Are Preferred Life Insurance Rates On Their Way Out?

Posted on October 30, 2018 and updated October 31, 2018 in Life Insurance Canada News
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A notification was recently sent out by Manulife  regarding changes to their Healthstyles® program

“Consistent with our expanded accelerated underwriting limits, for new coverage issued with a coverage date of November 6, 2018 or later, only Healthstyles 3 and 5 will be available for Family Term, Family Term with Vitality and Business Term for ages 18 to 50 and for amounts up to and including $1,000,000. Note that Healthstyles 1, 2 and 4 will still be available for certain policy changes.”

Manulife’s announcement follows a strong trend in the industry towards automated underwriting. This became very popular in the early 1990’s, however, this comes with challenges to the insurance companies and to brokers. Preferred rates can put a squeeze on profitability and be challenging for brokers to explain to clients. Many on-line software tools use preferred rates as a default rate to lure consumers but most consumers don’t qualify for preferred rates and there can be many different tiers of preferred rates. This often creates a frustration for the broker and consumers who don’t qualify.
 

Having said that, as noted by independent broker Richard Parkinson preferred rates can offer consumers substantial savings over standard life insurance rates. Richard AKA Mr. Spreadsheet offered the charts below as examples:

 

 

erred-Insurance-Chart-1

 

Richard also had this to say,

“Canada Life has also eliminated the preferred (middle) category for $1M or less. Several other companies, e.g. Assumption Life, Humania, Western Life, etc. never offered preferred rates, based on they felt their rates were competitive enough already. Manulife stated in their announcement that this change was due to accelerated underwriting, which seems to automate the decision as much as possible, focus on lifestyle more, and minimize the expense of paramedicals and lab tests when the monthly premium is small to begin with. Underwriting 3 rate categories rather than one is a lot more expensive, and I believe it is a trend that will continue. Manulife is also a trend setter, so when they introduce a fundamental change, many other companies soon follow suit. Lastly there seems to also be a trend by several companies to do more direct to consumer web-based marketing of life insurance, so they want to keep it as simple as possible. Unfortunately, this direct web-based marketing is not in the best interest of most consumers, and is typically more expensive for the consumer than dealing with a broker

Here is what some other industry experts had to say about the issue and whether preferred rates may be on their way out and how this may impact consumers:

Lawrence Ian Geller,  President of L.I. Geller Insurance Agencies and Founder of ForAdvisorsOnly.com

lawrence-ian-geller“It certainly saves insurance companies that use it a great deal (as it does with mortgage, creditor and association / affinity sales).

Assume that underwriting a policy with a human underwriter costs $75 – $300 for simple cases.
Assume that underwriting a policy with Automated Underwriting (AI) costs $5 – $15 for simple cases.
Assume that any complicated cases are declined or rated automatically by AI at no increased costs.
Assume that any complicated cases are reviewed for a decision when u/w by a human at an additional cost of $X.

Assume that 2% of all term policies result in claims and that all policies that had been underwritten by AI are then reviewed by a human and that the insurance company’s first position for any potential undisclosed item is to decline or vitiate ab initio.
Assume that only those term policies that result in claims that had been issued in the 24 preceding months are reviewed and that the company’s first position is to honour the claim.

(all assumptions are completely arbitrary)

This may be seen to be alarmist by those insurance companies and Fintech companies that advocate this form of u/w, but from the perspective of a consumer they might be real concerns. After all, people buy insurance so that if their beneficiaries have to claim they are paid without question, not just so that they can pay a premium.

And then there are the Privacy and Big Data Issues associated with AI underwriting, the potential for those databases to be hacked.”

Ben Therrien, Independent Broke with Zoobla Financial

Gone are the days where any little thing could get your policy rated. For having HBP, Diabetes, Cancer history, Heart Attack, Rheumatoid Arthritis, fibromyalgia, DUI, driving infractions, Drug & Alcohol history and mental disorders like anxiety or depression, could get you rated from 50%-400% or even decline.
 
 
 
 
 
Now simplified insurance is available with pricing that NEVER gets rated. For most people with extra risk factors, they can pay far less than a traditional rated policy.
  • Cheaper for people with extra risk factor
  • Approved faster, 1-2 days versus weeks or sometimes months
  • No need to give blood or meet with a nurse
  • Fewer questions
  • Generally a much easier, smoother process to obtain coverage at a reasonable rate.
Less than 2% of the population don’t qualify for some level of simplified insurance. Even these people can get guaranteed insurance if they are 85 or younger.
 
New world, new options, simplified is being appreciated more and more by the healthier applicant who just want a simpler and quicker way to get coverage.
 
Ayal Alalouf, Regional Vice President, Canada Protection Plan
 
We believe that every Canadian is entitled to obtain good coverage at reasonable premiums. With Simplified Issue, the client knows exactly what they are getting in a short turnaround time. And with advanced technology, which is one of Canada Protection Plan’s strategic advantages, we are making it easier for advisors to do business with us via our eApp platform, one of the easiest & simplest in the industry.
 
 
 
 
 
Kaitlin Lindsay, Regional Sales Representative, Humania Assurance
 
The simplified issue market is something that has evolved over the last few years. What we thought was normal is not – this speaks to what Humania Assurance does as a company, I have learned from the great Michael Suska: “just because something has always been done a certain way does not mean we have to do it that way” – Michael is my role model and mentor and I value everything he has taught me as a wholesaler. I cannot speak for many however I can say – we have evolved and changed with the times.
 
 
 
 
Andrew McKeown, Advisor Coach | Insurance Expert | Financial Teacher
 
They will likely continue to disappear as it appears consumers would rather have a smoother underwriting experience and are willing to trade off a bit of pricing to make that happen. If I’m a client and I have to pay a few more dollars a month and I don’t have to do a blood test, I’m probably choosing that option.

Great-West, London and Canada Life are in the process of launching a new faster issue service called Simple Protect that will be rolling out to the market in the next few months and this streamlines the process. You will likely see more and more of this and the trade-off is less underwriting. While there is no change to pricing at the moment, if you are watcher of the industry, you could imagine that the future will be some slightly different pricing for a better client and Advisor experience.

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