Everyone likes to know what is going on. Are our actions getting worse or better? Do we do something more today than yesterday? Are we winning more or losing more? Only the Toronto Maple Leafs know the answers in advance so for the rest of us we must seek the statistics after the fact. AS an industry insurers use to keep track of how many cases were written, how many were issued standard, how many were placed, how many were not taken, how many were rated and how many were declined. As a junior risk taker in the business those numbers helped me judge how all risk selectors were doing and at times with a jaundiced eye looked tot he advisor as the cause of an increase in declines and “rated cases”. Always lacking at least from my perspective was an industry number on how many cases were disputed at time of claim. How many were denied? How many went to litigation? How many ended in compromise? How many were paid in relation to how many were totally submitted? I always wondered but never became an information champion seeking out those numbers other than a cursory “are they available anywhere question.
After the demise of the great CLHIA package of statistics on placements, declines and rate cases some years ago I did complain but to no avail. I was told that it was part of a cost cutting mandate both at the CLHIA and within companies who had to supply the raw data. It was a pity as the trends we were able to detect for the previous 30 years were to be no more. Perhaps the extra capacities of personnel were sent to measure the great wealth accumulation products and how best to measure our industries investment exposure after all that is where the money was! I was remiss in not pursuing the matter as I could find no other underwriters in our Canadian market who seemed to care (did not ask them all but those I did showed complete apathy). The reality was as an industry we drifted into a state of an information void (in my opinion the CLHIA only gets excited about risk selection when itt falls into the press corps hands like the last time over HIV testing) .
What prompts a few words on the subject now is because of the following:
1. As the living benefit product critical illness is sold more and claims arise the industry is indeed declining more claims than traditional life insurance (a hiatus hernia is not a critical illness if you read the policy wording so do not expect payment). Even at the initial point of underwriting more applications are declined or rated than traditional life insurance products due to the one major difference between life and this living benefit — you do not have to die you just have to have the incidence of disease. So, what are the overall industry statistics on written, placed, declined, rated or not proceeded with.
2. Over the past three years I have heard from many an advisor and MGA that the Canadian life underwriters are declining more or rating more or asking for far more requirements. I know advisors always complain about declines and rated cases but the crescendo of “whining” seem to have merit as examples were rolled out and their own rudimentary statistics compiled. Due to the onerous yet prudent privacy concerns of underwriters they cannot disclose the “why” behind their actions which just fuels the frustration of the advisor. The distribution side uses numbers like 20% as the current level of declines or heavily rated cases. It use to be well under 10% for the industry when the industry measured it.
3. Reading the various postings to “foradvisorsonly” (an excellent forum to share ideas, solutions and gripes, and the repository of some great and much needed counsel on subjects made complicated or far from transparent by insurers) I have witnessed more of the frustration over both underwriting and claims.
Why are we where we are in the industry today in regards to underwriting decisions (or at least perceived decisions since anecdotal comments can mislead) and why is there a perception of more “contested”, denied or compromised claims than ever before? I really do not have a definitive answer but I do as always have an opinion or two which I will share. Should my conclusions that are my opinions need revisiting because I am missing something I am of an open mind (honest).
Starting with risk selection we have to face the reality that our newest product critical illness will be underwritten tougher since we are dealing with the incidence of a disease and the frequency of that is more than death. IT is also in some instances more subjective than death. Death is so final and the industry has one definition only as defined many years ago and thus we have a definition that is universally agreed to. The underwriter will lean to the cautious side as we are still in the infancy of developing our own Canadian statistics on incidence having started with the bones of foreign jurisdictions results and local hospital and government records. Until we collate more results into statistical relevancy and our underwriters get more comfortable with higher substandard offerings or even deciding which is a borderline standard we will experience tough underwriting is. Field underwriting can help since it is common knowledge which medical histories are not going to get issued or even issued with a rating.
In The Globe and Mail of July 21st 2009 there are statistics that suggest we should indeed be prepared for a more impaired clientele. Among these figures in the article are the following within the age category of 12 to 34 year olds:
· Hypertension is up 258% amongst women and 264% amongst men and has hit a prevalence rate of 4% of the sampled population
· Diabetes has increased 63-78% in prevalence between 1994 and 2005
· Obesity, as we all read about daily while having our coffee and low fat raisin bran muffin at Tim Horton’s , has actually only increased less than 1% in females while males have hit a 40% increase in prevalence. Obesity in the study segment of males is now over 10%.
· The good news is that the prevalence of smokers is down considerably in the range of 20 to 37% with females quitting faster.
Thus if we have more “impaired lives” we are going to have more rated lives. Offsetting the obesity issue is one reinsurers very aggressive build table so make sure they get all your obese applicants — they love the lard arses.
I believe that from what I have witnessed the need for speed in issue departments (which includes the momentary pause to do the risk selection) causes an underwriter to sacrifice some of the effort to find the lowest price possible for the applicant to hit a decision target or quota for the day. Evidence is expensive as is the underwriter’s time so putting a case in pending just extends the decision time and amount of time invested in any one case. A decline or a flippant +100% extra mortality gets the case to issue and out of the underwriters “to do list” quickly. In these tough economic times and working with premiums driven to the lowest levels ever the burden to do more with less has impacted underwriting just like any other process driven discipline.
Lastly, as the average age of the applicant increases partially due to baby boomers not getting their estates in order earlier in life, we have entered an era where underwriting an 85 year old is not just a dream. It is reality and actually common place for the over 75’s to be shown the way to provide family or business protection through life insurance. When I started in the business, I trembled when I opened a file to see an age last of 60. Today’s underwriters I would surmise have the same feelings for the age last 75 year olds. The underwriter needs special training in the area of older age underwriting since what we expect to be normals for the 35 to 45 year old are not the same for the over 70 crowd. Its called confidence through experience and great mentoring (and hopefully no early claims to scare them into eve4n harsher decision making).
Now jumping to claims adjudication I do hear or read about claims being contested and denied more than I did say 10 years ago. I have not though heard of one company being any different than the others. For every critical claims comment heard I hear a favourable one. We do pay claims and we are in the business to pay claims. I do not see or hear of any conspiracy to “tighten up” in the adjudication process. All the insurers I know want to protect and enhance their reputation as claims payers and being ones that provide the benefits as sold at time of need and contractual fulfilment — death or critical illness. I though have to admit I wish I had more than anecdotal frustrations over claim payments. I would be greatly appreciative of statistics on what the industry is doing. I do not need any individual company’s numbers but rather the industry composite for then I would be able to look for an industry trend — denying more or not would leap of the pages of statistics. I am of the opinion that any company when reviewing composite industry stats found themselves far from the overall trend would seek reasons why (poorer quality products, poorer quality distribution, poorer quality risk selection, etc).
Bring back the statistics while building more comprehensive industry stats and we can then either cement the anecdotal commentary to the stats and take action if needed or dismiss the anecdotal as being advisor frustration without basis. But that costs time and money and somewhere the decision was made to not spend anything on these stats for some reason which was most likely budgetary.