Americans Deemed “Too Risky” to Acquire Life Insurance are Getting a Second Look
By Paul Ford
Life insurance ownership across the nation has dropped by 9% in the last decade.(1) As of 2018, it was estimated that 27% of non-elderly adults in the United States had at least one pre-existing condition that would disqualify them from getting life insurance—that’s 53.8 million people.(2) According to NerdWallet, the average minimum life insurance monthly premium is $26. Therefore, that’s up to $1.4 billion dollars insurance companies are losing by not taking a second look at these allegedly at-risk Americans.
“The decline in insurance coverage is partly due to how frustrating the process of obtaining coverage is. Large legacy companies are sticking with outdated insurance technology using actuarial tables that haven’t kept up with changing needs. Those obsolete ways of determining eligibility are part of why a large number of Americans with pre-existing conditions are rejected for life insurance,” says Traffk Co-founder and CEO Paul Ford. “We’ll actually run the data via medical records, pharmacy records and see how this person manages the condition. If we find it’s suppressed and/or very well managed and their vitals are just as normal as anyone else’s, we help them.”
Changes in life expectancy and internet usage means more people need life-insurance but may not be able to access it. Throughout the COVID-19 pandemic people have had to confront their need for mortality protection.(3) Despite the radical changes, society underwent to keep people safely at home, most legacy companies have been stubborn about digitization.
Actuarial tables being used by these older companies are at least 40 to 50 years old, and they aren’t keeping pace with the reality of at-risk insurance enrollment. These outdated methods don’t consider how insurance and public health has changed in that time. It’s a lose-lose situation, with a large swath of the population being unable to access life insurance and tying the hands of agents who otherwise could be making more sales.
Modern, smaller, and better-prepared start-ups are able to utilize InsurTech and digitization to take a new and more streamlined approach. They look at the large number of Americans being shut out of policies and are finding new ways to include them. There are at least 41 million consumers who say they need life insurance, but don’t have it. (4) But these new life insurance companies take it one step further: They put the tool in the hands of the insurance agent. This way, both parties benefit. The neglected consumer has access to life insurance and the agent has a new product to offer, increasing his or her sales opportunities.
Meanwhile, the old legacy companies are losing money and limiting their sales by automatically rejecting many people who want to obtain coverage. They just don’t understand that just because someone has a pre-existing condition, it doesn’t mean they don’t deserve the safety and security of life insurance. The COVID-19 pandemic will likely increase the number of Americans with a variety of pre-existing conditions. It’s possible that insurance companies will consider contracting coronavirus as a pre-existing condition itself. (5) Does this mean that more people will be denied a life insurance policy in the near future?
Another factor making it difficult to acquire life insurance is the process itself. Right now, getting a quote at a legacy life insurance company requires going through a multi-step interview process that is often redundant. Getting a policy requires an interview with an agent. Then oftentimes there’s a second interview with an underwriter who asks all the same questions the agent just did. That kind of redundancy is where a lot of sales are lost. Add to that, the medical examinations and the time it takes the company to decide and you’re looking at a process that is weeks long—and with COVID delays, now it takes many months. New companies reduce redundancy by digitizing the process, meaning more sales in less time because you are creating near-instant life insurance quotes and achieving a decision in less than an hour.
This system of determining someone’s risk based off their age, zip code, and pre-existing conditions isn’t working. People are being left out, and their efforts to manage their own illnesses are being ignored. It isn’t working for the legacy companies whose outdated methods are responsible for lost sales. Smaller products—like New Spectrum Life—are more nimble and ready to give consumers a chance at owning life insurance they couldn’t get before. Denying coverage can no longer be the norm.
“We think about insurance as being dynamic. The name of the game is to just get it in the hands of as many people as possible,” said Ford. “Just grow sales and awareness, help agents make more money, and then listen to their feedback to improve the product.”
NOTES:
1. Newsroom; “2020 Insurance Barometer Study Reveals a Significant Decline in Life Insurance Ownership Over the Past Decade”; 02 June 2020; LIMRA; limra.com/en/newsroom/news-releases/2020/2020-insurance-barometer-study-reveals-a-significant-decline-in-life-insurance-ownership-over-the-past-decade/
2 Claxton, Gary; Cox, Cynthia; Damico, Anthony; Levitt, Larry, and Politz Karen; “Pre-Existing Condition Prevalence for Individuals and Families”; 04 October 2019; Kaiser Family Foundation; kff.org/health-reform/issue-brief/pre-existing-condition-prevalence-for-individuals-and-families
3. Bernard, Pierre-Ignace, Ellingrud, Kweilin, Godsall, Jonathan, Kotanko, Bernhard, and Reich, Andrew, “The future of life insurance: Reimagining the industry for the decade ahead” | 29 September 2020, McKinsey & Company, mckinsey.com/industries/financial-services/our-insights/the-future-of-life-insurance-reimagining-the-industry-for-the-decade-ahead#
4. “Facts + Statistics: Life insurance” |Insurance Information Institute, iii.org/fact-statistic/facts-statistics-life-insurance
5. Schneider, Eric and Shah, Arnav, “Will the Pandemic Increase the Number of Americans with Preexisting Conditions?” | 8 October 2020, The Commonwealth Fund, commonwealthfund.org/blog/2020/pandemic-americans-preexisting-conditions
