“Resolved: Underwriters Must Be Increasingly Prudent In Their …"

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I have been part of many panels before many an audience over my four decades in the life and health insurance business. Usually a panelist is constrained from being controversial or opinionated by the ground rules laid down by either the moderator or the organization running the event. Traditionally from my recollections there have been very few meetings of underwriters where the panel is controversial, meaningful fun and leaves the audience with a message to think about. 

In 1994 George Brennan, one of a large crop of Canadian iconic underwriters who played a large role in all associations, put together a great panel (personally speaking and from memories of audience feedback) that really got the juices flowing and left many a valid point to ponder for the audience. George let the four panelists do their own thing and he did not encumber the spoken word or the venom so playfully thrown around.

The other notable feature of the panel presentation was the fact it was and is timeless really. The issues raised remain to a large degree although items like insurers selling (really exchanging policies) insurance in shopping malls as rates plummeted are over. Also the battle to reduce requirements was won over a slow and hopefully methodical period. 

I believe it is a good read for todays risk takers to understand how much has changed in 18 years but at the same time how little has changed, especially in terms of underwriting stature and relations with producers, advisors, marketeers and perhaps even management. 

It is long but a quick speed read!

Institute of Home Office Underwriters

1994 Annual General Meeting

“Resolved: Underwriters Must Be Increasingly Prudent In Their Decisions If Future Mortality And Profitability Goals Are To Be Met “

“The Third Session of the Administrative Management Session of the 58th

Annual Meeting of the Institute of Home Office Underwriters convened in the

Grand Ballroom 7 of the Marriott World Center Hotel, Orlando, Florida,

Tuesday morning, November 8, 1994,  and was called to order at 11 ·00 o’clock a.m.

by Mr. George Brennan.

Mr. GEORGE BRENNAN: Good morning. everyone. If you missed the First Session. my name is George Brennan. and it’s my pleasure to welcome you to the final session of the Administrative Management Program. For our last session we are going to do something a little different. We are going to have a debate, and the resolution we will be debating is, “Resolved: Underwriters Must be Increasingly Prudent in Their Decisions If future

Mortality)’ and Profitability Goals are to be Met.”

Now. two of our panel members this morning will argue in favor of this resolution. and the other two will oppose it and will present arguments, that we’ve become rather risk averse in our zeal to increase profits.

Now. the format we will be following is that both sides will present their opening arguments. Each individual will have ten minutes and only ten minutes. The two panel members arguing in favor will go first, followed by the two opposing. Following that. we will have a rebuttal from each side. five minutes each. and this time in reverse order. Opposing first, in favor second. And finally. we ‘II have a brief summation from each side summarizing their argument.

Now allow me to introduce our debaters. First, arguing in favor of the  resolution and on my immediate right is Ross Morton. Ross wears many hats, but his major hat is that he is executive vice president of lntercedent Actuaries and Consultants Limited. That’s a relatively new role for Ross,. He was previously reassurance vice president at Manulife Financial. Ross is a frequent speaker and has many accomplishments, including being past chairman of the CIU and past chairman of the Canadian Reassurance Conference.

Also arguing in favor of the resolution and sitting next to Ross is Jerry Tamura. Jerry is vice president. Administrative Services, London Pacific Life and Annuity Company. He holds both fFLMI and FALU designations. He also has many accomplishments. He’s past president of the Western Home Office Underwriters Association and a past Executive Committee member of the Institute.

Sitting next to Jerry and arguing against the resolution is Arlette Mooney. Arlette is the director of underwriting for Metropolitan L1fe. I believe that’s a recent promotion, so congratulation Arlette. She holds her FLMI designation and she has an MBA degree from New York University. She recently completed a two-year term on the Executive Council of HOLL A.

And finally. on my far right. and also arguing against the resolution is Mitchell Schepps. Mitchell is assistant vice president and regional marketing director for Cologne Life Reinsurance Company. Previously he was an actuarial assistant involved in reinsurance pricing at Cologne. I guess he saw that there was more fun involved in marketing than in actuarial Science. Mitchell earned his bachelor of science degree in mathematics from the State University of NewYork at Albany.

That completes the introductions. and I’ll now turn it over to Ross. who will begin the debate. So have fun.


MR ROSS A. MORTON: Somewhere I’ve got 27 slides buried in here. Here we go. The timer’s started. I’ve used ten seconds. George originally told me I had 30 minutes, so I had 30 slides. George edited some of my slides out, and I’m going to have a hell of a time getting through all the rest of my slides.

Basically we’re here today to prove that prudent underwriting is very important to the success of any company. and prudent underwriting does not mean conservative underwriting. and prudent underwriting does not mean stupid underwriting. And we’ve had both of those in the past, and that’s why some companies are in trouble.

Companies get in trouble for a lot of reasons: and. basically they revolve around lapses, investments. expenses and mortality. We’ve got lots of examples of companies who have had bad lapses. In Canada we have products that if they lapse too fast. we’re in trouble: if they lapse too slow we’re in trouble. So actuaries have designed a product where we can’t win.

I don’t have to talk about investments. Everybody knows that there’s lots of real estate out there for sale. especially by Canadian companies.

Expenses. we all know. If you spend too much money you could lose money to the bottom line.

And then there is mortality. We haven’t had too much of a problem in our industry yet: but, since it’s the last thing on the list that hasn’t been hit, it’s bound to be hit soon.

Now that we’re into the subject of prudent underwriting in the area where it’s really necessary. we have to look back to reinsurers and what happened to them when they did not have prudent underwriting. They got into trouble, and a lot of them had to pull up stakes and move on. Some had to pull in their horns and become very conservative. And these people, these creatures of liberalism became the creatures of conservatism.

Prudent underwriting is an integral part of our industry’s future.

Steve Ratcliffe, in 1982, made this statement in a Bests’s article, and since you can all read it, I won’t read it, other than I’ll paraphrase it. What he said is, there has to be some reason behind our rates today. There has to be some margin. We need some conservatism. We need some prudence to meet the goals that have been set for us.

Here’s an example that Steve used, and he said it’s okay to use today. This is basically a company, a billion dollars worth of term insurance, and this company actually ran into some problems with its mortality going about ten percent over expected. You can see that by year 5 when it was supposed to be showing a profit, because of a slight deterioration in underwriting, it’s still showing a loss. This company never made money in this block of business. There was no prudent underwriting to match the aggressive pricing.

Since there’s nobody paying attention to building fatter margins into any of our products today, it’s very important that our industry have prudent risk selection.

Now we get into deviation, not sexual but financial. In this type of deviation – it’s not as much fun as the sexual deviation, and we can take all this stuff standard – basically a scenario, well if you have a hundred people expected to die in a year and they’re all insured for a hundred thousand dollars, your claims are going to be $10 million, and your actuary looks like a hero.

But we all know in reality that even with a company that had this perfect actuarial model office, there could be some deviation. But the deviation doesn’t hurt much. Even a 20 percent error in your underwriting will only cost a couple of million dollars more.

But in the real world that actuaries often forget, a hundred people are insured for different amounts, and in reality, they could have amounts between $50, 000 and $300,000. The average is still a hundred thousand, but if all the people with $50,000 die or a hundred, you’re going to get claims for $5 million. On the other hand, if all the big cases die, you’ve got $30 million. You can bet that if it’s $30 million and the actuary expected it was only $10 million, some underwriter is walking the street, never the actuary.

Prudence in underwriting management is very necessary. Now, this slide was written on my way back from China, thus he lack of an “r” in very. Prudence includes managing retained business. This is very important. It’s part of the underwriter’s job. You have to manage your retention.

And since I consult to reinsurers, I can only state that you should be giving more business to reinsurers.

Argument Number 3, large amount claims. I am not going to spend a lot of time on this. We all know that they can really cause fluctuation. Look at the Society of Actuaries’ large, really big study – and this, the “really big”, was defined by underwriters, so its over a million dollars. Look at the $5 million category on slide #5, even by numbers of deaths in Column 1988-1989 you were well over a hundred percent when it comes to actual numbers of people dying.

Now, that’s not too bad. There’s only two places you’ve got some problems. But if you go to the real  world of what does it mean in amount. take a look at the $5 million plus category’ of slide 6. There wasn’t much prudent underwriting to produce the results in 1988. 1989 through ’91. And through that whole period. the ratio on amount was 101 percent of expected

Now. expected here is not really a hundred percent. but for those who want Step 1 in actuarial science, put 101 over 72 percent. and the result is the real actual to expected.

Again. graphically you can see that the big case market outperformed the numbers of regular claims by amounts of claims m any of the other categories here.

Actuaries have a different idea of big. Their idea of big is over $50.000. and they haven’t updated that since 1928. But we shouldn’t fault them. I mean it’s our job to sort of look after the house while they set the pricing.

Basically, if you go through the different time periods. ’53 to ’58. ’58 to ’63. etcetera, you can see that there was improvement in mortality in the various age categories. But if you take a look at the last study, and the actuaries again are 11 years out of date here, ’78 to ’83, the mortality on medically examined business deteriorated even on cases over $50.000, not just $5 million and up.

So today. since pricing in most companies is based on about 72 percent of the ’75-’80 basic table, and some companies have experienced well over 300 percent on the jumbo cases, prudent large case underwriting is very much needed in the risk selection process and retention management for the thin prices that are out there today. You can’t ignore the Jumbo market, and the results it has on the bottom line.

Now, George edited my first Argument Number 4 slide. and for those who want to see it later, I’ll show it to you. It would have won this thing hands down. We all could have gone out to lunch and prepared ourselves’ for ice cream cones.

But basically. if you look at mortality. which every one says is improving over the period of time, it really isn’t improving as fast as everyone had thought in the period ’69 to ’78. Because there was great improvement in those years. three percent a year, everybody started to price with levels of one, one and a half. or two percent improvement forever. (One percent. one and a half percent.) Because the numbers were showing a three percent improvement.

But what happened, and nobody talks about it, is the period ’78 to ’87. the improvement was only 1.3 percent. If your actuarial friends were pricing with a one percent improvement. you’re still okay, but for those of you who were working probably with aggressive pricing. i.e. a two percent improvement. you· re in big troubles.

Canadian figures are not sort of impressive to put m a graph. but they do point out that basically as far back as ’77 to ’79, there was a 2.8 percent improvement in medically examined mortality m Canada. and that trend continued right through to the late 80’s, when in “87-88 through “91-“92. the last available data- Canadian actuaries are pushed more by underwriters to get their statistics out early- boy. am I ever running out of time- basically there·s a deterioration of 1. 7 percent.

So you’ve got to be prudent. You guys and gals, two terms I’m not supposed to use. but they’re real. you have to be more prudent if you’re going to meet the pricing standards your companies set. And we all know what happens. and my last argument with that is. if something goes wrong in the early years. who pays the price? It’s all the underwriters. I mean, we get clobbered.

Early mortality is bad. Early mortality can be bad. Basically you look at 1988, 1991. and the whole period “87 to “91 on large cases, first year duration mortality was tremendously bad. Remember, expected mortality in this period was 72 percent.

Prudent underwriting. You have to eliminate the early claims. Life-style underwriting is very important. Those who have gotten on the ball with life-style underwriting have improved it tremendously.

Prudent underwriting? It’s necessary. It’s the key to future success. It’s the key to minimizing deviation. It”s the key to retention management. It’s the key to mortality improvement, keeping up with your actuaries. It’s also the key to early actual expected success.

And prudent underwriting, last but not least, keeps us in the business of life insurance. Thank you very much.

Jerry, it’s all yours. I made it. (Applause)


MR. JERRY T. TAMURA : Thank you. Ross.

I’d like to welcome all of you to today”s debate. It was supposed to be friendly, but I don’t have any friends so therefore that eliminates that. I will have no slides. so pay attention to our opponents. That”s a diversion.

I appreciate Ross’s professionalism. because he brings to the platform a great degree of that.

To our worthy opponents, good luck. You’ll need it.

George asked for some humor. and my opponents quickly replied. “Well. we’ve got Jerry. He”s the biggest joke we know.” I take offense to that.

This is my national flag. It’s Goofy. If anybody saw me out in the reception last night l was wearing Dopey.

But anyway. more controversy. This is what George asked for also, controversy. And what did the) say? Let”s say this about that. In spite of the popular belief that my opponents have. my green card is valid, and their phone call to the Immigration and Naturalization Service just is not going to work today. So you’re going to have to work for this debate. More controversy? We are all required to turn in our presentations before this meeting. Well, I turned in a presentation, but it isn’t the one I’m giving today. (Laughter) There you go. Mitch.

Risk prudence for successful future mortality and profitability goals. Perspective of a small company. That’s where I’m coming from. And you might want to say I’m presenting a lillie different slant on things.

The definition of prudence could never be so important. Webster: The ability to govern and discipline oneself by use of reason. shrewdness in the management of affairs, skill and good judgment in the use of resources, caution as to danger or risk. As defined by someone else other than me. and this is the Japanese philosopher, Gung Ho: Prudence, be careful of one’s own interest and providing for the future.

In a small company. is one’s own interest the well-being of the company? Poor risk selection could lead to immediate disaster. You’re also trying to provide for the future, and that is very, very paramount. If you want to be a player in the years to come, you must exercise sound judgment today, and I reference Mr. Liddy’s presentation yesterday as our keynote speaker.

Also, if anybody is interested. continued employment may also be a critical factor. It all makes sense. and I don’t think there’s anyone here who can argue the principle. However, it is easier said than done. The small company is fighting for a piece of the marketplace. They wan! to be competitive, progressive and yet careful. Th1s in itself is a dichotomy. Careful equates to conservative, noncompetitive, defensive and even inaction. Yet we want the opposite effect.

This is where the professional risk selector can make the difference. Prudence doesn’t have to equate with conservative or the traditional stereotype of the green eyeshade, non socially adaptable persona of an underwriter.

Prudence can be better defined as being able to make intelligent informed decisions. How is this done? You first have to understand the pricing mechanisms. understand the marketing mechanism, understand the real elements of risk selection and utilization of systems.

First of all, let’s talk about pricing. Yes. this does require talking to an actuary, if that’s possible. Understand what went into the development of the product, understand what kind of mortality was priced for. Did the actuary build you any mortality latitude? You don’t want to put a semi preferred person into a preferred category. Something will happen that you will not like.

If they did price some mortality latitude in there. how much? Also. make sure that you understand what that variance is. If that variance is enough, just how much latitude docs that allow you?! How aggressive can you be in your rating process’.’ If there is no latitude, you’d better understand this and make sure you don’t cut tables just because. If you do, you have just repriced the product, and the results may be disastrous.

Understanding pricing also allows you to provide a better explanation to the angry agent who just doesn’t understand. Once again. I reference Mr. Liddy’s presentation yesterday about professional communication. l11is is where it comes to the forefront. If you understand the pricing mechanism, your explanations will be informed. and you will present them with a solid foundation.

After all, if an agent wants more lenient underwriting. perhaps you can negotiate with him. Is he willing to sacrifice his commissions? We have a fixed pie dilemma in this arena. There’s only so much to go around. If you want something from one place. something else has to give.

But let’s understand the marketing and the marketplace. You’d better join forces with your marketing organization so you understand the game plan. By doing this, you can go into a pro-active approach to selling the risk selection process, get in front of a producer. But don’t preach, don’t tell him that he has to do this or he has to do that. Rather, explain. He is much more receptive to give and take of intellectual information than he is to preaching. And diffuse the common complaints.

Be up front with your underwriting practices. and don’t play this mysterious art form game, for all along we’ve always felt that our profession is an art form. Well. that’s fine and good. but the agent just doesn’t give a rip. Explain it to him, because if you don’t, then he’ll see through it like a cheap suit. Professional agents will understand logic. They will applaud frankness and welcome a cooperative environment. It’s a joint venture. No one including the agent, can go it alone.

You need to understand your risk selection process. Service can more than offset agents· objections. Bad service results in more damage than a conservative rating. Bad service just starts the landslide of complaints. Evaluate your risk selection process.

Are your procedures streamlined to avoid wasted motion? Do you really need all the requirements you think you need? Can you still make the same intelligent decision with less information’? Don’t forget, our job is still risk selection.

Underwriters suffer from informatiOn paralysis or overload. I call it analysis paralysis. Ask an underwriter if they would like more information, and the first reaction is, “Sure! I’ll take a look at it.” But what’s it going to buy you? Ask the question. Even if I do get more information, so what? Will it change your decision.

We talked and we heard this morning about utilization of systems. To an underwriter. that’s a dirty word. But systems have made many of the traditional underwriting skills archaic. Systems are now more affordable, more accurate and never out Sick. except in a power failure. Even MIB is offering manual on-line codes. Say the magic word, pledge your firstborn, and voila, you can decode your own MIBs. Make the decision-making process more consistent  Systems allow you lo remember all those rules that you’d have try and put up here. Why bother? Put it in the system. They never forget.

Eliminate the underwriters from having to deal with the mundane and concentrate on the important elements, and that’s risk selection.

These are just four of the areas that will allow you to be prudent without being a prude. We all know that careful is better. don’t we? However. because of the marketplace and demands and forces that influence the work that we do. we have and must continue to seek alternative ways to make sure we are effective and efficient m our decision-making process.

Risk selection is a funnel. The underwriter has all the various sources of input, actuarial, marketing competition, medical technology. ad infinitum. From this input, he must digest, analyze, scrutinize and otherwise filter out what is relevant and what is not. Out of the bottom of the funnel comes the end result: a prudent. accurate, competitive and timely decision, because once again., risk prudence is the intelligent informed decision making.

Thank you very much. Arlette.  (Applause)


MS. ARLETTE M. MOONEY Good morning. everybody. Ross and Jerry are a very hard act to follow, not. (Laughter)

What is the cost of prudence? Have you noticed lately how everyone wants to be involved in the risk selection process? Everyone wants to be an underwriter. Consumer advocates. regulatory groups, governmental groups, litigators, legislators. judicial committees. We are in a regulator) consumer environment. which views life insurance as an entitlement.

That banner is being raised by our civil rights activists, our public rights activists, our women’s rights activists, our genetic rights activists, our politically correct activists. To combat these activists of all sorts, we’ve got to get back to basics.

What are these basics? Well, the basics are putting business on the books. The majority at standard for a reasonable premium. If we’re going to survive as an industry and as underwriters, we’re going to have to turn our industry’s poor image around amid a climate of public skepticism. We need to take a risk. We need to be better at placing more business, more quickly at standard

At issue is the whole fairness of the risk classification system. We all know and have experienced a growing pressure to justify the process of risk selection. Traditional arguments about fair versus unfair discrimination are falling with greater and greater frequency on deaf ears. If I have to tell you all about myself. and if I don’t qualify for insurance at your best rates. then I’ve been subjected to unfair discrimination.

For decades. we’ve been legislated against discriminations on the basis of certain basic characteristics such as: race. religion, color, national origin, age and sex. To these we must now add domestic violence. breast cancer. medical impairments of all sorts. even genetic makeup. The risk classification system must be shown to be built on sound actuarial principles or to be directly related to actual and reasonable anticipated experience.

We have to take a pro-active interest in educating the general public, the insurance buying population, activists of all groups, producers and underwriters on the merits of risk selection. And then we have to ensure that we take a risk to put business on the books, make a decision without going after that very last bit of information, you know. the one you asked for just to avoid making that decision in the first place?

Mindless approval of all applicants without proper development is hardly an acceptable or profitable solution, and not one that we advocate. But we do have to identify opportunities to reduce, rather than increase the number of requirements we get; to reduce. rather than increase the number of barriers to putting business on the books.

We cannot be over selective without making our laboratories, our paramedical vendors, our consumer reporting associates rich. We cannot be over selective without adding days, possibly weeks to our time service. We cannot be over selective without encouraging those activist groups l mentioned before to heap further pressures on the unfairness of our risk classification system, our underwriting process. We cannot be over selective without discouraging our producers and our clients.

Have you studied your fallout rate lately, your “not-takens”, your first -year lapses? We cannot be over selective without spending and losing a lot of money. We cannot be over selective without losing the confidence of our producers and our clients, particularly those producers and clients in the more affluent marketplace, which equals lost sales, lost producers and lost customers.

How much risk should your company take? You’ve got to take a reasonable risk, but you’ve got to be yes-oriented. You’ve got to be open-minded. Achieve a balance between the necessary and the unnecessary. You’ve got to make your underwriting relevant to your company’s philosophy. but you’ve got to influence your company’s philosophy.

We underwriters are the professionals who underwrite the risk on a daily basis. We know what impairments need current analysis. We know where our products need more margins. We know how to qualify more clients at preferred. So we must cultivate our actuaries. We must participate in product development, influence our marketing strategies. We must let our voices be heard.

It is not enough to know what your actuary has priced for. You must influence your pricing actuary. work with him or her for the good, the growth and the profitability of the company.

The same is true of your marketing associates. Set the stage to create a culture and climate that is risk sensitive. Balance the need for requirements with product design. Raise your sights and your requirement levels with an eye to increase sales. Show your actuaries how increased sales increase in force and improve revenues.

You’ve got to know your producer. Set quality standards and measure your producers. Build your reward system that encourage~ the producer to provide full disclosure on the application and take ownership of the underwriting process. Then you can successfully reduce the number of requirements that you ask for, issue faster, improve your mortality, improve your producer quality, while reducing requirements. We must be alert to opportunities to reduce our requirements.

Don’t forget, we are in the business to pay claims, just not too early. Classifying your risk with fewer requirements starts your revenue stream that much earlier. Thank you.(Applause)


MR. MITCHELL SCHEPPS: Good morning and thank you for inviting me to be here today. As George said, I need to let you know 1 am not an underwriter. I am in marketing and sales at Cologne Life Re, and even worse, I used to be in actuarial work.

Someone once told me that by me moving from the actuarial field to marketing, I was actually increasing the intelligence of both groups of people. One’s discipline, however, is of no consequence in this morning’s debate.

At the Cologne Life Re, we like to say that everyone is in marketing, as it’s everybody’s job to find new ways to reinsure more business profitably. A case can also be made that everyone is also an underwriter, and that most of our employees continually make decisions involving risk every day.

Investment professionals make investment decisions daily based on information available at the time. As cash flows into an insurance company, it is imperative to quickly invest it, as there is pressure to hit aggressive rates of return. Product development actuaries typically do not have the luxury of extensive market or experience studies relative to new product, as the market opportunity may be long gone by the time he or she is confident that the pricing assumptions they’re using are correct.

By the same token, underwriters need to make more decisions based on the information available. Too many times we a:.k. for more information under the guise of prudence, because we would like to have it as opposed to needing it. How many times have we ordered an additional requirement, where the results have little or no effect on the actual rating? We just order it to cover our you know what in case of an early claim.

By ordering too many requirements and being risk averse, we not only risk losing business to our insurance competitors, but also to banks. mutual funds and other financial institutions.

How many times can we ask a potential insured for more underwriting information before he or she takes their premium dollars to the bank. renews a CD, calls an 800 number in the Wall Street Journal and dumps the money into a mutual fund? We need to make it easy to do business with. and sometimes being too prudent gets in the way of that.

Approximately three years ago, my company kicked off several quality improvement projects, one of which is very applicable to this morning’s debate. The project’s mission was to reduce the percentage of reinsurance offers made with additional requirements. Sounds easy, doesn’t it? We then added, “without having a negative impact on mortality or customer service”. A bit more difficult. to say the least.

At the time, the percentage of incomplete files was close to 30 percent. Please remember that as a reinsurer, we receive a fair number of trial applications, which tends to distort the percentage. But also consider that most of the cases we receive, our clients assume to be complete, just as many of your agents believe that the cases they send you are complete. The challenge is to accept risks with information available while retaining the necessary mortality margins.

Back to the project. We first sought out the characteristics of the incomplete files. Two observations could be immediately made. First. close to three-quarters of the incomplete files had an underwriting assessment of Table 4 or less. That was somewhat of a surprise.

Second. the percentage of incomplete files was in direct proportion to the amount applied for. Surprise again. The greater the amount. the greater the likelihood of having outstanding requirements.

To delve into this further. we randomly selected 30 of the cases rated Table 4 or less without outstanding requirements. We had three of our most senior underwriters reunderwrite the cases with an eye towards possibly accepting the risks without additional requirements.

Although independently reviewed, the three underwriters identified the same ten files they would have accepted without the requested requirement. The bad news was that these ten cases did not provide a common element, and we still had not come to identify any one cause driving the requirements. The good news. however, was that the agreement of those ten cases supported the contention that it is possible to decrease the percentage of cases with additional requirements without adversely impacting mortality.

As a solution, we have since challenged our underwriters to view the offers with additional requirements as declines. which is the way many of our clients sitting m this room view them. Whenever possible, our underwriters’ messages now includes an unconditional offer as well as a potentially better offer with additional requirements.

Using this approach, we have been able to reduce the percentage of cases with additional requirements by close to one-third. Our goal now is to reduce the percentage to 15 percent of the total number of submissions we receive.

Yes. good mortality results are extremely important. and it’s up to the underwriter to protect those results. But by being excessively prudent and avoiding risk, we will miss opportunities and premiums will decrease at a much faster rate than mortality results improve. (Applause)

MR. BRENNAN: Okay. We’ve now heard all of the arguments in favor and against. According to the rules of debate. you should allow each side to have a rebuttal. and we will do that now. In order to make it as fair a’ possible. we will reverse the order, and the individuals on the side opposing the argument will give the rebuttal first, followed by those favoring the resolution.

So I’ll invite Mitchell Schepps to come up and make a rebuttal against the arguments provided by Ross and Jerry, and he ‘II be followed by Ross who will make rebuttal against the arguments provided by Mitchell and Arlette.

MR SCHEPPS: Jerry and Ross, you ignorant sluts. (Laughter) 1 have to say that I’ve enjoyed both your points. especially in the context of being so close to Fantasyland here at Disney. In fact. I wasn’t quite sure if I was  listening to Mickey or to Donald. so you guys can choose.

I’d also like to start by thanking Jerry for making many of our points instead of his own. Thank you.

To keep on the theme of fantasy and reality, which these guys, so graciously brought up, Ross put up a couple of slides when he showed you things that really had to do with fantasy, and those were some poor mortality results. Ross did not really tell you about the reality, and the reality was that those poor mortality results had absolutely nothing at all to do with underwriting, but they had everything to do with poor product design.

Everybody remembers all those good selected ultimate term plans. And actually the mortality for the first few years of those products was very good, and the underwriting was very good. The problem was the lapsation, and no product can sustain 25 to 30 percent annual lapses and still have good mortality. So all those underwriters out there who he blamed for that mortality, you guys are off the hook. It was the actuaries that developed the products. That’s the reality.

Jerry, you gave a fantasy definition for prudence, and the first three are pretty good. The ability to govern and discipline one’s self by the use of reason. fantasy: shrewdness in the management of affairs, fantasy again: skill and good judgment in the use of resources, last one for fantasy.

But the reality is that prudence really, the way we view it, is caution as to danger or risks. and we just cannot continue to be afraid of accepting risk. We’re in the insurance business. We have to accept risks and just charge the appropriate price.

Back to Ross: You made a fantasy statement saying that underwriters improve mortality. I’ve never met an underwriter that”s actually improved mortality. I don “t know if any of you have actually seen an underwriter improve mortality. l thought it was more like medical advances and stuff like that which improved mortality.

There’s just so much stuff here. I need to sort it out. Back to Jerry again. The fantasy is that actuaries dictate what mortality goals they’ve set in products, and it”s up to the underwriter to make sure that those things happen. Well. the reality is that the underwriters need to be more involved with the product design from the outset and have input as to what mortality can be achieved or should be achieved. and not vice versa, that here’s the mortality; go do it.

What else, what else, what else? The fantasy is that, yes, prudent underwriting will definitely have lower mortality. I mean, it’s that simple. But Ross did not show you in any of those slides what the effect of the premium would be the more prudent we get. Yes. mortality would be I 0 to 20 percent better, but he neglects to show you the premium could be 50 percent lower, so where does that put you as far as profitability goes?

How are your unit costs affected by asking for more and more requirements and placing fewer and fewer of the applications that you get’? He neglected to show you that as well.

I agree, everybody has to agree that underwriting cases carefully is extremely important. We can”t do things stupidly and ignorantly, but we need to accept risk, and we need to do so with more and more of the information we have available instead of asking for stuff and asking for stuff and asking for stuff. Because that business is going to go to Merrill Lynch and Shearson Lehman and any other financial services company instead of into the insurance market.

Thank you very much.

Mr. Morton: · This is totally unfair. That is what you get for giving George a bad audit when I had to audit him once. He starts the clock for me. He didn’t start the clock for anybody else. I get ten minutes They get to go overtime. He even gives Mitchell an extra minute. I mean, it’s totally stacked against me and Jerry .

But anyway. I’m going to take all the sweet time I want right now. And basically, I’m going to read Jerry’s definition of prudence again for the two idiots at the table on the far end. ( Laughter) And basically – I mean. I don’t want to get into name calling, but I mean, if you’re an idiot, you’re an idiot. And there’s two of them. I mean, I’ve never had two at the same table at once in all the speaking engagements I’ve ever done, never.

I’ll go slow. real slow. Shrewdness in the management of affairs. That ‘s prudence. Okay? That·s all we ·re asking for here. folks.

Now, Arlette shows up. She’s in the wrong program. I mean in this thing as was originally talked about, we were talking about should we debate requirements. Her whole speech was, for God’s sake, about requirements. Jerry never once said, ”Let’s get more labs.” I never said, “Let’s get more labs.” I don’t know where she is coming from. I mean, she’s on a topic that we discussed last January. (Laughter) And the topic then was how do we  reduce, let’s debate requirements. And then we were going to resolve that we should reduce the number of requirements.

Arlette’s speech was an update. Shows you where she’s been for 12 months. Basically, too, she’s a bleeding heart liberal, for God’s sake. She wants to issue everything standard. If you want to issue everything standard, go and do guaranteed issue. Then there’s no underwriting. You don’t even need prudence. You’re out of a job. So much for your promotion. (Laughter)

I did not want to be up here with a bleeding heart liberal. Sorry. I mean. I am not a bleeding heart liberal. l’m closer to conservative.

Mr. SCHEPPS:  So what’s your point? (Laughter)

MR. MORTON. I’m trying to use up five minutes. (Laughter)

Arlette goes on, you know, she talks about, you know. she’s arguing for the points of race, religion, creed, color. I mean, the only thing I talked about was sexual deviation. I didn’t talk about color deviation. race deviation. She got into this. I mean. she’s equating over selection with over prudence. We didn’t talk about that.

Prudence, ladies and gentlemen. is how you improve the bottom line. Okay? You’ve got to put business on the books. But again, if you want to put business on the boob the way Arlette is in favor of. do it through guaranteed issue and get rid of your Underwriting Department. More and more companies are doing it. They give great ads for all the stock brokerage houses, mutual fund companies. Go and buy from them. That’s right, because they’re guaranteed issue. Go and buy from them. Great publicity. I didn’t know Cologne was reinsuring it all. (Laughter)

Mitchell, I mean. he’s one program behind. He should have been in the program before this on reengineering. l didn’t come here to debate the reengineering of Cologne. For God’s sakes, all he talked about was what he did in this stupid project. If they were so bad, they shouldn’t come here and debate whether they corrected it properly. That’s all he talked about.

Again, if you count the words. he had 2.912 words. Two thousand of them were on additional requirements. We did not talk about additional requirements. Read my lips. you idiot. (Laughter)

That’s it. I mean, prudent underwriting is important. I’ve now used far more than my five minutes, and I’m glad. I feel better now that I’ve got it off my chest.

George, you will get a great audit from now on. I will never be tough on you if you never put me back in this position. Thank you, ladies and gentlemen. (Applause)

MR. BRENNAN: Thank you very much, Mitchell and Ross. And Ross. the only reason I put that timer on you in the beginning was because you were the only one I was worried about staying within the ten minutes, and that proved to be a very wise thing to do.

We will end our debate with a brief summation of the arguments, and I will ask Jerry Tamura to make the brief summation on behalf of the in favor group, and he will be followed by Arlette, who will provide the summation for the opposing group. Jerry.

MR. TAMURA: Thank you very much, George. George has been having a heart attack down here. because he doesn’t have any idea what we’re going to say.

To summarize, Arlette, Mitch. nice try, Yankees. (Laughter) Prudence is not being over selective. It’s being smart. Someone in this group, who shall remain nameless, Arlette and Mitch, equated prudence to ordering more requirements, and in the same breath also said maybe it’s okay to order less requirements, perhaps without really knowing why. That’s not prudence. That is ignorance.

A prime example of non prudence, let’s take a look at the ’70s and the mortality bidding wars by the reinsurers. The turmoils of the ’80s. It has cost companies dearly. Once again, prudence is doing the right things and doing those things right. It is not an overkill or an underkill. It is being the mixologist that understands all of the elements that go into the decision-making process, getting the right balance.

As we said earlier, prudence is making informed, intelligent decisions. the goal of the underwriter, to quote the very famous Deion Sanders, “This is my house, and it’s going to stay my house, and the only way you can do that is being smart.”

There was a recent movie out – I’m sure all of you have seen it – and to Arlette and Mitch, I can only leave these words for you, from Forrest Gump, “Stupid is as stupid does.” (Laughter and applause)

MS. MOONEY: Again, I have to thank Jerry and Ross for making our point so eloquently. much more eloquently than a very dumb person like myself could ever have hoped to do. So I thank you very much. and I think you’ve shown these people that prudence means, as you’ve said, doing the right thing at the right time.

It also means that you can’t be afraid to take a risk. You can’t be afraid to put business on the books. You’ve got to know your producers. You’ve got to know your clients. You’ve got to measure your actual to your expected quality and results. You’ve got to assist in the development of your company’s products. You’ve got to know the value of the requirements that you receive. You’ve got to measure these results. You’ve got to eliminate the ones that give you no value. like Ross and Jerry. (Laughter)

You’ve got to eliminate the ones that you wouldn’t have used in basing your judgment anyway. You’ve got to know the value of salvaging the business. You’ve got to be pro-active, and yes-oriented.

To quote Dewitt Jones who we heard yesterday, “Don’t be afraid to look for another right way. Be creative and seize the day.” Thank you. (Applause)

MR. BRENNAN: Thank you, Ross. Jerry, Arlette and Mitchell. I asked you when we originated this idea, to make the debate interesting, informative, entertaining, and I said a little controversial. You obviously jumped on that point. But that’s good. We had fun this morning.

I think we need to give them another hearty round of applause for a job well done. (Applause)

At this point, we’ll adjourn the morning session and you can go for lunch or whatever else you want to do.

(Whereupon. the meeting adjourned.)”


About the Author:

Since Ross first edited and wrote for Life Office Management Association publications and then the historic Canadian Journal of Life Insurance, his unique style of opinionated and straight to the point writing has garnered continued exposure in 38 countries. The topics ranged through management, reinsurance, underwriting, technology and general insurance insight. Each of his contributions took a unique view of the issue and formulated an article full of industry anecdotes and humorous meanderings.
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