Right Insurance and Premium: Lessons in Life

Published on 1st March 2022

Ryan Chegwidden, actuarial head at Altrisk, takes a look at the challenges that come with getting cover for impaired lives.

Your client wants the right insurance, at the right premium, and it must provide them with cover for just about anything that could jeopardise their future financial security. But what happens when the process is not quite as straightforward? What if your client has extraordinary risks? Someone could have multiple health conditions such as diabetes and heart problems, or a heart and kidney condition. 

The reality is that impaired lives are becoming more commonplace.  It’s a worthwhile exercise to assess what percentage of your client base is now classified as high risk, compared to ten or 15 years ago.  As much as insurers have had to reassess their product design and underwriting practices to cater for impaired lives, financial advisors also need to align their understanding of the “new normal” that is impaired lives.

It’s not easy securing quality risk cover for people who have health impairments that could place them at a greater likelihood of a shorter life expectancy or an illness.  While the track record and claims experience of the insurer you choose to work with are important, your role in finding the right solutions for your hard-to-place cases is immeasurable.

Develop relationships with underwriters

Possibly the quickest decision an average underwriter has to make is when they are faced with an application where the risk is too high.  Heart attack last month, survived cancer, HIV+, diabetic and clinically depressed — does this sound like any of your clients? 

When it comes to getting cover for your hard-to-cover cases, a good relationship with the insurer and accessibility to the underwriting team is important.  This allows you to have a grasp of what is possible with the insurer and question the terms, conditions and benefit options on any offers for your client.

Underwriting considerations

Assessing an impaired life application requires careful attention to individual details and unique circumstances.  Underwriters need comprehensive health data, medical records and absolute client disclosure.  They also look at your client’s treatment regimen, both completed and ongoing, if applicable. 

You might wonder why this level of detail is important. Details of treatment can provide important clues about diagnosis, severity and prognosis of your client’s condition. For example, cancer treatments are often highly specific to the type and stage of cancer.  You can tell a lot about the cancer just by knowing whether they received chemotherapy, radiotherapy or surgery. Similarly, information about previous and current treatment for heart conditions can provide important insights. 

The point is to gather as much evidence to ensure that your client’s application is approved, and that they can get quality cover at an affordable premium.   Take time to prepare your client’s paperwork and medical history to give the underwriters all the information they need to be able to offer the best possible offer for your client. 

Why it pays to go with a specialist for your difficult cases

Insurers who specialise in impaired lives don’t operate with a generalised cookie cutter approach with standard check lists. Everything about impaired life underwriting is about the individual.  

No diabetic is the same, no cancer or heart attack survivor either.  Clients with the same condition can each receive very different underwriting decisions and offers.

Consider the following example of two diabetics of similar age.  One may manage the diabetes well, be disciplined in medical care and check-ups, respond well to treatment and -  as a result -  have minimal organ damage and hence attract a loading of, for example, X.

The second applicant may not manage their diabetes as effectively, have significant organ damage, and attract a possible loading of Y.  Other contributing risk factors such as obesity, smoking, cardiovascular disease and mental attitude towards their condition also plays a role. 

It is important to remember that an underwriter makes an assessment based on the applicant’s individual profile and test results. So while two clients may seemingly have the same condition, the medical evidence tells a different story. 

Your role matters

If you’re in the business of providing financial advice, be sure to improve your understanding of the most common health and medical conditions, and how to get the best cover for your client.  Knowing how high risk conditions are viewed by an insurer’s underwriters can give you a competitive advantage in an environment where impaired is becoming the new normal. 

Different Shades of Actuaries

To the Eskimos, there are numerous types of snow; to the Maasai, numerous types of pastures. How about actuaries?

Is an Actuary, an Actuary, an Actuary? Or are there different shades of actuaries? Just as there are different types of medical doctors, there are also different types of actuaries: life insurance, general insurance, investments, healthcare, risk management and so forth.  The distinctions may seem to be curious little oddities, luxuries only afforded by those in peculiar situations, but they are driven by necessity. When stakes are high, discernment is essential and distinctions can mean the difference between success and failure.

While many people understand and appreciate the different specialities for doctors, for example, many are not even aware of the different actuarial specialties. In countries where the actuarial profession is nascent or non-existent, it is understandable why distinctions are not made, even if the differences are known. In such countries, regulators may allow qualified actuaries to ‘sign’ in multiple areas, but this should not be taken to be an endorsement for optimal arrangements. This seeming commoditisation of actuarial skills is necessitated by pragmatism: with a limited pool of actuarial resources and relatively simple risks, such countries ill-afford actuarial specialisation. Most growing economies, however, can ill-afford not differentiating actuaries’ specialties.

Actuaries undergo rigorous training that starts with the preparation of a broad and solid foundation and ends with specialisation. The broad foundation training covers all typical areas of practice, provides essential skills for traditional actuarial tasks and works well for uncomplicated cases.  However, these essential skills are generally not adequate for more complicated cases.  Consequently, it is best practice among leading international actuarial organisations and many jurisdictions to limit the areas in which an actuary can provide a service or opinion based on the actuary’s qualification(s) and experience. Actuaries, therefore, have different shades.

As companies drift from having a stable portfolio of traditional easy-to-understand, if not altogether banal, products to sophisticated products designed to satisfy today’s savvy consumer, their risk profiles are materially transformed by new risks. Management of these new risks exposure typically demand a more judicious approach and, more importantly, well-honed actuarial skills. Thus as companies metamorphose into complex modern enterprises, specialist actuaries can bridge the knowledge and experience gap and help them navigate the complexity of products, transactions, and resultant risk profiles. While just having an actuary helps, the added value is limited if there is a mismatch between the actuary’s specialisation and the required skills. Unfortunately, a lot of companies will be oblivious of this mismatch. Even worse, some companies seek actuaries primarily to appease regulators and regard the addition of stakeholder value as a secondary consideration.

Like doctors, actuaries are ‘fully baked’ in their areas of specialisation, but, out of pragmatism, ‘half-baked’ in other areas. Thus, to the discerning, there are many types of actuaries. While the skill sets are broadly similar, the contributions can be drastically different. Specialist actuaries, who do not necessarily charge more, bolster companies as they move away from their core competencies. As the complexity of products and company risk profile increases, companies cannot afford to use any actuary to do whatever work is available. Using the right actuary for the right task is prudent practice.

By Rodney Manzanga,

Business Unit Head of Risk Management at Aon Hewitt

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