Individual Critical Illness Underwriting
January 09, 2013| By Steve Rowley
Region: North America
Even for experienced life underwriters, Critical Illness (CI) underwriting offers a unique challenge. Michelle O’Neil, Assistant Vice President and CI Underwriter, has put together the following overview outlining some of the ways that CI risk assessment varies from some of the other common personal protection products.
Life underwriters, like disability and long-term care (LTC) underwriters, are essentially worried about the outcome of a specific disease or impairment. In other words, if an insured is at increased risk of a heart attack, will the outcome be that he or she dies as a result? Become disabled? Suffers an inability to perform their Activities of Daily Living (ADLs)? For the latter two, is the claim likely to be a long one? The understanding that most people, especially at younger ages, are more likely to survive a heart attack or have a limited period of disability or ADL impairment, permits the underwriter of these "outcome"-based products to be more liberal, especially when they can apply such tools as substandard ratings and/or reduced benefit periods.
In order for an underwriter to properly assess the CI risk, it is essential to understand that CI policies pay benefits upon incidence, regardless of outcome. This means that many more people will claim than would never pass the claim threshold of the other products mentioned. As such, there is a very real need to underwrite any past history, family history and pre-disposing history more carefully.
For example, diabetes is an impairment that is handled differently for each product. Someone with a well-controlled history of adult onset diabetes may qualify for standard or low substandard life insurance. They may also have a low substandard rate or a limited benefit period for disability insurance, and may qualify for standard LTC. However, a diabetes history will likely preclude someone from obtaining CI coverage. While well-controlled diabetes may have a minimal effect on mortality or impairment, the potential for experiencing a cardiovascular event, such as a heart attack or stroke, is very high. Since these are benefit eligibility triggers covered under a CI policy, that history must be treated conservatively for this product.
Family history is another risk factor that is of particular interest to CI underwriters. Even in insured who exhibit good diet and exercise, family history remains one of the greatest risk factors for Cancer, Heart Attack, and Stroke (the three benefit eligibility triggers that comprise roughly 85% of all CI claims). Not only is family history a high risk factor, but it is one that the proposed insured would normally be aware of and may influence buying behavior. A history of multiple family members being diagnosed with cancer or heart disease at an early age significantly increases the probability of cancer or heart disease. As such, these factors need to be taken into consideration for CI underwriting. Some significant family histories may even cause a CI policy to be declined.
Fortunately, and because of the very specific benefit eligibility triggers in a CI policy, there are also a number of medical impairments and nonmedical issues that may place the proposed insured at high risk of early death, disability or ADL impairment but have little if any impact on the CI risk. Moderate Rheumatoid Arthritis is an example of an impairment that is less likely to affect the CI triggers. Due to the systemic nature of the disease, a moderate RA history would likely be substandard for life insurance and very likely uninsurable for DI and LTC. Conversely, a moderate RA history might qualify for a low substandard rate for a CI policy. This is due to the fact that RA may increase risk of heart attack but would likely not affect the other triggers.
When underwriting CI it is important to keep the triggers covered in mind when looking at medical impairments and pre-disposing conditions as policies differ considerably. Critical Illness underwriting is the perfect opportunity for an experienced underwriter to grow and be professionally challenged with new ways of thinking.