When Two Plus Two Equals Zero: Simultaneous Applications and Competing Production Sources

– by DuWayne Kilbo

You’ve met with the clients and their advisors on a few occasions and the time has come to take an application and submit underwriting information to the carriers.  However, what you hear next stops you cold:  “Our son’s friend is also in the business and we want him to shop our application as well to be sure we are getting the best offer and premium available.”


You pause and think.  For several reasons you know that it’s never a good idea to pit production sources against one another with multiple carrier submissions. It can complicate matters and often results in an inferior offer and a higher premium rate class.  Also, in large case situations it may lock out the clients from getting the coverage they want and need.

You ask yourself, how do you dissuade your clients from this course of action? What are the issues with this approach?  Isn’t competition a good thing?

Absolutely, competition is good!  It makes us all work harder to provide unique value for our customers.  However, in the life insurance industry the competitive selection process to obtain the best results and value takes place prior to carrier submission of any applications. And it starts and ends with the producer selection process.

This isn’t necessarily intuitive to our clients or to most anyone outside the life industry.  Why shouldn’t applications be shopped to the same carriers via multiple production sources?

Carrier price and ultimate client value are a function of three things:  1) the stated carrier product pricing, which includes illustrated values and pricing for preferred, standard and other rate classes; 2) the carrier’s product strength and how it aligns with the client’s goals; and, 3) the final negotiated underwriting class.   Thousands of financial professionals work through Brokerage General Agencies (BGAs).  From a carrier’s point of view, the combination of producing agent and BGA is viewed as a single “production source.”  Many BGAs and agents are equal in terms of acquiring and illustrating carrier product pricing. That’s the easy part. However, where BGAs are not equal and where great value is created is in the strength and ability to negotiate the most favorable underwriting rate class.  Certain BGAs – especially those with underwriting expertise “on staff” who can capably interface and negotiate with carrier underwriters – maintain a distinct advantage to provide exceptional offers and ultimate client value.  If an underwriting rate class can be negotiated from an otherwise standard to a preferred, product value can be significantly enhanced.  At times one can achieve 20% or more client value in terms of lower premium payment and/or improved product performance.

You may ask, won’t a carrier simply match offers if an application is submitted to them from more than one source?  The answer is yes, and this is where a potential pitfall lies. If the agent chooses a BGA that has a proven track record of strong underwriting success and negotiation skills and if the client allows the agent to access the insurance market before information is submitted by any other agent, then all is fine–there’s a good chance that the best possible offer will be negotiated.  However, if the information is first submitted to and quoted on by a carrier without benefit of strong hands-on negotiation, then the opportunity for exceptional client value passes—sometimes forever.

Why does this occur?

While the ultimate customer for a life insurance carrier is the insured or policy owner once a policy is issued, during the application process a carrier’s customer is the agent.  In view  of this and for reasons relating to concerns such as channel conflict and avoiding the “appearance” of producer preference, all carriers are very careful about keeping all production sources on a level playing field—especially when it comes to providing underwriting offers on an applicant.  Once an offer is provided, a carrier will not change their underwriting decision unless additional “meaningful” medical information (and in financial situations additional financial detail) is provided that will sway their opinion.  In most cases this hurdle is nearly impossible to overcome.

Because the producer selection process takes place prior to an application being submitted, a critical selection criterion is to choose a production source that has the skill, ability and track record to negotiate the best underwriting offer.  Essentially, the clients and their advisors must employ the agent that has the greatest opportunity for success to take control and submit the application to the insurance marketplace—before anyone else. In large face amount situations, this critical decision-making step can save an applicant tens to hundreds of thousands of dollars during the life of a policy.

In addition to negotiating the best offer in very large case situations, the client must choose an agent who is capable of putting together large total lines of coverage.  This requires a special skill set because these “Jumbo” or extremely large total line cases typically involve several different carriers as well as reinsurance. Many sets of eyes review these situations because of their bottom line impact upon carrier mortality, and several parties weigh in on the ultimate decision to issue coverage and at what price.

Why does this matter?  Can’t one simply buy what they want and need?

Yes, to a degree depending upon case detail and circumstances. However, no matter what is applied for, it must be done right.

There is a limit to the amount of coverage available for any one individual in the U.S. life insurance industry.  Anecdotal evidence for the most favorable cases suggests this to be in $330 to $350 million range, which includes most direct carrier and reinsurance capacity.  This is a significant amount of coverage, but it is very closely monitored for what an applicant may financially qualify based upon carrier underwriting guidelines, and balanced with the amount of available industry capacity.

On the largest applications, beginning in the $30 million plus area, very few carriers have the ability to retain all the risk on their own books – nor do they want to.  All carriers, including both small and large retention companies, don’t like and can’t afford quarterly mortality hiccups caused by large claims. To help manage these situations, coverage is spread out to reinsurers.  This allows the carriers to diversify their large face amount risks and smooths any mortality spikes that may occur.

So putting together the large total line case requires keen insight into what the insurance market can deliver in terms of offers and capacity.  If done right, an applicant may achieve the greatest amount of coverage they may qualify for (capped by industry capacity) and at the best rates possible.

So what does a producer need to know to successfully deliver optimal value in the large case market?

There are two things to be familiar with. The first is case control.  In the large case market, application control is critical.  This involves choosing a BGA that has the skill and ability to control the entire application process for all carriers before any applications are submitted.  Because of the complexity involved, this is no small task.

Large total line case submission requires a clear understanding of what is being applied for and with which carriers. The carriers and their reinsurers get extremely uneasy about situations where there are competing agents and applications and where the potential for case control appears compromised.  Their nervousness stems from the fact that more coverage may be issued than anticipated, with the potential for financial underwriting guidelines to be breached and/or carrier and reinsurance retention and automatic limits exceeded.  Neither of these situations is good and may cause a carrier to refuse to underwrite an applicant altogether.  Some of these situations may be unwound to the point where the carriers may once again be willing to consider a risk, but they take an inordinate amount of time and effort and often the end result is not as favorable as it could have been if handled properly at the outset.  In order to combat this situation, there needs to be complete clarity and understanding of what’s being applied for, and control must rest in the hands of a single production source with the skill and ability to manage the entire process.

The second thing to know is how to maximize capacity at the best rates possible.  As mentioned earlier, this involves having the ability to negotiate the best possible rates.  However, this also requires choosing a BGA with the knowledge and insight into carrier products, and having experience and proficiency in the areas of carrier underwriting niches, retention, automatic reinsurance limits, super pools, Jumbo limits and reinsurance relationships.  Since most carriers have a Jumbo limit of $65 million, one of the keys to any case above this amount is to negotiate the best possible offers with all carriers and then understand how to stack and order coverage to be placed.  This may require engagement from the carriers on how much they may consider given the offer provided and any limitations they may have.  Again, this is an involved and iterative process that is best left for experts.

So what should we tell the clients and their advisor when they want to bring multiple producers into the application process?

  • Competition is good.  However, competition to achieve the best possible results should begin and end with the producer selection process—prior to any applications being submitted.
  • Simultaneously submitting applications through multiple sources often has a deleterious effect and results in inferior offers, greater premiums and ultimately lower client value.
  • In large total line case submissions, the ability to control the application process is critical.  One production source must be in charge to manage the entire application and underwriting process.  This is required to negotiate the most favorable offers, maximize available coverage, and prevent carrier uncertainty about total line to be placed.
  • The critical decision point is to pick a production source partner that has the skill, ability and proven track record to drive the best results for you.

The Conversion Quandary

– By Marc Schwartz

Term life insurance sales in the US consistently represent about 70% of the total death benefit bought by consumers every year, according to the Insurance Information Institute.  And for many of those buyers, the provision to convert their term insurance into permanent life insurance somewhere down the line represents an important option.  But according to several leading term insurers, less than 5% of term life policyholders ever take advantage of this option, and those who do often are motivated by deteriorating health.  Because these clients have a mortality risk of about five times normal for their age, life insurance companies have dabbled with creating limitations on conversion options (limited time frames to convert, restricted product choices, lower maximum ages) to decrease the impact of anti-selection on pricing and margins.  Understandably, these same insurers need to balance these limitations so as not to impact sales significantly.  So what’s a company to do?

Looking for the solution of the maze

Among efforts to solve this conversion quandary, there are currently three primary camps.  First are the “wait and see” or “no change” carriers.  These carriers continue to offer conversions for the full level term period to any permanent product currently available for sale up to a maximum conversion age.  Second are the “hybrid” carriers, companies that limit the conversion in some additional way.  They might allow conversion to any permanent product currently available for sale, but only for a limited number of years — then require a conversion only product.  They may also offer a buy up option (higher price) allowing the policy owner to convert for the full level term period (up to a maximum conversion age) to any permanent product.  Third are the “conversion product only” carriers.  These carriers restrict  conversions to a specific product.

At present, most carriers continue to allow their full suite of products for conversion throughout the entire level term period.  One carrier even allows conversion beyond the level term period when annual rate adjustments occur.  However, with the spotlight on mortality as a major driver of carrier profitably today and the possibility for significant excess, underpriced mortality, a number of carriers will choose more restrictive conversion practices, such as “hybrid” or “conversion only” options.  Lastly, you might think that current term policy owners are unaffected by this issue, because their conversion provisions are contractually locked in.  But that’s not the case.  Term policy contract language typically allows the insurer to change or modify its current conversion practices even for in force blocks of term policies.

It isn’t easy to sort all this out and explain it to your prospects and clients.  Windsor’s Term Conversion Quick Guide can help you sort through the term conversion practices of various major life insurance companies, to see which best fit your clients and fairly compensate you for your time, effort and professional advice.

To learn more or to discuss specific cases and clients, call Windsor at 800.410.9890.