Art or science? A bit of both. And as medical protocols, outcomes and technology evolve, it changes.
Mortality or Morbidity
Today, underwriting mortality, a calculation of when you will die, for life insurance can be very precise. It has been around for centuries. The first known policies date back to 1583 in England. And life insurance is definitive. We are all going to die. Given where one was born, family health history, lifestyle and other factors, actuaries and underwriters can be pretty predictive about mortality. I will call this science, given all the data available.
However, underwriting morbidity, a prediction of illness, for long-term care insurance is more challenging today.
Depending on the product design, morbidity may involve all the mortality factors, along with figuring out:
- Who will get sick?
- What the illness will be?
- How serious the illness will be?
- How long will it last?
Not to mention a number of other factors. I will call predicting morbidity science and art.
Complicating the challenge is that you might be one of the lucky 30% of Americans aged 65 and older who never need assistance.
Take my 102-year-old father for example. In July, he traveled from Dallas to Jackson Hole for his annual river rafting trip with his great-grandchildren. And in August, he died of natural causes. Dad had two LTCI policies. He never used either. One of the lucky 30%. But he was well prepared.
Yes, there are underwriting guides for life, health and disability insurance, but underwriting morbidity is challenging. And changing.
We frequently consult with financial advisors and consumers alike who assume a person is uninsurable.
Usually, this relates to a spouse. The uninsurable individual has had cancer, a heart attack, has a pacemaker, diabetes, depression, etc. All these medical conditions can be insurable depending on stage and grade, severity, onset, treatment and so forth.
In the early days of long-term care insurance, carrier underwriters looked at functional ability. The old applications are indeed insightful as to the lack of knowledge about underwriting morbidity.
Today, underwriting is much more sophisticated. And the primary reason for long-term care insurance claims is cognitive impairment. A cognitive skills exam is now part of the underwriting process for applicants aged 60 or 65 and older, depending on the carrier.
We tend to experience waves of adverse selection. Meaning? People who know they will need assistance as they age due to medical conditions want to secure LTCI.
Years ago, we designed a health history questionnaire to determine as best we could where we had the best opportunity to place a policy given the potential applicant’s health history. The questionnaire is detailed and provides the information we need to conduct underwriting prescreening consultations with carrier underwriters.
Decades ago, we might have conducted consultations for about 10% of our clients. Today, it is 90%. Adverse selection? Maybe. Most of our clients are older. More have medical conditions. And underwriting has changed.
And if you still don’t qualify for long-term care insurance coverage? We have a solution for clients who are uninsurable but not receiving assistance. It can be a significant funding option for long-term care services.