Life Insurance
Reaching the Uninsurables

• Jeff Roberts
• June 2019
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Key Points

• A New Market: Life insurers are now targeting the growing segment of people living with chronic conditions, especially diabetes, viewing them as an underserved market.
• New Paradigm: The embrace of those with chronic illnesses dovetails with the industry’s paradigm shift toward building interactive partnerships with customers to help them proactively manage their health.
• Reaching Out: Insurers are using direct marketing, partnerships with nonprofits and even discounts to reach those potential customers.

The nightmare began with a rejection and an unsettling conversation.

It only got worse from there.

As a financial adviser, Robert Schmidt thought he understood the risk he posed to life insurers.

He has Type 2 diabetes, diagnosed in 2010. And he has a history of cardiac issues. But he changed his diet and lifestyle in the two years since suffering a heart attack, expecting expensive premiums, not a decline, when he applied.

Then the harsh reality hit. Schmidt consulted with a specialist after he was denied coverage and was told that initial decline would not be his last.

He was uninsurable.

The Kansas resident would be rejected by 21 different companies in all in a year-long ordeal.

“They're telling us the same thing: 'Don't even bother. Don't waste your time,'” said Matt Schmidt, Robert's son, who took over the dogged search. It took 11 months to find a carrier willing to cover Robert, now 77.

“It was almost a decline automatically with everyone across the board. And that's when you think, 'How many other people have gone through a similar experience as us?'”

But the industry's view of people with chronic conditions has evolved since Robert Schmidt's disheartening experience nine years ago.

Some insurers are actively targeting the growing segment of customers they once did not want, especially those with diabetes. They see them as an underserved, and even largely untapped, market.

“It's a growth opportunity,” said Swiss Re's

JJ Carroll, a senior vice president and head of its new solutions group. “People aren't buying insurance today.

“We have to look at things a little bit differently in order to close the protection gap.”

Medical advances have improved the management of chronic illness, and therefore, the relative mortality of several conditions. Those breakthroughs are allowing insurers to offer coverage to many more people.

And underwriting has evolved among some carriers thanks to big data, analytics and artificial intelligence. They are providing enhanced insight and risk stratification within chronic disease, resulting in greater accuracy, mitigation of excess mortality and potentially lower rates.

But the biggest driver is stagnating industry sales trends. An expanding market is emerging in the millions of people who once were regarded as uninsurable or high risk.

People with diabetes. Multiple sclerosis. Chronic obstructive pulmonary disease. Even HIV and cancers.

A recent internal survey of clients by the Reinsurance Group of America “identified globally a high interest in offerings that target impaired lives,” according to RGA's Dr. Dave Rengachary, senior vice president, U.S. mortality markets and chief medical director.

“Individuals with diseases that were once thought to be beyond the reach of insurance are now in many instances able to get coverage,” he said. “Chronic myeloid leukemia and HIV are just a few examples of disease states where we have seen remarkable improvements in mortality.”

The embrace of those consumers dovetails with the industry's paradigm shift toward building relationships with customers to help them proactively manage their health.

Carriers now seek to be partners in their wellness and longevity—an ideal match for those with chronic conditions.

Insurers are offering reduced rates and other incentives to customers who share real-time data as proof they are managing their illnesses. Carriers hope it lowers their risk of developing serious complications. Companies are using direct marketing, partnerships with nonprofit groups and discounts to reach those with chronic illnesses—many of whom don't realize they're eligible for affordable coverage.

A handful of insurers such as RGA, Swiss Re and Protective Life and Health IQ have designed or are developing innovative products specifically for this segment.

Like John Hancock and its Vitality wellness program, they seek to leverage data and shared value to serve as risk advisers, helping customers manage their health—and by extension, their premiums.

“With the stagnant growth rate in life insurance, we have to change the equation to access that population,” Carroll said.

A Global Opportunity

The potential market is a vast one.

After all, more than 30 million Americans—nearly 10% of the U.S. population—have diabetes. However, only 2.6% of insurance applicants have the condition, Carroll said.

That is a huge discrepancy.

And more than one-in-three American adults—84 million—are prediabetic, according to the Centers for Disease Control and Prevention. But it's not just an American problem.

Globally, more than 422 million adults are living with diabetes. The condition directly led to 1.6 million deaths in 2016 and is a leading cause of heart disease, stroke, blindness, kidney failure and lower-limb amputations.

Those statistics are rising dramatically, part of an epidemic of so-called lifestyle illnesses rooted in poor diets and sedentary habits.

“Companies are realizing how many people have diabetes, not just in the United States but worldwide,” said Matt Schmidt, who founded a life insurance agency specializing in serving the diabetes community after his father's experience. “This is a huge population in need of life insurance. And the companies that are going to understand the true risk that a person with diabetes poses are the ones who are going to get this business.

“This is a large market and not one that can be ignored any longer.”

Of course, life insurers face a complex task in covering consumers with chronic illnesses. One misjudgment in assessing risk decades into the future could cost them $500,000 or more.

They need to operate with caution, especially when other comorbid conditions are involved.

“Life insurers get one bite at the apple in pricing a risk,” said Brooks Tingle, John Hancock Insurance's president and chief executive officer. “That risk factor is baked into the price.”

But carriers are getting more precise.

Even people with HIV have been able to obtain life policies in the past four years, provided their conditions are well-managed and they have minimal comorbidities, according to Dr. Daniel Zimmerman, senior vice president and global support team chief medical director at RGA.

Options exist for about 90% of those with diabetes, Matt Schmidt estimates.

“In my eight short years in the industry, life insurance companies have come leaps and bounds, especially for people with Type 1 diabetes,” he said. “Companies are starting to get it. You went from barely being able to find coverage eight years ago to now companies are offering some discounted rates.”

But some industry insiders contend misplaced consumer fear—of rejection and high premiums—is the biggest issue, not accessibility. There is a significant segment of those with chronic illnesses who would qualify for insurance, but aren't buying it.

“There is a growing recognition of the business opportunities in dispelling these myths,” RGA's Rengachary said.

It all contributes to a $25 trillion U.S. mortality protection gap, according to Swiss Re.

“You have a huge population that isn't even considering your product,” Carroll said. “If you think of all the frictions that exist for the average person, for somebody who's already nervous about applying, it's just that much greater of a hurdle.”

The Underserved

This is personal for Matt Schmidt.

He helped guide his father's frustrating search for coverage as part of his estate planning. And the 38-year-old husband and father of two has since been diagnosed with diabetes himself.

After his father's experience, Matt dropped his financial adviser practice, and in 2012 they co-founded Diabetes Life Solutions. The online-based agency specializes in life insurance for those with the condition.

Although Matt has long been licensed to sell life cover, it wasn't his specialty. Now it's his vocation.

“This did completely change my career path,” he said. “This is all I do now because of our personal experience, and we knew that others had gone through it.”

Many of Schmidt's customers found their way to him after they were declined by a carrier.

“Once our first website went live, one of the first things everyone said was, 'I've been declined so many times,'” Schmidt said. “I'm sure some people get so frustrated they say, 'The heck with it. I'm done.'”

Coverage can be hard to find without a knowledgeable agent navigating the process. And premiums remain cost-prohibitive for many people.

Some carriers have become more flexible in their assessment of people with diabetes, Tingle said. But progressive underwriting can be found only in pockets and is not an industrywide trend, he added.

“The headline is it's a large and growing segment of the U.S. population that our industry has not served well at all,” Tingle said. “The industry has not done a good enough job reaching that community and serving them more proactively.”

A 2017 nationwide survey by John Hancock found almost half of Americans living with diabetes (47%) are worried they won't qualify for life insurance. Nearly as many (45%) assume it will be too expensive.

Yet, more than 90% of those with diabetes who sought coverage from the company in a recent 18-month period qualified, and 88% received a standard or better rate, according to the carrier.

“There absolutely is a category of solutions that's available to them,” Tingle said. “But they do need to shop.”

Others view deficiencies in products and distribution as major obstacles.

Many advisers are “frequently hesitant to proactively sell to diabetics” given the difficulty in finding coverage that meets their needs, Carroll said.

And working with agents who do not specialize in complex cases such as chronic illnesses can result in declines or cost-prohibitive rates. Some even offer unrealistically low teaser quotes to attract consumers, which can backfire.

“I call it a bait-and-switch quote—which happens quite a bit,” Matt Schmidt said. “They're not going to get that low a price. And they become more skeptical of life agents as a whole and maybe pull the plug on the entire thing.”

'A Win-Win'

Innovation could be one solution.

Tools such as continuous glucose monitors, advanced insulin delivery systems and even commercial wearables like the Apple Watch are changing how diabetes is controlled, improving applicants' coverage opportunities.

People with Type 1 and Type 2 diabetes in average to above-average health also can qualify for no-exam products from multiple companies.

Although premiums might be 15% to 20% higher, accelerated underwriting options tend to be more lenient and can be even cheaper than traditional products for diabetics, Schmidt said.

However, as larger numbers of healthy applicants are funneled through accelerated programs, expertise in underwriting “impaired lives” will only grow in importance for the industry.

“Diabetes, asthma, and epilepsy are particular disease states emerging as some of the best candidates for improved outcomes through real-time health monitoring,” RGA's Rengachary said. “Underwriting will need to evolve in order to leverage the risk prediction afforded by these tools.”

Big data, predictive analytics, artificial intelligence and machine learning already provide meaningful insights into risk.

Besides common biomarkers such as blood glucose levels, newer prescription scoring models can divulge the type of medication customers use as well as the consistency of use. And medical claims data can reveal complications.

But the biggest shift comes in simply helping customers control their conditions.

Management is often the difference between good and poor outcomes. A 2018 paper in The New England Journal of Medicine found that the risk of mortality for Type 2 diabetics improperly managing their condition increases by 299%, while the risk for those controlling it increases by only 15%.

It is why incentivized wellness is a driving force in many new initiatives, especially for those with chronic illnesses. Insurers are offering apps, digital logbooks, online medical consultation, lifestyle planning and even diet and exercise intervention.

“The intent and driver is to benefit both the consumer and insurer,” RGA's Zimmerman said.

The consumer gets improved health and longevity and more competitively priced premiums. The insurer gets more predictable and manageable claims.

RGA offers diabetes-specific coverage throughout the world, but primarily in the Asia-Pacific region, where it is focused on “complications and outcomes,” said Dr. Paul Davis, chief medical officer, RGA Australia.

South African-based insurtech AllLife sells coverage to those with HIV and diabetes. It adjusts premiums based on how well customers manage their health and provides guidance to help them do so.

Protective Life Insurance and Health IQ collaborated to launch a product in November for Type 2 diabetics, offering lower rates for those who manage their condition and live a healthy lifestyle.

Swiss Re also plans to connect engagement with health and financial wellness.

It is developing coverage that would continuously monitor five “modifiable risks”—blood pressure, cholesterol, body mass index, blood glucose levels and smoking status. It then would reward those who improve their metrics by reducing their premiums.

The reinsurer hopes to find partners and bring the product to market by year's end.

John Hancock has partnered with the American Diabetes Association and management platform company One Drop to reach that community.

It continues to leverage its Vitality product—now in its fourth year—rewarding customers for exercise, proper nutrition and doctor visits. The company raised the annual premium discount to up to 20% for those initially given substandard rates.

“The concept is most powerful for folks living with chronic diseases,” Tingle said. “They're paying more at the outset, and part of what they're paying is the uncertainty whether they're going to continue managing the condition. It's a win-win.” It is just one of the many options that weren't available to Robert Schmidt when he was shopping for coverage. But the industry is evolving. “It's really not Wilford Brimley and the old diabetes commercial anymore,” Matt Schmidt said. “Tell me any other chronic disease where a person tends to exercise, has to watch every single thing they eat, check their blood sugar regularly and see doctors every three months?”