Every producer envisions writing and delivering a large case. Brokers Clearing House generally considers large cases to be cases with a face amount of $10 million or more or cases with a premium of $100,000 or more.
Many large cases come about because of the relationship between the insurance professional and the client or from the client’s other advisors. It’s not unusual to have centers of influence such as attorneys, certified public accountants or investment advisors involved in the process.
One of the first decisions to be made is how much insurance is needed. You may be the one to determine this based on the individual situation, or the amount may be determined by other advisors. Regardless, it’s your responsibility as the insurance advisor to be able to support the amount.
The amount should be determined by the purpose and the financial facts. Different formulas are applied depending on the purpose of the insurance. All large cases should be accompanied by a detailed cover letter from the insurance advisor. The cover letter should address the purpose of the insurance and an explanation of how the amount was determined. As the amount of coverage increases, so does the need for additional financial and medical information. The in-force life coverage is critical so you know that you are not going over the insurance carrier retention (the face amount they keep) or the jumbo limits (all the applied for and in-force).
Here are some examples of necessary information:
» Personal and family protection – The amount should be based on current income liabilities and age. Take into account the clients’ needs now and in the future (income replacement). A personal financial statement will be necessary.
» Key person coverage – Why is this individual unique to the business? Does the salary reflect the person’s value? What is the value of the business? Stock options and percentage of ownership in addition to salary can be significant when showing a person’s value to a company.
» Buy-sell coverage – A brief explanation of the terms of the formal buy-sell agreement is helpful. How much is the business worth, and what method of valuation was used?
» Estate planning coverage – A personal financial statement is necessary. A corporate financial statement also is necessary if applicable.
» Salary continuation/deferred compensation coverage – Explain the plan specifications used in determining the amount of insurance needed. Are all owners and/or key employees being insured? If not, why not?
Carriers may ask for personal and/or corporate audited financial statements, profit and loss statements, balance sheets, tax returns, and other documents necessary to evaluate the risk.
After the face amount has been generally determined, the next step is where you take this high-profile client. Large cases should not be spreadsheeted other than for an idea of the cost. The carrier with the lowest premium may not have the ability or capacity to underwrite your client. You shouldn’t quote a number up front that may not be deliverable later.
Working with a brokerage general agent with multiple carriers and an in-house underwriting expert is important if you do not have a primary carrier that writes and competently handles large cases. Matching the client to the most suitable carrier is a crucial step. If the case is large enough, more than one carrier may be necessary.
You must manage the client’s expectations by explaining what will be required and how long the process might take. Large cases generally take longer, as the purpose and financial justification can be complex.
It is important to discuss how your client’s health can affect writing the big case. This issue becomes more critical as the case size increases. It also accelerates the mistake of spreadsheeting products and looking for the lowest premium. Getting basic health history is necessary to help point the case in the right direction.
Preliminary information can be obtained by the producer or by the BGA’s underwriter up front. If the client appears to be in great health, the carrier choice will be based primarily on capacity and financial underwriting proficiency.
If, however, the client has a health history that requires expertise in impaired risk underwriting, the carrier choice will be determined by that history, by capacity and by financial underwriting ability. Some brokerage agencies may suggest compiling the medical records first. In certain cases, this may be helpful.
The bottom line is to take a professional approach. Know the purpose of the insurance, get detailed in-force information, visit with your brokerage office or carrier about your case, set client expectations, obtain pertinent health history and never submit multiple formal applications unless it’s part of the plan.
I can’t tell you how many “big cases” get into trouble along the way. Having the right captain at the helm makes a world of difference. When problems arise, you want experience, knowledge and influence on your side. You want to feel confident that your client is getting the best product from the right company. That’s what you get when you work with qualified sources on big cases!