I promised in a post yesterday to shed some light on the changes that have impacted life insurance underwriting over the past two years. The life insurance business and life insurance underwriting have undergone dramatic changes over the past two years. It has changed the way business is done and has changed the kind of approvals that clients get.
The underlying (or overshadowing) cause of the changes is the consolidation of reinsurance companies that started 3-4 years ago. Reinsurance companies are mega risk holding companies for lack of a better definition. Reinsurance companies accept the risk on insurance policies over and above what a life insurance company’s retention limit is.
XYZ company might have an internal retention limit of $1,000,000. If someone purchases a $3,000,000 policy through XYZ, $2,000,000 of that risk is held by a resinsurance company such as SwissRe, the largest of the reinsurance companies. A customer never sees that transaction. Their policy shows that they are insured by XYZ for the full amount. When a death benefit is paid, the check comes from XYZ.
So, how does all of this impact life insurance? Back when there were a lot of reinsurance companies, a life insurance company could be somewhat independent and go to the reinsurance company that would work with them to carve out niches and back them up when they wanted to offer a lower rate to win a case. Back then an agent could negotiate with an insurance company because insurance companies could negotiate with reinsurance companies.
Then the takeovers and consolidations began and now there are only a handful of reinsurance companies in the world. They hold most of the risk. They make the rules and they aren’t as flexible as they once were. They have slowed down the practice of getting exceptions. They have even put companies on notice that it will impact their reinsurance relationship if they offer out of line exceptions, even within the company’s own retention limit.
As I mentioned in my post yesterday, this has resulted in very tight underwriting. Cholesterol a little too high! Blood pressure readings just slightly elevated! Three years ago those kinds of things were negotiable most of the time. Now it is truly an exception when it is even considered.
Bottom line. Now, more than ever, an independent life insurance agent is critical for finding the best rates. With exceptions and negotiating out of the picture, the best rates come from knowing the subtle differences between competing company’s underwriting guidelines. There are still ways to get where you want to go. It’s just more important to have a good guide.
This post is somewhat dated. Life insurance underwriting is changing and evolving continually. For more updated information check out some of the key word links. If you have a specific question or topic you need information for do a search. If you don’t find the answers you need contact me and we’ll make sure you get the information that is important to you.