Softer underwriting 'part of the jigsaw'

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The insurance industry is trying to grapple with high lapse rates and lower profits and risk advisers often get blamed for churning and commissions. But part of the jigsaw is softer underwriting by insurance companies trying to get as many people as possible onto their books, says one adviser.

Risk adviser Meike Suggars defines softer underwriting as when an insurance company has underwriting terms which are too lax in order to get new business for the books.
“At the end of the day the insurance game is a gamble and the insurance company is gambling the client won’t get sick.

“But we’re seeing more and more underwriting decisions being made where underwriting terms are far more flexible than they were five or 10 years ago, particularly around things like BMI.”

Most insurance companies give people who have a BMI of 34 or 35 – considered clinically obese – a standard premium, Suggars says.

“So insurance companies are happy to take a gamble with someone who is obese and offer them standard rates, because it’s easy for them to get business on the books – even when they know the medical risks involved with obesity.”

“I think it’s crazy that insurance companies are willing to take that gamble… they are happy to give them the same premium rate as someone who is a healthy weight.”

The problem, says Suggars, is while in the short-term it is “great” for all involved, in the future it causes policy premium increases and lapse rates.

“The client gets cheap premiums in the short-term even though they are enormous and as an adviser I look good because I’ve been able to get the client cheap premiums, and for the insurance company they’ve been able to get someone else on their books.

“However in the medium term, it’s bad for the client because their premiums start to go up… And those premium increases are across the board. It’s not just for those clients who have a BMI of 35, it's everyone, because there are too many fat people on the books who aren’t paying extra because they’re overweight.

“So it’s bad for the clients because in a few years their premiums become far more expensive. And bad for me as an adviser because the clients’ premiums go up. And bad for insurance companies because the client wants to now change their product to something on the market that’s justifiably cheaper, so they are left with a hole in their books because that client’s policy hadn’t become profitable yet.”

Suggars said the decision to change this has to come from the insurance companies. She recommends Zurich, OnePath and Macquarie, “who haven’t closed off a product series for up to 10 years, so all the product upgrades they do get passed all the way back”.

She likes being able to recommend a product to a client today which she recommended to a client seven years ago.

“If I know an insurance company is going to jack their prices up in a few years, creating angst to me because of a client on the phone angry that their prices have gone up, by 20 or 30% then I’m less likely to write business with that company."

The issue is something advisers are becoming more aware of, Suggars said.

“You see insurance companies talk more about sustainability and constantly point figure at commissions, but there a whole lot of pieces which solve the sustainability jigsaw.”
  • Mark Thompson on 22/01/2014 1:05:59 PM

    Yes Alleycat, I too am old, but you and I are not grumpy. It's just that we've seen B...S... in its various forms over many years. When we see it come around again, maybe sprinkled with 100s and 1000s, we see if for what it is and we get our hackles up. We are just indignant, not grumpy. Those new to game have yet to acquire the scars of battle. I too am a CFP, but it doesn't mean much to my clients, many of whom have uni degrees with honours.

  • alleycat on 22/01/2014 12:09:37 PM

    @Mark Thompson,
    Thanks for the endorsement.
    Yep, I'm old and grumpy
    I think that I should learn "Swahili" because sometimes I fail to communicate in English, no matter how hard I try, with some Life company personnel.
    The obvious advantage of learning another language is that you usually learn the swear words first.
    It doesn't solve the problem but..... I know I'll feel better!!

    I've worked in the industry some 38 years in senior sales management positions with a couple of life companies and as a risk writer, the issue at hand is that life companies have forgotten the business they are in.

    My education has allowed me to also obtain CFP status but that doesn't quarantine the same vagaries and frustrations from fund managers either.
    Ces la Vie

  • Mark Thompson on 22/01/2014 11:19:09 AM

    Go Alleycat, remind me not to stroke your fur the wrong way. I endorse all that you have said. How many companies have undergone an independent review of their claims process, such as the Risk Store C-Map? I know of only one that has publically bragged about it; BT Life.

  • alleycat on 22/01/2014 10:35:51 AM

    @Ivon, how do you justify which product is the best on the market (at that time). Is it because some Research comparitor says so, your own research based on knowledge and experience or is it because you have a relationship with one particular Life insurance company ?
    You mentioned Asteron as one of your favourites. Here's the problem of choice if the selection is made on the basis of cheaper premiums. Yes it might help you make a "sale" but you have to look deeper into the policy contract and the company's willingness to pay claims.
    On the last point, I wiped Asteron as a company more than 10 years ago.

    To serve the client's best interests you need to find a Company that has a fair and reasonable contract in comparison to others, is willing to pay claims without you going to ACA, 60 minutes or a lawyer, and charges a reasonable premium, not necessarily the cheapest.
    Otherwise you get what you pay for

  • Ivon Fellowes on 22/01/2014 10:34:40 AM

    Mark, I actually agree with you and i'll expand. My underlying point is that most of our long-term clients should already be in a 'one series' policy and that is just a reflection of good ongoing investigation of products before they are sold to those potentially very long-term clients.
    I also agree that when one comes across new clients in inappropriate or superceded policies they should be guided by us to startegy that takes best product and longevity into account .. Best Interests of course will be the driver of that advice!

  • Mark Thompson on 22/01/2014 9:35:05 AM

    I would disagree with Ivon that clients don't want to be told that they don't have the best. They can't get off the bus quick enough if they believe that they have been betrayed by their policy becoming a 'legacy policy'.

  • Mervin C Reed FAICD FChFP on 21/01/2014 6:55:17 PM

    I amazed that this adviser actually believes this. Most of the problems in Insurance book losses come from no evidence of health covers via Industry super funds, which in now rolling into premium increases of 30-40% in this area. The problem with clients with a BMI of 34 plus is that this will not get cover at standard rates from anyone. If they do then the underwriting is non existent.
    I suggest that the largest part of the problem is that this adviser is worried about the insurers rather than acting in the best interests of his or her clients. Stay focussed on the main game which is the client.

  • alleycat on 21/01/2014 4:22:19 PM

    @Meike, you'd only write business with OnePath for a perceived lower premium. That's not always the case though.
    You'd write business with Zurich because of the products, certainly not because of their administration or their underwriting.
    Zurich in particular like a lot of life companies are being held hostage by their Reinsurers.

    The problem is that volume writers of business in any of these companies get a level of latitude not available to the average.
    What that means is that poor quality business is put on the books when it probably shouldn't be. The difficulty though is, you cannot get a rational discussion with many of the underwriters if you're not a volume business writer.
    By the way a senior underwriter these days is anyone who's worked in the position for at least 2 years.
    Can you think of any other business where that's the case ?
    Therein lies the folly of the insurance industry.

  • Investor on 21/01/2014 3:38:09 PM

    It is insurance companies fault. they got into bed with the union funds and thought it sounded great (all those premiums) but forgot about all those claims! When someone from the left of the spectrum wants to talk business, its best to say you are bussy and decline the offer. Nothing good will come from it. they want you to do some dirty deed for them.

  • Mark Thompson on 21/01/2014 3:31:44 PM

    Selecting an insurer 'one series' philosophy (rather than creating legacy policies) will save a lot of heart ache in the future. Companies not mentioned in the article, but with a 'one series' attitude include AMP, BT Life and ClearView. Apologies to those I've missed.

  • Ivon Fellowes on 21/01/2014 3:29:37 PM

    Agree absolutely!
    Clients of mine with Asteron Legacy Policies experienced a 25-30% increase last year (figures are NOT exagerated) and are expected to cop this with no guarantee that it won't happen again.
    In addition, the only way they could upgrade was to be fuly underwritten. This is frought with danger as many a cliet's health can deteriorate over time and they could find themselves being excluded from a new proct.
    Ironically this particular company is also becoming notably risk averse of late.
    The lack of consistency is alarming when coupled with old series policies being continually superceded, changing underwriting guidelines, reinsurers being changed etc
    There is one school of thought that says that this is an oportunity to engage with your clients and presumably offer them shiny alternatives to existing cover. This is very wrong on two levels for me,
    1. Clients dont want to be told that there is a better product on offer rather, that they already have the best and
    2. It encourages the very things that Life companies are trying to avoid, lapses and churning

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