The life insurance industry has a dirty secret that most agents are aware of, but don’t want to talk about: The main factor for choosing one policy over another comes down to price. Most agents know that Carrier A’s coverage likely will be like Carrier B’s coverage, so they let their client select the cheaper of the two policies. However, treating insurance products as a commodity fails to consider the outcome (i.e., placement rate or the overall experience) of applying for the policy.
As we all know, policies that require a medical examination are cheaper and they have higher death benefits than simplified policies. However, from the initial consultation with an adviser, through the medical exam and blood tests and submission of the final application, it can take weeks or months to determine if a client has been approved or rejected for coverage. About a third of all those who apply for these types of policies are denied coverage, which forces the agent and client to go through the process all over again with a different carrier.
Jane Doe is a 35-year-old female in good health. She has diabetes, but it is under control with drugs and her blood sugar levels are normal. Her adviser starts off the application process and gets quotes from the agency’s top four carriers. The price ranges from $149.50 to $152.30 per month. Jane opts to apply to the less expensive carrier, but six weeks later her application is rejected. Now, she and her adviser need to start again.
Unbeknownst to the agent, the underwriter for the cheapest carrier has little risk tolerance for diabetes. The carrier might be more receptive to other issues (e.g., former smokers or people working to keep things like high blood pressure in check). The more expensive carrier might not have any problem with Jane’s diabetes, and the price difference is only $2.80 a month—or just under $34 a year.
Change the scenario
Now imagine that as an agent you knew from day one which carriers were not as concerned about certain common conditions? Picture having a system that showed each carrier’s placement ratio for the most common ailments like diabetes, high blood pressure, obesity or dangerous careers or hobbies. You could see that your client has a 20% better chance of getting coverage with Carrier X than Carrier Y. While this type of system doesn’t fully eliminate the risk that the carrier wouldn’t reject the application—not everyone can get coverage—it still would give clients the best chance to get coverage than choosing the policy with the lowest price.
An untapped market
This focus on price—at the expense of all the other factors—hurts the industry because it commoditizes it. In the United States, the percentage of people owning life insurance fell from 63% in 2011 to 54% in 2020. There are many possible reasons for this, but advisers believe that the application process is a factor because it takes time, the tests take time, and the fact that applicants could be rejected and need to restart the process is a disincentive to apply again.
The study conducted in early 2020, just before the COVID-19 pandemic, showed that 36% of Americans intended to purchase life insurance. That’s the highest level in the study’s nine-year history—42 million people are looking for term or whole-life policies—with either medical or simplified underwriting. As the pandemic eases, there may be even more demand for life insurance.
We all know that the life insurance industry is not afraid of innovation, but sometimes it can be a long, slow process. Virtually every carrier is using big data to help with underwriting, reducing risk and accurately pricing premiums. The industry needs to leverage this data to help advisers find the appropriate coverage for their clients, and that has the best chance the carrier will approve it. Innovation like this would benefit not just clients but also agents, financial advisers and the carriers themselves.
 The 2020 LIMRA and Life Happens report on life insurance in the U.S.