Impaired Risk Review...

Robert Goldstone
April 2018 Issue

Every year Webster’s dictionary approves new entries of words that have become part of the accepted American dialect and language over time and through regular use.  One of those is destined to be “amazonization,” which can have several meanings.  In part, it refers to the complete disruption of commerce and business by the behemoth company Amazon.  In theory, it is the depersonalization of the consumer experience and process in search of the cheapest and easiest alternative in doing business.  Life insurance is unfortunately one of those entities subject to these forces, whether by Amazon or by other methods insurers are now using to amalgamate the process.

Life insurance was a people business, much more so than other purchases and processes.  Whether for the personal interaction of providing protection for survivors and loved ones, or sitting with down with a client to best assess his or her personal or business needs and proceeding from there, the key word was personal.  The process involved a one-on-one interaction and mutual exchange of ideas to best meet the client’s needs, or an interactive discussion of what a policy really meant and what it was protecting.  How much insurance did a person or business entity need discussed by people who knew the business and took the time to know the client. What was a policy guarantee and was it realistic for goals down the road?  What new riders could help a client get value added that would not have occurred during a purchase over the internet?

The questions are being kicked down the road to an eventuality of doing business without people and without contact.  People cost money and a streamlined process can be cheaper.  Spreadsheets on the internet compare bottom line prices, without a minute’s consideration of understanding the person with whom  they are doing business. The bottom line is basically: Can the process be made “easy” and can it be made cheaper.  And without the annoying event of actually having to meet a person to have it done, or making that necessary interaction as brief as possible.   

It’s not just insurance that is being affected.  All these processes making up an ”amazonization” of business by other companies besides Amazon constitute supposed “progress.”  The cellphone is progress, and now people don’t need to get together and see each other.  Netflix is progress, and now the bother of having an interactive experience at the movies is a dying concept.  Texting is progress, so why have to speak to someone in person when a few lines of text with an emoji will do?  And, ironically, this entire concept has spread to underwriting, where a personal process is evolving into a statistical correlation.

In underwriting, both medical and personal, the idea was to paint a picture of the insured and assess individual risk as accurately and as comprehensively as possible.  It may involve a personal exam by a physician, Attending Physician Statements from doctors who know the client best, and requirements that more often than not helped identify preferred risks and separate an uninsurable one from the pricing pool.  A medical director huddled with the underwriter and a complete picture of medical, financial and social combination was obtained.  There was the opportunity for the broker and agent to have input into the process and to share thoughts that often had favorable risk applications and considerations.  Something that couldn’t be obtained from paper applications alone.

Now, however, biostatistics have entered the field in a big way.  In summary, it’s closest to the law of large numbers.  If there are enough applicants with similar characteristics with the same variables inputted, the outcomes will be close enough to allow similar processing with minimal expense.  This includes the cost of looking at each of the facets of a case, decreasing the number of people who would have to do it, and minimizing the paperwork as well as the individualization of each application.  The number of medical directors helping to underwrite cases is markedly decreasing. The restriction of requirements no longer permits the details painting the picture of a risk.  Oftentimes, with newer products, brokers and agents are being told upfront there will be no appeals or interventions, and that the actions are final no matter what the contributing or extenuating circumstances.  Like ordering from Amazon, the process is neat, contained, and with no loose ends.  Financially, it’s a success.  

It’s a success if you know exactly what you want and have no individual circumstances or requests that add to the mix.  A friend told me his daughter needed dog food and was ordering it online from Amazon where it was two dollars cheaper.  The father asked, “What if you needed the dog food now?  Or had a question about the suitability of the food for your dog?” The in-person store that helped her would no longer be in business.  Ditto with books—wanting to read a book or determining its usefulness requires a look at several in order to pick the best one.  Needing that, the daughter went to the Barnes and Noble next to the pet store, only to find it had gone out of business.  Enough said...

The shrinking of the life insurance process into a cheaper, easier, winner-take-all approach completely bypasses the reason that made the field what it is today.  Perhaps a container of milk is close enough in quality and sustenance that it can be bought anywhere, likely where the price is minimal and convenience is maximal.  Life insurance takes into account so many personal aspects of need that the process is a necessary component.  And likewise, risk assessment is personal enough from an underwriting standpoint to need to know who you are insuring and to answer the questions that the client would not even have thought to ask.  The process of loss which life insurance provides for is so much more than dollars and cents and convenience; one only needs to ask someone in the process for confirmation.

Webster’s defines progress as the process of improving or developing something over a period of time.  Losing the personality and the individuality of a process that was developed with exactly those functions in mind in favor of cheaper and easier mass production does not quite meet that definition.  It does however define “amazonization,” a process that hopefully never overtakes the individual consideration in the purchase of life insurance.

Author's Bio
Robert Goldstone, MD, FACE, FLMI
MD, FACE, FLMI, board certified internist and endocrinologist, was most recently vice president and chief medical officer for Pacific Life and Pacific Life and An­nu­ity. He has extensive brokerage and life insurance experience, having been medical director at both MetLife Brokerage and Transamerica Occidental Life. Goldstone is board certified in insurance medicine and the inaugural recipient of the W. John Elder Award for Insurance Medicine Journalism Excellence. He was also honored as a fellow of the prestigious American College of Endo­­­crinology and has written monthly for Broker World since 1991. Goldstone does consulting full or part-time as well as on a fill-in basis for companies who need a medical director/physician. He can be reached by ­telephone at 949-943-2310. Emaill: