long, also suggests speaking directly with the underwriters, “Avoid email, it’s like a postcard. Look for an underwriter that can educate you, look for flexibility in an underwriter. And don’t lie. If the underwriters don’t catch you, the claims people will.”
However, Mr. Long does blame CI underwriters for not having communicated to advisors that underwriting would become more thorny. “They should have explained to brokers and agents why underwriting has become seemingly more difficult then it has been in the past. Underwriters have done a lousy job with marketing, they should be telling them, ‘here is what we are now aware of, we are tightening up on this, this and this, because of claims, because of reinsurers, etc.’ That is what has not happened. Again, it is bad, bad, or no education,” he states.
Underwriting began getting tighter in the last six to nine months, says Mr. Long. “Insurance companies as a whole have not communicated the changes to the field, and they will only foster an attitude of distrust. The marketing guys will say nothing has changed and the advisor won’t trust you.” He concludes, “If there is a perception of a problem, there is a problem. You have to get rid of the perception, but everyone is in closet denial!”
But Beth Gibson, vice-president of the Canadian Association of Living Benefit Underwriters (CALBU) does not necessarily agree that tighter underwriting needs to be communicated. “When you have a new product you don’t want to tell the advisors that it is a handful. It is not going to serve anyone any good.”
Ms. Gibson adds, “CI is a new product and with any new product there are growing pains and there is not a lot of history to fall back on. It has to be priced accordingly and one of the things actuaries use is experience. Now that CI has been around for 10 to 15 years we are beginning to develop some experience and it is not as good as actuaries were expecting it to be.”
However, Shelina Esmail, senior underwriting consultant for Canada Life, does not even believe tighter underwriting for CI is a reality. “I think it is the complete opposite and I quite disagree,” she told The Insurance Journal during an interview. She says that when there is an underwriting concern, such as a family history of a specific disease, the policy may still be issued, but with an exclusion. She adds that Canada Life is issuing more policies with exclusions today than ever before. “If you happen to be in a younger age category and your mom had a diagnosis of breast cancer, we issue it with the exclusion of breast cancer. We have better discussions with our medical department. We have more experience and we encourage that advisors call us.”
Speaking at the CI conference, Ms. Esmail stated that there is a need to change the mindset of the advisor. “We have to bring the advisor into the head of the underwriter,” she said.
Ms. Esmail explained that she encourages the advisors she deals with to contact her and to keep the lines of communication open. “Sell your client to the underwriter. If you know something, send me a memo. Disclosure on apps is so vital.” She concluded, “Advisors have to understand we share a common objective.”
Alphonso Franco, founder of the World CI Conference, defends the underwriting of CI and says it is no different than life insurance. “They should put themselves in the place of the insurance companies. If they were the insurer writing a cheque for $2 million dollars, wouldn’t they want to know all the answers?” he asks.
Mr. Franco adds, “I tell advisors to shut down the business for one whole month and write nothing but DI. Then come back to CI and you’ll see it is easy.”
Martin Fortier, assistant vice-president, retail health solutions for Sun Life Financial, says if advisors only dabble in CI, they won’t have the knowledge of what they should be providing underwriters.
“Advisors who are having issues are the ones selling only one or two policies. By educating our advisors we are trying to set expectations at a more realistic level. We show them how to do pre-underwriting,” he explains.
Sheila Matheson, who primarily does business in the U.S. market as vice-president, CI marketing at Optimum Re, acknowledges that one of the main challenges has been educating the advisors on what to expect from the underwriting process. “Many agents that look to sell the product come from the life insurance background. So they do not anticipate the rigid underwriting of CI. The short fallings come from the insurers because they are not educating the field,” she says.