The Labor Department recently finalized a fiduciary rule that will hold anyone who provides investment advice to a fiduciary standard and mandates these advisers must put their clients’ interests first. It stipulates that an adviser must place his or her interests below that of a client. It consists of a duty of loyalty and care. Life and disability insurance products are exempt from this fiduciary ruling; however they will likely be looked at more closely in the future.
The ruling clearly outlines key areas where a conflict of interest may exist between financial advisor and consumer interests, and establishes priority on consumer interests. If this rule were expanded to include life, health, and disability products, advisors and insurance companies would be impacted in several ways. In this article, we explore what it means to put life insurance applicants first, and the importance of improved communication and understanding by the applicant in three specific areas:
- Precision underwriting can get the applicant the best price and the most insurance coverage
- Overall cycle time of the life insurance examination has been improved
- The applicant experience can be pleasant and actionable toward better health
Precision underwriting protects the applicant and their family at the best price
There is growing interest in simplified issue products from both life insurance companies and advisors. On the surface, these products appear to be quicker and less intrusive for the applicant since there is limited or no underwriting. A brief medical history is often taken, but fluids (blood and urine) and a paramedical examination may not be obtained. In the most common model, applicants with preferred, standard, and impaired risk are pooled together and a higher premium is offered to all in an attempt to cover the expected increase in mortality risk.
In contrast, precision underwriting with proven protective value tools like laboratory testing of blood and urine and a paramedical exam providing current biometrics can give a more precise risk of the applicant at any age, resulting in a more personalized and fairer premium. Many applicants are new to the life insurance process and may not understand that without a medical exam and laboratory tests they will often receive higher premium policies. If we apply the new fiduciary standard to life insurance and put the applicant’s interests first, our fiduciary responsibility is to make sure that they can obtain the best coverage, at the best price, if they undergo testing for more requirements. Additionally, laboratory testing accounts for about 3% of total healthcare costs, but drives more than 70% of health care decisions.[i]
Reducing life insurance cycle time and the “time myth”
The appeal of streamlined underwriting and simplified issue is that they are quick, easy, and less intrusive. All of that is correct, but under a fiduciary standard where applicants’ interests are prioritized, is that really the best course of action for them? The life insurance cycle time has certainly been optimized over the past five years, utilizing fast mobile strategies and call centers to reach and schedule applicants quickly. When compared against the healthcare sector, life insurance is usually faster and more efficient. How many times have you called your primary physician’s office with a health problem to be told they can see you in 3-4 weeks? If it is a specialist, it may be closer to 6-8 weeks. Patients accept lengthy waits for appointments to receive high-quality care.
If we put applicants first, our fiduciary responsibility is to effectively explain that a full examination and laboratory blood and urine analysis is probably quicker and much more efficient than their local healthcare system. This will allow them to obtain the best coverage, at the best price.
The applicant experience is beneficial and actionable
The paramedical examination with blood and urine collection is most often an insightful and beneficial experience for applicants. By sharing laboratory data in an informative and actionable format online, an applicant may improve his or her health directly and with the help of his or her physician. It encourages applicants to “know their numbers” and guides them to live a healthier lifestyle. Everyone wins when laboratory and exam data is shared. The applicant gets actionable health data; the carrier organization and their distribution network builds a better marketing brand; and there is the high potential for decreased morbidity and mortality of the policyholders who utilize the data.
If we put applicants first, our fiduciary responsibility is to effectively use precision underwriting to its fullest potential and share the actionable data with applicants so they can better improve their quality of life.
If we put applicants first today, the industry will be well ahead of any future rules around fiduciary responsibility regarding life insurance. Precision underwriting is the most accurate method for assessing mortality risk and the most beneficial model. It allows an applicant to receive the most life insurance coverage at the fairest price. In addition, applicants receive valuable, actionable health insights through laboratory results that can help increase their quality of life. If we take the time now to ensure that all applicants understand what precision underwriting provides them, any future fiduciary standards should not be an issue.