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A Simple Take on Simplified Issue

The industry has shown a great deal of interest in simplified issue life insurance over the past few years. We often field questions from member companies asking for the latest news on simplified issue. 
This coverage has features that fill a useful role in an advisor’s toolkit. For those consumers who hesitate when faced with the fully underwritten application process, simplified underwriting may prove valuable. In order to get a snapshot of the products that are currently out there, LIMRA conducted a study called “Simplified Issue Made Simple” (2017), collecting a variety of information from member companies on how they are simplifying their products to appeal to a wider range of consumers.
The concept of a simplified process for buying life insurance is alluring to consumers and producers alike. Consumers trying to buy typical, fully underwritten life insurance must endure visits from medical staff, or send their blood or urine to a company for analysis. Advisors would prefer to use fewer resources while matching products to their clients’ needs. Carriers want to speed up the process to reach more customers while potentially reducing costs. These are a few reasons why simplified issue products fill a valuable niche in the insurance industry, although there are some key ideas to keep in mind when considering these products.
According to LIMRA’s 2017 “Insurance Barometer Study,” “seven in 10 consumers indicate they would be likely to purchase life insurance priced by using data without a physical exam.” Simplified issue products can capture consumers normally turned off by the full underwriting process.
Applying for simplified issue products removes the need for a medical appointment, and the applicant doesn’t face needles or sample cups.
Applications take less time to fill out, too, because simplified issue applications have a limited number of questions — generally four or five are about the applicant’s health and anywhere from zero to 12 about their lifestyle. Seventy-one percent of consumers find this speed and ease of simplified underwriting to be very appealing, the study found.
Carriers do supplement the information they get from the application with other sources, although most products in our study use only two tools: the Medical Information Bureau and prescription databases. This makes it seem as though insurers rely more on the information provided in the application than they do on external data sources, with the exception of prescription information. Every company in our study that asks about prescription drugs in the application also checks prescription databases to confirm that the application’s information is accurate, so it is important to ensure that your clients’ prescription history is complete.

Current Products Face Challenge

For all of the benefits of simplified issue life insurance, current product offerings face some challenges that fully underwritten products are able to avoid. For example, 20 percent of baby boomers suspect that they can’t qualify for fully underwritten life insurance, according to the 2017 “Insurance Barometer Study,” possibly because of their medical history. These consumers may find simplified issue products particularly attractive. This appeal exposes insurers to the risk that more unhealthy people will be able to buy insurance coverage.
Some carriers are now comfortable enough with this risk to provide a fully underwritten alternative, even after an applicant’s disqualification for a simplified issue product. This has its advantages and disadvantages for advisors, because some clients may relish the second chance to buy insurance, and other clients may balk at the higher price tag of a fully underwritten policy.
To manage this risk, most carriers keep the products simple and the amount of coverage they offer low. But that is starting to change. A few companies do offer up to $750,000 in coverage for simplified issue whole life products, and most companies now offer a simplified term or universal life product. Still, whole life policies with coverage at or below $50,000 in face amount account for the majority of simplified issue sales.
Either customers aren’t interested in other products or advisors aren’t selling them. 
Many companies have begun offering simplified issue products in recent years. For these products to grow in popularity, insurance companies must continue to gain comfort with the hazards posed by this underwriting style. After carriers get more claims experience, they may be able to price their simplified issue products more closely to their fully underwritten portfolio. 
Although simplified underwriting is not ready to replace full underwriting for the majority of consumer needs, combining the consumer-friendly process with more modest pricing may open new opportunities to advisors and carriers alike. 

Matthew Rubino is associate analyst, insurance research, LIMRA. Matthew may be contacted at [email protected] .

Kevin Tewksbury is research analyst, insurance research – product, LIMRA. Kevin may be contacted at [email protected] .

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