Evolution or Revolution

Evolution or Revolution
•Fazal
Wadud, AVP Underwriting
Kim Montgomery, Sales Director
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Agenda – Trends in underwriting
Demographics – changing
Economics – changing
Reinsurance – changing
Service – changing – case study
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Demographics
Epidemic of obesity in North America
Obesity diabetes epidemic
Diabetes epidemic cardiovascular diseases
3
Stroke, heart attacks
Cholesterol, glucose, blood pressure, sleep apnea
Mortality rates improved
Economics
Companies have changed their focus – Profitability driven
ROI – return on investment
Impacts:
Reinsurance
Mergers and acquisitions
4
Need to reinsure more risk
Little flexibility or underwriter discretion
Consolidation to acquire a larger market share
Few players, less capacity
In simple terms
What does it all mean?
More questions?
5
1990 Canadian life insurance companies
Companies A to H
Abbey Life Insurance Company
Colonia Life Insurance Company
Aeterna-Vie
Commercial Union Life Assurance
Aetna Life Insurance Co.
Confederation Life Insurance
Aetna Life Insurance of Canada
Co-operators Life Insurance Company
Allstate Life Insurance
Crown Life Insurance Company
Allstate Life of Canada
Empire Life Insurance Company
American Life Insurance Company
Equitable Life of Canada
L’Assomption Mutuelle
L’Excellence, Compagnie d’assurance-vie
Assurance-Vie Desjardins
Financial Life of Canada
Canada Life Assurance Company
Gerling Global Life
Canada General Life
Great-West Life Assurance Company
Cigna Life Insurance of Canada
Hartford Life Insurance Company
Citadel Life Assurance Company
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1990 Canadian life insurance companies
Companies I to N
Imperial Life Assurance Company
Metropolitan Life of Canada
Industrial – Alliance Life
Mutual Life of New York
IOF
Mutual of Omaha Insurance Company
La Laurentienne Vie
National Life of Canada
Laurier Life Insurance Company
NN Financial
Life Insurance Company of N.A.
New York Life Insurance Company
London Life Insurance Company
New York Life of Canada
Lutheran Life of Canada
North American Life Assurance
Manufacturers Life Insurance Co.
North West Life Assurance
Maritime Life Insurance Company
Norwich Union Life Insurance
Metropolitan Life Insurance Company
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1990 Canadian life insurance companies
Companies P to Z
Paul Revere Life Insurance Company
Sun Life Assurance
Pioneer Life Assurance
La Survivance Mutuelle
Province Unies Assurances
Toronto Mutual Life Insurance
Prudential Assurance Gr.
Transamerica Life of Canada
Prudential Insurance Company
Transamerica Occidental
Reliable Life Insurance Company
Travellers Insurance Company
Royal Life Canada
L’Union Canadienne Assurance – Vie
La Sauvegarde, cie d'ass sur la vie
L’Union – Vie Mutuelle
Seaboard Life
Unum Life Insurance
Solidarité Cie D’Assurance
Wawanesa Mutual Life Insurance
Sovereign Life Insurance
Westbury Life Insurance
Standard Life Assurance Company
Western Life Assurance
Sun Alliance & London (Canada)
Zurich Life Insurance of Canada
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2006 – 2011 Canadian life insurance companies
AIG Life of Canada
Manulife Financial
L’Assomption Mutuelle
IOF (Foresters)
AXA Assurances Inc.
MD Life
BMO Life
RBC Life Insurance Company
Canadian Premier Life Insurance Company
Reliable Life Insurance Company
Cigna Life Insurance of Canada
Scotia Life
Co-operators Life Insurance
Standard Life of Canada
CUMIS
Sun Life
Desjardins Financial Security
La Survivance Mutuelle
Empire Life Insurance Company
TD Life
Equitable Life of Canada
Transamerica
L’Excellence, Cie d’assurance-vie
Union du Canada
Great West Life
Union Vie Mutuelle
Industrial Alliance
Unity Life
Faith Financial
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1990 Reinsurers
13 companies :
BMA (Business Men Assurance)
Canadian Re (Swiss Re)
Cologne Re
Crown Re
ERC Re
General Re
Gerling Global (Revios Re)
Lincoln National
Mercantile & General
National Re (RGA Re)
Munich Re
St-Lawrence Re (Optimum Re)
Storebrand
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2006 – 2011 Reinsurers
6 companies:
Munich Re
Optimum Re
RGA Re
SCOR Re / (Revios)
Swiss Re
Aurigen
…Conséquences…
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Reinsurance impacts
So if I understand:
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Fewer reinsurers
Pricing rates – preferred, etc
Fight for market share – capacity
Less risk to assume by the companies
Changes in reinsurance agreements
Account audit – claim review
Why consider the reinsurers?
Asset-liability management:
New business financing
Capital cost reduction –
corporations seek return on equity
(ROE)
Enhanced profits
More aggressive pricing
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e.g., mortality rates improvement
Mortality rate improvement is generally good for
life insurance products…
If clients live longer:
More premiums are paid
Death benefit is paid later
More profitable
Irène can you explain some example of exceptions:
Large percentage of face amount reinsured
Reinsured amount is level
Reinsurance rate higher than mortality statistics
Improved mortality = increased liabilities
Less profitable
Life annuities…a different story
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Reinsurance approaches – Overview
Base
Reinsurance
ART
Reinsurance
Structure
Share
Reinsurers
Choice
100% to one
reinsurer
or
or
or
% to several
reinsurers
or
Coinsurance
Share of
surplus
Alphabetical
share
% per life
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Other reinsurance aspects
Please explain:
Retention
“Shopping”
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Retention
Over 70% of new business face amount is reinsured
2005 new business on first dollar Q/S reinsurance
Average Retention
Preferred
Non-Preferred
Term
14%
23%
UL Level COI
27%
21%
UL ART COI
27%
16%
Whole Life Participating Insurance
N/A
20%
Other Permanent Insurance
38%
13%
Source: Munich Re’s 2005 Pricing Survey.
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The effect of “shopping” optional reinsurance
Study completed by TLC
Why “shopping”?
Is it worth the cost and delays?
Shopping risks?
Results:
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All declined cases were also
declined
50% TLC had a better offer
50% reinsurer had a better decision
What does all this mean?
Different underwriting reality
Less flexibility
More requirements
Less capacity overall
Less underwriting diversity among
underwriters and insurance
companies
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Actuarial, selection and reinsurance
Selection controls three key elements in pricing:
Risks quality:
Good selection at better mortality/morbidity
Good experience at lower reinsurance costs
Good judgment at appropriate premium
An effective selection reduces the cost price:
Ordering too many tests is expensive and causes delays
Ordering even more reduces the investment rate and increases the unit cost
Credibility and consistency:
Following the selection and actuarial guidelines is critical
Good habits reduce reinsurance costs
Exceptions without the support of the reinsurers is too expensive, and we
can’t afford them
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Now let’s review our typical cases…
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Case study #1
T10 – $750,000
Male, 55, non-smoker
Build : 5’ 8”/202 lbs.
Blood pressure Tx.
Cholesterol Tx.
No driving while under influence (DWI), two speeding
tickets (in 2009 and 2011)
Family history: father died of an infarct at age 60
Smoking: quit two years ago
Finance: Businessman – income: $75,000
A svelte preferred risk?
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Case study #1 – Call from broker to obtain some
tips to present to his client (Alain)
Avoid strenuous exercise before
paramedical exam
Do not smoke prior to the exam
Recommended to drink water
Blood test on an empty stomach,
if possible
Details, details, details and more
details
How can I help?
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Case study #1
Results received – Para/blood profile
Blood Profile
Male, 55
GGT (a liver enzyme) elevated
at 185 (normal to 65),
cholesterol 206
Build: 5’ 8” / 298 lbs
Blood pressure: 150/95
Cholesterol 206, ratio 6.5
Driving record: no driving history
ECG
Widespread minor T wave
changes consistent with mild
ischemia
Family history: mother died from stroke at 59,
father died from infarct following a stroke at
age 60
Non-smoker
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Case study #1
Underwriter’s dilemma:
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Case appears to be rateable 150 –175%
for cardiac risk profile (family history,
cholesterol, build and BP)
ECG is abnormal
Is the APS requested?
Large case
Shop for reinsurers or don’t shop?
Is the alcohol questionnaire requested?
Case study #1 – Discussion with broker
A good underwriter indicates
options instead of dictating the
course of events
“Here is what we have, and here are
some of the things we could do.”
Under PIPEDA, the underwriter is
under some constraints as to what
he/she can disclose to the advisor
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Case study #1
Underwriter’s recommendation:
Face amount as requested
(i.e., with no APS) with 200%
rating without reinsurance
With a favourable APS, rating could
be 150%
With a favourable APS and a
favourable current stress test at the
client’s/provincial health’s expense,
could be borderline standard
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Case study #2
Angela, 39, non-smoker
UL face amount: $2,800,000
Investor
Income: $160,000
Net worth: $2,000,000
No insurance in force
Premium $80,000
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Case study #2
Results received and discussion with broker
Build 5’ 6”/145 lbs
Good BP 120/85
No cholesterol problem: ratio 5.2
No driving history
Family history: in good health
Urine test positive for nicotine
Tips/questions:
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What do her assets consist of?
Statement of investment income
Where does the premium come from?
What about her smoker status declaration?
Study case #2
Response from broker
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Angela immigrated to Canada with her son as an investor
Asset amount declared to Canada Immigration = $4,000,000; funds already
wired to Canada $2,000,000. Market value of her home $750,000.
Insurance coverage is necessary for income replacement, personal needs and
investment
Spouse still lives and works in China. Spouse is the manager of an
industrial company
Angela lives off her investment income from China – formerly a bank
manager. ‘07 income $80,000, ‘08 income $90,000. Canadian net worth
$800,000.
Exception request for non-smoker rates:
1 cigarette on rare occasions only < 3 cigarettes in the last year
Does not smoke cigars, marijuana or anything else (does not even inhale
when used). Only had a couple of puffs during a celebration last year.
Retest?
Investors & immigration;
Smoker vs. non = smoker
The Canadian Immigrant Investor Program
states that investors must
Show that they have business experience
Have a minimum net worth of $800,000 that
was obtained legally
Make a C$400,000 investment
Consider the value of Canadian assets, final
expenses and her young son
For case #2, we offer the requested coverage
at smoker rates
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Case study #3
Julien, male, 13 years old, $1,000,000
Family is shareholder of a holding company
Julien has an existing coverage : $50,000
Broker note – his mother owns a chain of fast
food restaurants. Her income is $1,300,000
Father owns another chain of restaurants
and has a life insurance policy of $3,000,000
in force
They have 7 children, ages 13-25
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Case study #3 – Broker’s explanations
Family net worth is $10,000,000
Insurance objective: savings plan
Parents want to purchase an
insurance policy on the life of their
children. However, an additional
$1,000,000 on Julien is necessary,
as he is the only son (cultural issue)
total coverage of $2,000,000.
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Case study #3
Broker confirms through third party:
Disclosure of information related to
the financial affairs of the mother
Accountant confirms that he was
named trustee to manage the
property bequeathed to the children
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Case study #3
We completed an in-house search on all family members
and had information on both parents. We were
comfortable that their businesses were profitable and all
siblings were being treated equally, except for the request
for the additional $1,000,000 on the life of their son.
We requested an APS, medical exam, HOS and a copy of
the final illustration to ensure this policy is not a minimum
funded UL
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Case study #3
We felt $1,000,000 should be sufficient and that Julien
should be treated in an equitable manner with his sisters
We would also consider this case if the premiums paid on
all children were the same amounts, though the face
amounts would be different. This is still considered
equitable treatment.
The face amounts should not be rounded up, but should
be an odd number
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Children’s insurance
Amounts must be consistent with total family income and net
worth
Parents’ insurance needs should be covered first
All children must be treated equitably
Cover letters and illustrations must be obtained should the face
amount be $1,000,000 and more
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Case study #4
Mario, 61
Face amount: $4,000,000
Farmer
Reported income for tax purposes:
$40,000
Farm value $5,000,000
Loan of $3,000,000 with his credit union
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Case study #4
$4,300,000 business insurance in
force, no replacement
Has 4 children
Based on 2010 financial statements:
Net income before tax
(NIBT):
$1,241,686
Retained earnings:
$1,912,759
Shareholder’s equity:
$2,422,029
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Case study #4
Broker’s financial justification:
Son Jake will inherit the farm valued
at $4,000,000. He has played a key role on the farm for several
years
Farm’s FMV is $7,000,000
Insurance is required for his 3 daughters for estate equalization
at $1,300,000 each
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Case study #4
Thank you for all these explications and justifications, to date all
seem in order
But there is a comment to get an additional policy to increase
the face amount to $5,000,000 – a new FMV calculation was
completed which showed the farm is now worth $6,000,000
Would you approve the additional $1,000,000?
What should we do?
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Case study #4
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At $4,000,000, his 3 daughters will each inherit $1,300,000
If face amount increased to $5,000,000, each daughter will inherit
$1,600,000
Did the FMV change due to the current state of the economy?
What will be the total amount in force?
What further explanation can we provide?
Estate equalization
Treat all inheritors equitably if not equally
Three options:
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Provide alternative estate assets of equal value
Insure parents for an amount equal to family business
Establish a buy/sell agreement among all siblings funded by
insurance
Case study #5 – Driving offense and risk
Male 28, smoker
Term 20 – Face Amount: $750,000 – mechanic
DWI: in 2005 and 2006, 3-year suspension, 3 days in a treatment centre,
driver’s licence recovered in 2009
One trip each year to Israel, for one month
2001 to 2006: 48 beers/week, 1 bottle of wine/week
Currently, 1 to 2 beers/day and 2 to 3 glasses of wine on weekends
Moved from the country to the city. Is married, has one child and another on
the way within 5 months. Owner with his father-in-law of the family business.
Never wanted to drink seriously, it was a youthful mistake and an error of
judgment. This is why he willingly went to the treatment centre to get his
driver’s licence back.
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Case study #5 – Driving offense and risk
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Blood Profil: normal.
Balance of the file: no medical history.
Myth : Underwriters don’t understand that everyone does some kind of
speeding while driving and only a small number of people get caught.
Reality : Underwriters understand that the risk of accident increase while
speeding and the majority of motor vehicle accident is a major cause of death
in North America.
Stastitics are showing that people with the greater risk of motor vehicle
accident are :
Male 30 yrs old or less;
People doing other avocation sports or lifestyle;
People with less experience;
People that tend to drive after drinking;
The kind of offence also is an indicator of the risk of accident;
DWI is one of the greatest risk.
Case study #5 – Driving related problems
To evaluate the automobile driving with no other risk factors:
Each offence is assigned a point system according to the Motor Vehicle Report and is measured
on the type of offence and the time elapsed since the offence. The total points will determine the
decision: either an extra premium, regular rate or postponement.
The client’s complete risk must be considered
Participation in a risky sport activity will have a negative impact on the
overall risk
The breathalyzer test resulted in paying particular attention to alcohol use
Generally, speeding tickets or minor offenses (3 – 4) with no other risk will be
considered standard
Several breathalyzer test – will be considered non-insurable risk if the last
offense happened within 2 years
Alcohol use and abnormal liver function could also be considered as a decline
or postponement
What is the decision?
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Case study #6
Yves, 52, capital $2,500,000
This client submitted an application on
three occasions, which were declined, as
he owned a strip club as one of his
businesses
All of his other businesses were hotels
In the current application, it was noted
that he sold his nightclub in 2005
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Case study #6 – Broker’s explanations
The applicant is involved in his church as a religious leader and
is very active in fundraising for local charities
Fair market value of his investment company: $7,000,000
Net income before tax in 2007: $800,000
He owns 50% of the investment company
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Detailed breakdown of the companies that he currently owns and
his ownership
He is President and CEO of all except for one
No criminal history
Case study # 6
Explanation and additional proofs
He declared one driving infraction, which
the MVR confirmed
POI: Loan coverage from his credit union
to purchase another reputable hotel
He was replacing the same amount as
applied for
JNW $20,000,000
Unable to contact the corporate lawyer to
determine if there were any court decisions
against him or his companies
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Case study #6 – Third party proof
Name of his business partner and financial statements for all of
his companies, as well as a draft copy of the loan from the
credit union, were provided. Confirms loan amount of
$5,000,000 and insurance was required on each partner
He also provided T1s for his spouse and himself; their income
is $400,000 each
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Case study #6 – Additional proofs
A list of all the properties that he ever owned was provided, as
well as the market value for each
All properties were owned by him and either a family member
(all names provided) or the business partner
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And you? What would you do with this case?
Moral hazards
Moral hazards are generally declined due to lifestyle and
possible medical risks
Caution is advised when the risk involves organized crime,
even a very long time ago
Would you counter-offer for a reduced face amount or just
decline?
Is it worthwhile to issue with a rating or flat extra on these types
of risks?
Should moral hazard cases be shopped?
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Moral hazard – Underwriting
For case #6:
We proceeded to check his statements on each application for the
consistency of his answers
We also completed Internet searches on all parties involved, all
companies and the credit union
There was a newspaper article on someone with the same name as his
business partner who was trafficking counterfeit designer clothing. The
RCMP was involved.
What would you do?
What do you think the company did?
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TIPS…
How can we accelerate the underwriting process?
Do you follow this process?
Did the broker provide a cover letter detailing:
The purpose of the insurance
The calculation of the amount
The deposit source
The concept used
Was a presentation done at the time of sale? If so, is it attached to the
application?
Is the client aware of all requirements?
Was a new business cover letter submitted?
Was the case submitted to another insurer?
What is the logic supporting the insurance application?
Explanation of relevant details according to the client history
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What did we learn?
Trends – obesity, diabetes, coronary disease, attending
physician statements, mortality rates increase
Fewer companies, increased competition, fewer reinsurers…
they all want to maximize return of their capital
Cover letters, how to present your case
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Conclusion
A good underwriter will tell you as much as he or she can about a case
A good underwriter will give you options instead of instructions
When you find a good underwriter, develop a close relationship –
a relationship built on two-way trust will make both your lives easier!
Our sales team can help you!
Here’s what we offer you!
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Three key elements to be considered when
recommending TLC to your clients
Service
Underwriting
Communication
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Partners
THANK YOU FOR YOUR BUSINESS!
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FOR ADVISOR USE ONLY
The information contained herein is intended for advisors as general information only and is compiled from sources believed to be
reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the presentation
and/or commentaries and/or expressed Transamerica Life Canada are subject to change without notice and are provided in good
faith without legal responsibility. This presentation and comments are (i) not intended to provide specific financial, tax, insurance,
investment, legal or accounting advice and should not be relied upon in that regard, (ii) may be the opinion(s) of an individual only and
are not necessarily those of Transamerica Life Canada and/or their affiliates, and (iii) do not constitute a specific offer to buy and/or
sell insurance. You should not act or rely on this information without seeking the advice of a professional. Transamerica Life Canada
and its affiliates cannot guarantee the accuracy or completeness of information presented and accept no responsibility for any loss
arising from any use of or reliance on such information.
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