I’ve often talked about the good old days of life insurance. Good for the clients. Good for the agents and the companies too, and not all that long ago.
It was a time when companies had the freedom to compete for business even when it involved policies that were above their retention limit. Remember that all companies have a level of insurance that they essentially carry “in house”, their retention limit, and the rest of a policy is covered by the industry behemoths called re-insurance companies.
Re-insurance companies are a way to transfer risk so that large claims don’t do damage to the bottom line of the insurance company. Depending on the company, the retention limit could be $500,000 with some companies having a retention limit as high as $20,000,000. So what does this have to do with the good old days?
For a company to bend the rules on a policy that is above their retention limit, say to give a preferred rate to somehow that really falls into standard rate guidelines, they have to have a reinsurance company on board with whatever exception they want to make. 5 years ago exceptions to underwriting rules were a regular part of competition between companies and because, back then, there were a large number of reinsurance companies, they also competed. So, if one reinsurance company didn’t buy the exception you wanted, another likely would.
Today there are less than 10 major reinsurance companies and competition for business seems to have taken a backseat to underwriting by the book. To make matters worse, company relationship with reinsurers is so fragile that in order to stay in their good graces it is rare to get exceptions from a company even when a policy falls within their retention. Technically if they retain they can approve it any way they want, but that is the exception now.
Recently we have seen some glimmers of hope that there may be a shift back toward common sense in underwriting. Genworth recently released a changed build chart that is now the most liberal in the best rate classes in the market. United of Omaha now allows life style credits on rated policies to reduce the rate. Banner Life now has life style credits that will allow a one rate class move. There are rumblings that more companies will be following this same common sense approach, allowing life style to be an underwriting criteria in a positive way.
Bottom line. I kind of doubt we will ever see the competitive term insurance market that we once had, but a little common sense will go a long way toward instilling some confidence back in a system that took a wrong turn.