Underwriting Challenges for the Older Age Client
Posted on July 19, 2010 in Underwriting - Risk Differentiation
It is estimated that by the year 2030, 51 million of us, or about 19% of the population, will be older than 65. Of that, approximately 7.5 – 10 million will at some point seek out financial professionals for help with life insurance planning. Those who have had the privilege to lead long, interesting lives have, invariably, acquired a few scrapes and bumps along the way. The use of traditional underwriting methods can result in misleading risk assessments, and thus lost business opportunities. These types of cases require special handling and, we believe, deserve this kind of consideration. It takes a unique approach and should only be trusted with those companies who recognize the tremendous opportunity this particular market presents.
We’ll look into what challenges we face when taking on elderly clients, and what can be done to overcome those obstacles in order to provide life insurance protection for your clients and their families.
Senior Moments- Cognitive Challenges
Perhaps the most potentially problematic issue facing this age group has to do with cognitive challenges. Memory loss has long been recognized as a common symptom of aging. We’ve all forgotten the name of a recent acquaintance or what’s on the shopping list, but it certainly seems to be more common as we age. What used to be referred to as “senior moments” are now starting to be considered more serious, pathological occurrences by the medical community, and possibly indicative of a disease process. The threshold most physicians use to make this judgment is whether memory loss has progressed to such an extent that normal independent function is impossible; for instance, if patients can no longer successfully manage their finances or basic needs. This degree of cognitive impairment has come to be referred to as dementia.
Similarly, older individuals may complain of memory problems, but can nonetheless manage to independently accomplish all of their customary tasks. Usually, their ability to function relatively well is based on compensation for these difficulties, such as increased reliance on calendars, reminder notes, or lists. In some cases, these relatively minor challenges can still be indicative that worsening memory loss is on the horizon.
Because of the subtle nature of these symptoms, it’s important that physicians clearly distinguish between what they think are important warning signs, versus a more benign aging process. Until recently, doctors were not able to provide any specific information concerning the significance of these complaints, or what they mean for the future. However, in the last few years, there has been a substantial increase in the number of clinical research studies focusing on patients with these complaints. Although much more work needs to be done, the characterization of this problem and its outcome is much better now than in the past. In order to diffuse the issue, an underwriter must be reassured that nothing progressive is taking place.
Dementia, A Bigger Problem
In contrast to those intermittent “senior moments,” dementia is a progressive loss of intellectual ability such that it interferes with social and/or occupational functioning. It’s important to understand that “dementia” is a descriptive term, not a specific disease or condition, with dozens of pathophysiologic causes. Because dementia is seen in the context of so many different conditions, it is one of the most common findings encountered by neurologists who see adult patients.
Dementia can manifest itself due to a variety of medical conditions, such as uremia, vitamin deficiencies, toxins, and perhaps most importantly, depression. Many of these causes are treatable. Thus, the diagnosis of “dementia” does not necessarily have dire prognostic implications. Causality needs to be determined before an underwriter can perform an effective risk assessment.
The magnitude of the problem is amplified in a rapidly increasing over-age 65 population in the United States. If life expectancy continues to rise, and the mean age of onset of dementia does not, some authors have projected that about 45% of the population will develop dementia at some point during their lives. It has been known for some time that those with dementia, even a mild impairment, have shorter life expectancies. New research shows that the average survival time is about four and a half years, although the specific characteristics associated with mortality have not been well understood.
Given the statistics, it is not surprising that life insurance carriers are starting to require cognitive testing for proposed insureds aged 70 and older.
Cognitive Testing
In an effort to detect potential deficits, it has become more common for insurance companies to include cognitive testing as part of the routine exam requirements for older applicants. There are literally dozens of tests that can be classified as “cognitive exams.” The most commonly used exams are the Delayed Word Recall, Clock Drawing Test, Chair Rise Test, and the Daily Activities Questionnaire. In the Delayed Word Recall Test, an individual is told a series of words, which the client immediately repeats and uses in a sentence. The insured then recites back the words from memory at a later time, typically 10-15 minutes. In the Clock Drawing Test, subjects are given a sheet of paper with a large circle, and are asked to draw the hands on a clock face to reflect a certain time. The Chair Rise Test records the amount of time it takes for the client to walk across the room, and then back to the chair. All are designed to demonstrate the client’s ability to respond to commands, understand and carry them out effectively, and determine overall mental clarity. Perhaps most telling is the Daily Activities Questionnaire, which best provides a more in-depth explanation of how the client’s life moves day by day. The questions might involve exercise habits, finances, hobbies, and various other responsibilities which can demonstrate a healthy participation with everyday life. There is strong evidence that shows that more social seniors tend to be healthier and thus generally exhibit better mortality.
From a Marketing Perspective
Lately there has been a lot of discussion in the news about the “graying of America,” a trend caused by aging Baby Boomers and the shrinking size of the nuclear family. This trend is pushing up the median age of individuals in the United States. It should not be surprising then, that the average age of life insurance applicants is also increasing.
The good news is that as the median age in the United States increases, life expectancy also continues to increase. Therefore, companies have adjusted the upper thresholds associated with their products. As little as ten years ago, it was common to find that upper age limits on products were set at 65 or 70. Today, companies now accept multi-million dollar applications from individuals of 75, 80 or even 90 years old.
Implications are numerous. But from a marketing perspective, it is important to acknowledge that insurers are attempting to service a growing segment of the community, a segment that has amassed – it is hoped – substantial assets for protection. In essence, life insurers are merely going to where their customers are moving.
How Underwriting is Changing
Life insurance carriers are exploring various techniques in order to develop an optimal underwriting process for older applicants. It’s important to understand that there is no one underwriting philosophy that is accepted by all, or even most, insurance companies. Some underwriters and medical directors may feel that the status quo is appropriate, perhaps with some slight tweaking of the parameters. Others may use these emerging cognitive tests as the way toward a more accurate and appropriate risk assessment for seniors. Many still fall somewhere in between, recommending a combination of the old with the new.
Companies are addressing these underwriting challenges through myriad ways: some are readjusting acceptable test results for the most common lab tests; many use more generous weight charts; others are still investigating the value of cognitive or functional tests. The bottom line is that a general consensus on the ideal approach is still some time off. I suspect that as time moves on, older-age parameters will be fleshed out to be more inclusive, as research becomes more developed and we understand it better on a medical level.
The Opportunity
The older-age market is becoming an increasingly attractive applicant pool for life insurers and producers. Carriers hope that the growth rate of this segment assures future sales opportunities. However, profitably selling life insurance products to this market has its challenges. Traditional underwriting, the front-line defense in an insurance company’s risk assessment, loses some of its effectiveness for this age group, particularly when it comes to preferred risks. We have to urge carriers to recognize this market as unique and profitable, and execute intelligent wealth management strategies so that the business goes to those companies where older clients are valued.
Written By:
Robert Denny
Senior Underwriter
858-444-3120
rdenny@cbiz.com
Kim Davis
Associate Underwriter
858-444-3104
kimdavis@cbiz.com