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For those of us that have been in the life insurance business a while we have been going through an unprecedented period of change and adjustment for the last three years. For those who bought insurance prior to that and are trying to get more or replace your old coverage, the world of insurance purchasing has changed dramatically.

Every company out there has a written set of guidelines that they use to analyze any given underwriting situation. They call them guidelines, which kind of infers that there might be some flexibility, and the truth is that until the earth shifted about 3 years ago, there was flexibility. If someone was healthy but several pounds over the “guideline” weight for a preferred plus rate class, that was within the flexibility of the guidelines.

If someone’s family history would whack them a couple of rate classes based on the guidelines, but a good case could be made that the proposed insured and his parent have completely different lifestyles, some adjustment was within the realm of possibility.

The key to the guidelines and their shift more toward the rule category had to do with reinsurance companies. Reinsurance companies are the big boys of the insurance business. Most people have never heard of them, but they participate in most life insurance policies. Reinsurance is where risk is spread to so that regular life insurance companies don’t carry it all. Most companies have a retention limit, an amount that they normally carry all of the risk on. For the sake of this example let’s say the company retention limit is $500,000. If they sell a $2,000,000 policy the company will retain the premiums and the risk on $500,000 and one of the reinsurance companies will take on the excess $1,500,000.

Part of a company participating in reinsurance is the fact that they have to underwrite and approve based on the reinsurance company rules and don’t have the luxury of fudging on their own guidelines. That is the downside. The upside is that they can participate in larger cases without concern about a death claim truly being felt.

As a customer you never see the reinsurance company. You don’t ever send a company like SwissRe premium checks and your beneficiaries don’t receive a check from them upon your death.

So how did these behemoths shake things up and change life insurance underwriting three years ago. It was a merger/buyout feeding frenzy that reduced the number of reinsurance companies from over 20 to the present day 6. In the “good old days” a company could shop the reinsurance companies to see who was willing to bend. There was competition to reinsure. With six companies left there is no competition and most companies depend on just one of the giants as a partner in their business.

People that applied for life insurance 5-10 years ago are shocked to find a condition that was basically ignored back then can be the reason for getting bumped 2 or 3 rate classes now. It’s a whole new world and it isn’t particularly friendly.

Bottom line. So guidelines with flexibility have become rigid rules. There is still a little wiggle room within a company’s retention limit, but not like it used to be. That wiggle room allowed me to get a highly rated approval on a $10,000,000 policy recently when I couldn’t get anyone else to approve it. The company retention limit was $20,000,000 and they could approve it because it didn’t have to go to reinsurance.