Impending death of the life insurance medical exam

Peeing in a cup, giving blood samples, getting blood pressure checked and stepping on the scale were once unavoidable (and often dreaded) parts of applying for life insurance. But data services and technology are gradually replacing the life insurance medical exam.

Today insurers can learn about you from loads of instantly available information — from the medicine you take to your motor vehicle record — and use algorithms to quickly predict life expectancy.

As more data becomes available and the systems get smarter, insurers will be able to issue more policies without requiring medical exams.

“In the next 10 years we are going to see that requirement go away … for most people,” says Elliott Wallace, vice president and general manager of life insurance for LexisNexis Risk Solutions, an analytics company.

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Quick and easy

With a process called accelerated underwriting used by some companies, young and healthy applicants can qualify for up to $1 million of term life insurance without a medical exam and get a policy within minutes of applying online.

Here’s how it works:

• You answer questions about your health and your family’s health history.
• The company, with your permission, pulls instantly available data, such as your motor vehicle record, your prescription drug history and certain information from previous individual life and health insurance applications.
• The automated system uses algorithms to decide if you qualify and at what price.

» MORE:Where to find online instant-approval term life insurance

These companies haven’t eliminated medical exams for everybody. For example, if you have a health condition such as high blood pressure, you’ll probably have to take a medical exam. With Haven Life and Ladder, the policy goes into effect immediately after you apply and the price is adjusted, if necessary, after the exam results are in. With SoFi, the coverage goes into effect after the exam.

Ladder CEO Jamie Hale says most people in his company’s target market of ages 28 to 42 can qualify without an exam.

Haven Life co-founder and CEO Yaron Ben-Zvi says his company likely will be able to eliminate the requirement for more applicants as time goes on. More data and artificial intelligence will make the automated decision-making system smarter, he says.

These accelerated policies are different from the small-amount, pricey, no-exam policies that have been around for decades. Insurers have to charge more and offer less coverage on those because little data or medical information is used.

Concerns about transparency

If you find the idea of insurers mining data unsettling, you're not alone.

Consumer advocate Birny Birnbaum, executive director of the Center for Economic Justice, says the process for pricing insurance should be transparent, rather than a black-box decision-making model that only insurers understand.

“We’re at a fork in the road, and we’re headed down the road for less transparency because insurance regulators have been slow to address these issues,” he says. “We think regulators should be collecting and surveying the types of data insurers are using and make that public.”

Wisconsin Commissioner of Insurance Ted Nickel says regulators have stepped up efforts to better understand and embrace technology innovation.

 “We aim to safeguard consumer protection and needs while also encouraging innovative solutions,” he says. Nickel is president of the National Association of Insurance Commissioners.

Why eliminate medical exams

Insurance companies, which pay for the exams, want to rely on them less so they can sell more policies and save money.

“A lot of people don’t want to meet with an agent in person, let alone take a medical exam,” Hale says.

The waiting time from applying for insurance to getting a policy is typically at least a few weeks if an exam is required. The longer it takes, the less likely an applicant will actually buy, says Robert Kerzner, president and CEO of LIMRA, an industry trade and research group.

LIMRA estimates that 48 percent of U.S. households don’t have enough life insurance. The coverage gap averages $200,000 per household, totaling $12 trillion, the group says.

Never before has the life insurance industry focused so much effort on speeding up the application and approval process, Kerzner says.

Buying life insurance will get faster as more of your personal information, such as medical records, becomes available digitally in a form life insurers can use. Insurers will also start using accelerated underwriting for more policies, including whole life insurance, Wallace says.

MORE:

A Guide to Who Needs Life Insurance

The Best Life Insurance Companies

The Differences Between Term and Whole Life Insurance

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: bmarquand@nerdwallet.com. Twitter:@barbaramarquand.

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