Recently, I was asked about the value of life insurance paramedical exams and the potential value in life expectancy underwriting. It seemed like a good opportunity to explore the use of additional medical data sources in that process and focus on where the "protective value" truly lies.
Over the past six years I've had the opportunity to learn a lot about the secondary market -the interesting world of life settlements. In particular the medical information utilized to assess risks and assign the critical "life expectancy estimation" numbers stands out as an ongoing area of perplexity. By that I mean that in my two decades of underwriting life insurance risks, primarily focusing on affluent, senior market lives, it is confounding to me that with all of the "tools" available to carriers and reinsurers to properly vet mortality risk, only one tool has historically been utilized in the life settlement market, which is review of medical records. In a market where substantial financial risk is being undertaken by investors, they are skimming the surface of understanding the mortality impact of the policy (ies) they are vying for. I believe the reason for this is two-fold; (1) investors are not properly educated on the underwriting tools available and their "protective value", and (2) obtaining LE certificates has largely fallen on the shoulders of providers and brokers who absorb the cost of ordering medical records and LE's-hence the cost of additional underwriting requirements is not one that most want to take on.
So, what is "protective value" in the sense of underwriting assessments and of all the underwriting tools available which ones make the most sense in evaluating LS individuals? Protective value in underwriting relates to data gathered on an applicant that provides enough relative information to appropriately assess that individuals mortality risk that the carrier will be on the hook for at time of a claim. The goal is to obtain the right amount of information without incurring undue cost, not always an easy task as risk assessment tools available range from paramedical/MD exams to full medical records, from standard panel blood profiles to specific diagnostic tests, resting EKG's to treadmill testing, and from telephone interviews to extensive investigative reports including credit and background checks.
When it comes to life settlement risks, with a focus on affluent seniors, the following risk assessment tools will undoubtedly provide the best "protective value" for investors;
- Medical records; covering the past (5) years of history from the primary attending physician and specialists (i.e. cardiologist)
- Senior risk assessment (thorough on-site assessment) or senior risk questionnaire (telephone interview completed by an senior risk underwriting expert)
- Current blood profile with specific tests that reflect direct mortality impact
These specific underwriting tools will provide an additional layer of data that will enhance the underwriting assessment and provide a more robust LE certificate (i.e. the protective value that investors can be confident in). The average cost per life will be $1000.00 (exclusive of LE assessment) which is minimal given the financial risk investors are taking on.
I hope this brief overview will provide you with insight into options and opportunities to enhance the life expectancy process. This is the first of what I hope will be many "Ask the Underwriter" discussions-please continue to submit your questions about the largely misunderstood world of medical underwriting!
"Take calculated risks. That is quite different from being rash."
General George S. Patton (1885-1945)
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