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Negotiated Underwriting: When Carriers Compete, Clients Win

Sherry Traske

Underwriting a life insurance policy may seem like a straightforward, scientific process. Underwriters look at age, gender and medical history to calculate underwriting classifications and premiums based on projected longevity or mortality.

As experienced life insurance agents know, underwriting is both an art and science. Premiums for the exact same client can vary significantly from one carrier to another. This is why using negotiated underwriting—receiving preliminary offers from multiple carriers and essentially creating a competitive auction for a client’s business—can produce powerful benefits for clients in the form of lower premiums, better ratings and less onerous medical exam requirements.

Navigating the Negotiated Underwriting Process

Negotiated underwriting is an involved process, so it’s helpful to work with an agent who knows how to guide the client through each step.

  • Putting the client’s best foot forward: An experienced agent knows how to present a client’s medical information to carriers in the most favorable light. These agents will ask very specific questions about lifestyle, including hobbies, social activities, exercise routine, health club or gym memberships, use of a personal trainer and diet details. The more healthy habits a client embraces, the more likely they will qualify for “life/ health style credits”. These credits may be used to improve underwriting and reduce premiums. For example, if an individual has started limiting red meat or fried foods, such seemingly small changes could warrant lifestyle credits with some carriers.

    Agents will craft a cover letter that accompanies a client’s medical file. The cover letter will introduce the client to the carrier, layout the goals and needs of the client, disclose current and past medical information, as well as highlight the “positives” to help obtain the best possible underwriting.

  • Knowing who to invite to the auction: Another way an agent can manage the process is by thoughtfully choosing which underwriters the informal (or preliminary) application is sent to. Carriers may view certain conditions such as heart disease or diabetes less favorably than another. Based on extensive experience of seeing how carriers have underwritten specific conditions in the past, agents have a good idea which carriers are likely to view different types of clients more favorably. These are the carriers the agent will focus on.
  • Avoiding the Medical Information Bureau (MIB) in the early stages: MIB is owned by numerous insurance companies. Their purpose is to collect medical data on clients from member carriers, maintain codes for various medical conditions and share information with other member carriers. Any findings during the informal underwriting process are not reported to MIB. By staying “under the radar” for as long as possible, the agent is in a better position to negotiate on behalf of the client. Once carriers make preliminary offers, agents can then request improvements—in terms of premiums and ratings. The carrier can then determine if they want to “stay in the game”.
  • Eliminating unnecessary testing or additional information: Some carriers may ask prospective policyholders to undergo extra medical tests beyond the typical exam. If only one carrier, or a few, requests additional testing, the agent can let the company know the client won’t be moving forward with them unless the request is dropped. This strategy weeds out carriers that aren’t serious about winning a client’s business, and often such requests are eliminated.

Acing the Medical Exam

Medical exams can be a stressful experience, but there are things a client can do to improve the process and help obtain the best possible results on exam day.

  • Get a good night’s sleep. Research has shown that a lack of sufficient sleep can contribute to elevated blood pressure.
  • Drink lots of water. Not only will a urine sample be completed, it also helps to make the blood draw easier.
  • Don’t exercise 24 hours prior to the exam. Strenuous physical activity may lead to inaccurate results.
  • Abstain from fatty foods and limit salt intake and caffeine for several days prior to the exam. These items can inflate blood pressure and cholesterol levels.
  • Likewise, don’t drink alcohol the day before your exam.
  • Schedule the exam in the morning as fasting is necessary. Many times, a client’s blood pressure is lower earlier in the day.
  • Be honest about tobacco or nicotine use. Many carriers will classify an occasional cigar smoker as “non-smoker” if it is admitted to on the application, smoke within the number of cigars allowed and have negative nicotine findings in the urine sample provided during the exam.
  • Provide the examiner with a list of current medications and doses, as well as a list of doctors/healthcare providers and their contact information.

Proven Results for Negotiated Underwriting

Negotiated underwriting can be a lengthy process, but it is worthwhile one for the client. At Goldstein Financial Group, we recently helped several clients with significant health problems secure drastically improved ratings and premiums as a result of negotiated underwriting.

One such case involved a client with numerous interrelated health issues, one of which on its own could have warranted an uninsurable decision. We requested preliminary offers from 18 different carriers. Although many of the carriers initially declined coverage, we were able to negotiate with several carriers and secure one standard rating and two Table C ratings.

Another client, who had serious health issues and took numerous daily medications, feared their medical history would render them uninsurable. By working with 13 separate carriers, we were able to secure a Table E rating for the client.

These are just two examples of the many clients with serious health conditions for whom we have helped secure life insurance at attractive rates. We have worked with clients with a wide-ranging list of medical issues including cancer, cardiovascular diseases, depression, diabetes, elevated blood pressure, kidney disease and stroke/TIA. Many people with such conditions mistakenly believe they cannot get life insurance coverage at acceptable rates. By working with an agency that understands the negotiation process, it is possible to achieve attractive policies.

Another lesson learned from working closely with carriers is that initial ratings need not be permanent. One client, who failed to heed one of the tips listed above, exercised the morning of the medical exam, resulting in less-than-optimal test results. We worked with the carrier to ensure they would allow the client to be reassessed after 12 months. A year later, the client completed another exam—this time heeding the advice to avoid exercising beforehand —and was able to get the policy improved, which resulted in reduced premiums.

Many times, insurance carriers will reinsure a number policies or percentage of risk. Sometimes carriers will retain 100% of the risk. This is referred to as internal retention. For larger cases, being able to recognize and utilize carriers’ internal retention allows for greater negotiation power. This is due to the carriers not requiring approval from their reinsurers prior to determining underwriting classifications.

At Goldstein Financial Group, we have extensive experience partnering with clients and their advisors to help them navigate the negotiated underwriting process. We serve as clients’ advocates on the journey to finding the most advantageous terms for their life insurance policies. To learn more about our negotiated underwriting advisory services, please do not hesitate to contact us.