However, when asked the question “when you are dissatisfied with the traditional insurance market, what are the most common reasons why”, the most common answer (80% of respondents) was medical declines. This is not surprising, as industry statistics indicate that approximately 10% of life insurance applications are declined each year, representing over 50,000 applications. The majority of these declinations are due to medical history or lifestyle (e.g. alcohol and drug use).
There are several reasons why so many life applications are declined:
- Virtually all products on the market provide long-term guarantees i.e. they are underwritten once “for life” and, consequently, underwriters must take a long-term perspective on risk.
- For those who have significant health or lifestyle risk factors, life insurers have only two options: charge extra premiums or decline applications.
- Underwriters’ performance is primarily measured based on time, service, productivity and adherence to “the book” (insurer and reinsurer underwriting manuals), and not on their success in making offers that result in cases being issued.
In recent years, many insurers have developed simplified and guaranteed issue products that enable individuals with significant health issues to obtain limited amounts of coverage. However, a chasm remains in the market for those with substantial insurance needs who have been unable to obtain coverage.
It was to address this gap that Hunter McCorquodale partnered with Co-operators Life Insurance Company to introduce Acceptional Life, a product that can provide coverage of up to $10 million to individuals who have previously been unable to acquire coverage.
This was made possible by using an innovative approach to addressing the three problems outlined above:
- Coverage is provided for a 10 year non-renewable term (in some cases five years) so the underwriters need only be concerned about “short-term” mortality.
- The plan includes certain exclusions, such as suicide and alcohol and drug use, that are designed to eliminate claims from certain high-risk behaviors within the control of the applicant. Also, underwriters can approve coverage with exclusions for specific medical conditions, such as cancer. Although they have been used in other classes such as disability insurance and critical illness insurance, this is the first time in Canada that medical exclusions have been applied in life insurance.
- Seasoned underwriting experts are given sufficient time to exercise their experience and judgement to make an offer wherever possible.
When an advisor is forced tell a client that their application is declined, that has a negative impact on the relationship, the potential of future referrals and, of course, the advisor’s bottom line. Many advisors appreciate being able to provide an option for their clients that would otherwise be declined. This may be particularly true in business insurance situations where, for example, insurance on a key person is a condition of a financing agreement, or when insurance on a shareholder is required to fund the buy/sell provisions on death under a shareholder agreement.
“Many years ago we identified a significant need for a new and creative approach to offer life insurance to individuals who have a substantial insurance need but have been unable to acquire coverage due to their medical history or lifestyle,” explains Hunter McCorquodale’s Managing Director, Ken Hunter, FSA. “Acceptional Life is designed to address gaps in solutions provided by the traditional markets for hard to insure individuals. We are delighted that we have now been able - thanks to the support of Co-operators Life and two major reinsurers - to make this product available to advisors with hard-to-insure clients.”
For Co-operators Life, entry into the brokerage sector started with their partnership and ultimate acquisition of Edge Benefits, which provides simplified issue products to self-employed individuals across Canada. Alec Blundell, Co-operators VP, Individual Insurance & Chief Actuary, says: “Acceptional Life is an exciting development for us. It deals directly with our corporate strategy of increasing security for Canadians and the communities in which they live. At the same time, working with Hunter McCorquodale, the leader in this space, offers us an opportunity to expand distribution, not only in our advisor force but also in their wider market of sophisticated advisors.”
Canadian life insurers, for the most part, do an excellent job of providing life insurance coverage. In a recent survey conducted by specialty underwriting firm Hunter McCorquodale, almost 90% of the 500+ advisors who responded indicated they were either extremely satisfied or somewhat satisfied with the traditional market’s ability to solve their clients’ insurance needs.