Underwriting insights for brokers on insuring older age applicants
Life expectancy of individuals is on the up and, with continuing mortality developments, many people are living longer, healthier lives. This, in turn, has spurred the demand for financial products and motivated life insurers to expand their availability of life insurance and related products to the ‘Silver’ market. This also means that insurers have had to relook the upper age thresholds on their products and their underwriting process.
Growing demand for life, disability and critical illness insurance products for older age applicants has spurred Altrisk to increase the entry age on our accidental death benefit to 70, as people are active for a lot longer, and to offer our income replacement benefit to applicants up to age 65, the highest in the industry. Although both Critical Illness and Disability benefits have maximum entry ages of 65, both provide cover for the whole of the assured’s life. In terms of the Disability benefit, at retirement age the occupational disability benefit changes to that of ‘activities of daily living’ which is more relevant to the client’s change of circumstances – ability to walk, bending, lifting and so on. Altrisk’s cut-off age for life cover is 70, but, under certain circumstances, we may consider cover for clients up to 80 years of age. Should the applicant not qualify for cover due to ill-health, we will consider offering deferred life cover.
However, underwriting seniors using a traditional approach often raises a number of challenges. Many of these can be overcome with simple tweaks to acceptable test result criteria in line with the ranges applicable to age, while other factors such as family history pertaining to congenital and heredity factors, which act as a useful guide in underwriting younger people, become irrelevant after the age of 60.
Further medical-related information can be beneficial in assessing risk; for example, information on regular doctor’s visits can help ensure that the applicant will receive preventive care, usually resulting in better outcomes for illnesses with high co-morbidity rates, such as pneumonia or diabetes. While the underwriting profession is investigating additional tests such as functional and cognitive tests and other qualitative information that may help in assessing older age applicants, industry-wide consensus on the matter is still a way off! The greatest difficulty lies in translating these results into a quantifiable, scientific risk assessment.
Altrisk’s approach applies the same assessment across all applicants, while some additional tests may be requested for the Silver market, such as a prostate test for male applicants aged 55 and older and, in some instances, an ECG; however, when applied to older applicants, traditional medical underwriting procedures can result in misleading risk assessments and this is where the skills and experience of the underwriter play a critical role. As you get older, the underlying risk rate increases in relation to the expected mortality for that age group. When looking at impairment such as slightly raised blood pressure, we need to take into consideration how much of this has already been built into the rates; however, it is imperative to assess the test results and information gathered in line with the age appropriate ranges.
Traditional underwriting tools for risk analysis still provide a solid basis to assess older age applicants against age-appropriate ranges, namely cholesterol levels, body mass, smoking history and blood pressure. Some conditions pose a lower risk if they are contracted later in life. Diabetes is potentially more dangerous in a younger person than in an individual who develops diabetes after age 60, since the time frame for the development of organ damage is so much less. The impact of smoking would be the opposite. An older applicant with a smoking history is likely to have more long-term damage. So, even if an applicant had ceased smoking years previously, the damage done to lung tissue may be irreparable, and there is an increase in the risk of coronary artery disease and cancers.
The broker’s role in avoiding inadvertent non-disclosure and identifying anti-selective behaviour
In assessing the risk around older age applicants, full disclosure of ailments, illnesses and pre-existing conditions is critical to avoid the potential for a claim being repudiated. The broker’s role in thoroughly understanding the challenges of insuring older age applicants is vitally important here, as very often non-disclosure can be entirely inadvertent where an individual may not list certain illnesses or impairments such as arthritis or persistent pains, as they put these down to being part-and-parcel of getting older. It is in the best interest of the client for the broker to insist on more disclosure as a safer route and rather give the insurer the opportunity to use what’s important in each circumstance and ignore the rest. No-one ever had a claim declined for over-disclosure.
In assessing their client’s application, a broker also needs to be vigilant against the potential for fraud and anti-selective behaviour on the part of the applicant. Seeking coverage late in life may be an expensive prospect and this fact, combined with the consideration of mortality, may be signs of anti-selective behaviour: the applicant knows that problems currently exist or have a greater likelihood of emerging in the near future. An applicant’s motivations for buying cover can provide valuable insights – red flags should be raised where an applicant or their children/relatives, insist on life cover where there is little insurable interest.
This said, there are many valid reasons for seeking coverage later in life, such as cover for estate duties, debts such as bonds or loans, succession planning within a business, estate protection and so on. A simple rule of thumb is to assess whether the applicant genuinely has a need for wealth ‘protection’ or if they see the opportunity for wealth ‘creation’, perhaps to fund their retirement or create an inheritance.