Hello All,

I certainly hope this finds you well and that you have avoided COVID-19. Over the last two blogs we examined the mechanics of changing ownership of a life policy from one entity another, and the potential financial implications that may arise as a result. In this edition, I felt it would be important to look at how the current pandemic is impacting the underwriting of new policies, with a focus on the large case marketplace.

Generally speaking I have heard carriers stating that are seeing unprecedented adaption and change in the overall U/W of life policies. Not only are conditions being relaxed, but also the pace at which this change is occurring has not been seen before in the marketplace. Carriers have increased the face amounts and age limits under which they will not require bodily fluids or other typical tests we have seen in the past. The obvious goal is to keep face-to-face meetings to a bare minimum or ideally eliminate them all together. One carrier at least has their “no fluids limits” to $2-million up to age 50. Many others are close behind at $1-million to age 50. In addition, we are seeing “stacking” of coverages. That is to say one individual could apply for the non-fluids maximum at several carriers and the carriers are treating the application as a single app to their institution alone and not cumulating the total face amounts being applied for and using the total line as the U/W amount normally applicable.

The practice of stacking applications with various carriers to get higher face amounts without providing the normal, full underwriting, I suspect will soon be drastically curtailed or completely eliminated. As we all know, a piece of virtually every life application written in Canada today ends up with reinsurers. Given that there are far more carrier companies than there are reinsurers, you can reasonably deduce that many of the individual coverages applied for at the carrier level are being doubled up at the reinsurance level. Therefore, it would be my guess that stacking, if not eliminated, will have to be dramatically modified.

The term “auto bind limit” refers to the face amount a carrier company can automatically commit a reinsurance company to without direct consultation. With the current auto bind limits in effect, the impact of stacking becomes magnified. The more carriers an advisor goes to, the more strain this puts on reinsurers. Therefore, at the risk of being repetitious, I see this as an additional force impacting the reinsurance marketplace.

As you are all aware, there are three parts to the insurance market: the carriers, the reinsurers, and the retro insurers. The retro insurers provide capacity to the reinsurers over and above what reinsurers are able to take on. Typically, reinsurers can provide coverage up to $20-million and it is up to the retro insurers to provide any additional coverage requested up to the maximum capacity they can provide. It is my understanding that maximum capacity in the Canadian market today, without doubling up on reinsurers or retro insurers, is approximately $225-million. Under the current conditions of the pandemic, retro insurers are also depending more heavily on client provided medical information, or the results of executive medicals. Overall, the markets are still functioning, but at a much slower pace.

No alt text provided for this image
Now, as we move into the larger case market, and there are many ways to define large case, so I will not get too definitive here, the ability for clients to provide and carriers to receive fluids is very limited. As of the time of writing, all of the paramed companies have stopped doing face-to-face appointments. They are still conducting tele-interviews, and the carriers are leaning on these as much as possible, so there is still some movement here. In addition, if the clients have access to their own medical records, where they provided fluids to their family doctor in the last 12 months, the carriers are considering these results.

In addition, many corporate executives and high net worth clients generally utilize the services of executive medical clinics. Many of these have been closed due to the pandemic, but I have heard rumors of a few remaining open for business. As is true for medicals requested for family doctors, the executive medical results, given that they fulfill all the medical requirements, are being utilized as well. Between clients accessing their own medical records, and when possible, leveraging executive medicals, some medical requirements are being completed and used towards policy issue. The other main stumbling block, other than the medicals themselves, for carriers to process a large application, is access to an APS. Many doctor’s offices and particularly specialists have been closed since the start of the pandemic, and for the foreseeable future. Even if the clients are able to access their own lab results and medical records, the inability to procure an APS remains a stumbling block. The reliance on the APS is being relaxed at the smaller face amounts, but is still a definite requirement for larger cases. Unfortunately, in my personal opinion, this will continue to be a major hurdle in the issue of new cases.

Often times when underwriting large cases, it can be the financial underwriting part of the process that slows everything down. The good news is many of the requirements for financial underwriting are still readily available to the clients, such as financial statements from their businesses. In addition, most financial institutions, including accounting offices, have remained open and accessible to their clients throughout the pandemic. In the past, it has often been the financial side that delays the final decision. Now we have seen to some extent that financials are not the main encumbrance, but the medical requirements. Financial underwriting is a key factor in all larger cases.

In summary, the insurance business, like most others, has been forced to go through some radical changes in order to keep serving clients. To facilitate keeping the underwriting process moving smoothly, carriers have relaxed requirements and are now more than ever relying on alternate sources of information. In the smaller case market, at least for now, the ability to stack smaller apps one on the other is allowing business to continue. Unfortunately, at the large case level it is not so easy to break coverages apart into smaller pieces. If you are fortunate and your client has done some level of medical testing in the past year, then one major hurdle has been passed. If however, there has not been any interaction with the medical profession, I am afraid we are at the mercy of time until our system adapts to easier facilitation. Financial underwriting remains as always a potentially problematic part of the process. With today’s technology, most of the financial information can be acquired. It may just take a little effort and ingenuity.

All in all the large case market is still moving forward, but at a much slower pace. Do not let the current global situation stop you from pursuing cases in this arena, but be aware the large cases that used to take a long time to underwrite, may now take even longer.

Keep well and stay safe.

Regards,

Ian Tod, B.A.(Econ), MBA, CFP, CLU
National Advanced Case Specialist
[email protected]