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Anecdotes About Reinsurance

1. A large producer of life reinsurance in Canada had a very knowledgeable president who was very cognizant of how reinsurance pricing and mortality curve could benefit his company. As such he was one of the most astute reinsurance purchasers ever seen and he in turn passed this skill to his pricing and underwriting teams.

One year when they were introducing a new product they tendered the quote to all active reinsurers in Canada as well as one based in the UK but a dominant player globally (the insurer had a subsidiary in the UK). In that era, not so long ago, reinsurers were actually coinsuring generously with first allowances beyond 200% of original premium and no chargeback in the event of lapse.

After weeks of bids going back and forth, as the wily President and his team played one reinsurer against another, the final sprint to the winners circle was between two reinsurers — a major Canadian subsidiary of a European global reinsurer and the aforementioned UK subsidiary of a global reinsurer. As pricing escalate to the 285% allowance level the victor emerged as the Canadian subsidiary of a global reinsurer. Congratulations flowed in the victor.

The vanquished UK subsidiary of a global reinsurer was so perplexed at the loss and finding it hard to fathom anyone having a sharper pen they asked whom they lost too. A fair question as reinsurers appreciate knowing who is the competition.

The answer came back that the winner was the “sister” subsidiary! Both finalists in the bidding war, which pushed the price 70% passed all other competitors, were in fact one and the same company.

2. Communication between departments in a company can often leave a lot to be desired. In one company’s eagerness to close a reinsurance deal with a winning reinsurer whose rates and allowances were extremely great the communication between the person canceling the old treaty and the person accepting terms on the new treaty was nonexistent.

The person agreeing to treaty terms of the new reinsurer asked for and got the treaty to commence on all policies issued with policy dates of for example July 1st, 1999. The person wrapping up closure of the old treaty terminated the existing treaty for all applications received after June 1st, 1999.

Yes you guessed right. A claim arrived on a case received after June 1st and issued prior to July 1st. The simple car accident fatality became a claim that both reinsurers said was not clearly theirs. When all three parties were in a room it was only then that the ceding company President heard how his staff did not work in unison on something as vital as protection of their retention and no gapping holes in the reinsurance. As always the result was a compromise struck after much embarrassment where all three parties contributed to the significant claim payment.

3. How does your reinsurer feel about fraudulent producers? What is the reinsurers’ stance on claims where the quality of producer selection and monitoring are directly correlated to early and uncontestable claims?

A $500,000 claim occurred and upon investigation the incidence of fraudulent misrepresentation leap off the documentation from the time of underwriting. Gross nondisclosure had occurred and had the full medical history been known no insurer or reinsurer in their right mind would have accepted to application let alone issue a policy. To make a long story short the file ended up in court where the insurer was ordered to pay since the evidence that was missing from the application regarding the deceased’s health history was indeed told in front to the deceased’s son and wife to the producer/agent. The fact the agent knew the story both as friend of the deceased and agent lead the judge to order the payment.

As the case was reinsured 60% the reinsurer was asked to just throw their $300,000 into the pot for disbursement. The reinsurer said it would only pay if the insurer would launch a claim against the agent for his fraudulent misrepresentation and omission of facts he knew about deceased. Insurer did not want to irritate its reputation amongst agents by suing one. The reinsurer refused to pay its share of the claim.

Should the “follow the fortunes of the insurer” be taken to the extreme by turning a blind eye to fraudulent agents? What is the true definition of final approval of claims mean to both the reinsurer and insurer? Claims sections of treaties are often left to interpretation at time of claims, which is erroneous, as it should be clearly understood from the onset of the claim-paying obligation.

This case ended up in arbitration where the arbitrator (a reinsurance guru) sided with the reinsurer and won the agreement of the ceding company President that the honourable solution was to sue the agent for damages as the reinsurer suggested; especially since the reinsurer did not hinge its payment to a favourable court ruling merely the act of pursuing restitution through the courts.

4. Translation is not a core competency of a reinsurer. A ceding company had drafted a new suicide clause and was in the final stages of translating it into another language. A translator of meager financial status was used to save some money assuming that final sign off would come from the reinsurer. The reinsurer got the final draft and with little attention to detail gave it its blessing.

Yes an early suicide occurred. When it looked so obvious that they could fight and win in courts on the basis of the suicide exclusion the insurer sent the file to its legal counsel (outside) for preparation of the usual denial letter and strong wording about “not paying in the event of suicide”…

The lawyer, happy for lucrative work from an insurer, was quick to point out that in his judgement it was foolish to contest the claim.

All had missed the key word “not” before pay in the suicide exclusion clause. The clause then read in its key sentence “will pay in the event of suicide with the first two years “.

There are times even a reinsurer makes a mistake and thus insurers should never leave to a reinsurer critical decisions that they have not fully reviewed.

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An Abridged Reinsurance History


The reinsurance of life insurance business in Canada has grown in magnitude to the point where in 1981 approximately 15% of all new sums assured landed with the reinsurers – both with companies that are exclusively reinsurers or with direct writers that actively solicit reinsurance or retrocession business. In addition to today’s size of the reinsurance industry, we have the rather open criticism of reinsurers both from the direct writing insurers and other reinsurers. It is now in vogue to blame the reinsurers for almost all adversity that befalls the life industry that cannot be allocated to the federal liberal party. From where did the reinsurance industry ascend to such notoriety?” is the question I felt needed answering.

To answer such a leading question, I started on a path, which I originally perceived as a simple collation of various direct writing companies’ experiences in reinsurance since inception of Canadian life companies. Through friendly persuasion I was able to elicit the assistance of Harry King, recently retired from North American Life and in most quarters deemed to be the most knowledgeable reinsurance historian. Harry approached several companies for historical anecdotes, early treaties, and any other relevant information that would help in the construction of a reinsurance history – hopefully void of bias and innuendo! Unfortunately for Harry and I this formal request for information proved in the majority of cases, fruitless. Excuses varied from “previous records destroyed” to “hopefully we can supply information in the near future”. As the near future dragged well past one year, I suddenly realized a complete yet concise history was beyond my grasp. I would like to acknowledge the contributions of Manufacturers Life’s reinsurance department and Mr. Gordon Beatty previously at Canada Life. Without their contributions, this project would have been infinitely more difficult.


From Harry King’s former company came copies of a couple of treaties, which must be qualified as one of oldest treaties between Canadian life insurers. The first is between North American Life Assurance Company and the Ontario Mutual Life Assurance Company signed on June 15, 1883. This treaty provided automatic reinsurance from one to the other and vice-a-versa. In most respects this hand written treaty varies minimally from what would exist today between reinsurer and reinsured. The striking difference is that what was said 100 years ago on three pages now has been expanded through rather complex legal jargon to 36 pages or more. It was surprising to discover both companies agreeing to allow the same coinsurance commissions on each other’s business. The commissions used in this exchange were 60% first year and 10% thereafter regardless of whether the plan was permanent or term insurance – yes, Virginia term insurance has been around a long time (excuse the Charlie Willism!).

By 1887, the second treaty reflects a modern approach to reinsurance – it was typewritten. Fortunately for all involved, the treaty was a very concise bilateral agreement entailing a page and a half of wordings. This treaty between North American Life Assurance Company and Temperance and General Life Assurance Company of North America appears to have been on a modified yearly renewable term rate basis including a percentage of expenses in the first year. The original correspondence is still in the possession of Temperance and General, now called Manufacturers Life. (This treaty is difficult to comprehend for there appears to be a yearly charge based on the number and size of claims, but that is only a guess.)

A third representative treaty for the exchange of excess risk was between the Imperial Life Assurance Company and North American Life Assurance Company, signed on the 16th of December, 1899. This agreement, comparable to treaty of 1883 mentioned earlier, was a coinsurance contract. Both parties to the treaty agreed to commissions of 50% first year and 7% on renewals for ordinary life, limited pay life and term insurance of three years or more. On endowment policies of all durations the commission was 5% in the first year only. And to think, we in the industry believe aggressive coinsurance allowances from reinsurers are a product of the 1980’s! Simplicity still existed, as only two pages of wordings were required to cover all essential points of the agreement.

The term “gentlemen’s agreement” is often used to describe reinsurance affairs. It implies a trust on both parties’ part that each will be treated by the other in an honourable and fair fashion. After reviewing the early documents, I would conclude that a lot was left to the imagination in comparison with many of today’s long and sometimes uninterpretable treaties. In the brevity of early treaties, there was an obvious sense of security for both parties as the handshake was the bond that meant more than pages of dialogue. Has today’s desperate attempt by reinsurers to encompass all possible contingencies replaced the time honoured “gentlemen’s agreement”? The answer is obviously debatable but my guess would be that it has reached the point more words, and fewer hands. Clearly, there are circumstances today that prevail on the industry to document in treaty form our beliefs and expectations of reinsurance facilities. Frequent staff turnover in companies, frequent changes in reinsurers and more complex coverages and financing is but a few of today’s facts of reinsurance operations.

The “Model Reinsurance Agreement” was to the best of my knowledge the first example of a universally acceptable agreement to cover the transition of reinsurance in Canada. The model wording was produced by a group or committee representing the Canadian Life Insurance Officers Association (the forerunner of the C.L.I.A. and now the C.L.H.I.A.) in 1901. Like the later agreements (1938 Coinsurance Provisions and 1965 YRT Provisions) there was no official binding acceptance of this set of rules by the companies of the period. The 1901 agreement formed the foundation for the resolution of reinsurance disputes and the exchanges of reinsurance when no other formal reinsurance document existed between the disputers.

From correspondence reviewed, I would have to judge the early part of the 20th century as mundane as far as life reinsurance is concerned. The exchange of reinsurance went smoothly with very little involvement of exclusive (professional) reinsurers as we encounter today. Most, if not all, medium to large size companies were using each other’s retention or part thereof to cover large amounts of coverage on an individual case basis.

Bearing in mind the coinsurance allowances were generally equal for the exchange of excess risk, the only item left to debate was the premium per mil charged by the reinsured company. Letters written during this period imply very little fluctuation in premiums charged for various plans. When there occurred a significant difference, a written complaint was lodged with the ceding company by the reinsuring company. Probably a representative disagreement was the one between Mutual Life and Manulife in 1917: Mutual Life, the reinsurer argued that the premium per mil on a particular case should have been no less than $24.55. Manulife, the ceding company, countered with the price of $22.65 on the policy in question, which by the way was already in force. Over two months of correspondence did not seem to resolve the problem and the reader of the old files is left to wonder if Mutual Life or Manulife won or was an alternative reinsurer found who was more amenable to such a competitive premium being offered by Manulife. In comparison to the 1980’s we would find that the rate situation is resolved well before the case is even underwritten or at worst before an individual case is issued.

In 1922, the Ontario Equitable Life and Accident Insurance Company of Waterloo, Ontario entered the reinsurance field in a competitive fashion. Their letter to Manulife in February 1922 was the only true example of a company aggressively seeking reinsurance. They described their coinsurance allowances and YRT rates as “attractive and liberal”. The letter itself reflects a similarity to letters written today by a new reinsurer entering the Canadian market place. The following constitutes the heart of the letter:

“It is our practice to give very prompt service by wire and we have established satisfactory connections with quite a number of Canadian and American companies, who have been pleased with our facilities and arrangements.

We accept reinsurance without a formal treaty and in all cases where companies have given us business we have endeavoured to reciprocate.”

Reinsurance “watchers” will be startled to realize the Ontario Equitable offered carte blanche coinsurance allowances on a wholesale basis to all potential ceding companies solicited both in Canada and the United States. This certainly must confirm that there was a uniformity of premium rates within the industry that in no way exists in the later part of the 20th century.

Canadian companies expanded their horizon for more reinsurance and naturally traversed the border into the U.S.A. With the cooperation that existed in the 1920’s amongst Canadian companies, it would seem a natural progression to cooperate in a joint venture to solicit U.S. life reinsurance. The original treaty was referred to as a two party agreement providing automatic facilities for New York Life, the Mutual Life of New York, the Penn Mutual Life and the Union Central Life by the Confederation Life and Canada Life. The list of U.S. companies grew to six with the later addition of Equitable of New York and Equitable of Iowa. The Canadian contingent was expanded as well by the inclusion of Manufacturers, Imperial and Mutual.

Canada Life acted as the catalyst for the unusual treaty and in spite of the fact they had pulled out of New York State some years before they re-entered for the sole purpose of reinsurance. New York Life in turn was the figurative leader of the U.S. companies. Each respective leader in turn had agreements with its country cousins to share in the excess risk being offered. For example, at the point in time when only Canadian companies were involved, each assumed a percentage of the risk – Canada 42%, Confederation 16%, Imperial 17% and Manufacturers 25%.

The treaty in question was on a coinsurance basis with only minimal variances in allowances depending on which company was the direct writer. In fact, the range was less than 5% in the first year and zero thereafter. The automatic coverage was one times the ceding companies’ retention to a maximum of $300,000. This of course was for standard issues only and varied depending on age and mortality assessment. Interestingly, the amount was further restricted in the following ways:

a) For female lives the amount was restricted to $150,000,

b) For all term plans the schedule of automatic acceptance was limited to $150,000 (one-half the schedule),

c) For all term plans issued to females the restriction was one-third or a maximum of $100,000, and

d) The coverage automatically available was only applicable to cases written by the ceding companies’ own agent (implying no brokerage business!).

The close working relationship of the Canadian side of this unusual treaty expanded to encompass various other reinsurance requirements. First, we had a four party agreement to cover all direct written business of Canada, Confederation, Imperial and Manufacturers signed on May 12, 1924. That treaty was duplicated in April 1930 to provide reinsurance for the direct written business in U.S. dollars of the Canada, Confederation, Imperial and Mutual. The final link amongst these companies was a five-party treaty (Canada, Confederation, Imperial, Manufacturers and Mutual) covering all insurance issued outside the United States of America, by any one of the companies as well as to all business issued in the United States by the Manufacturers.

The above treaties representing a very active group of reinsurers flourished up until the outbreak of the Second World War and then faded into oblivion by the early 1950’s as the group gradually divided.

The available correspondence representing the first four decades of the 20th century leads me to surmise that most if not all companies were involved in assuming reinsurance. The list of companies included many who by the 1980’s were not involved in receiving reinsurance beyond the very rare case or not at all. Reciprocity was a large feature and the logistics of balancing reinsurance in with reinsurance out must have required a fine science of juggling accounts. With so many companies exchanging excess risk, the task of keeping abreast of each other’s plans and rates consumed a large amount of time. This is printed out in the numerous letters exchanged between London Life and Manulife during the 1920’s. These two companies were exchanging facultative coinsurance cases on similar allowances and thus went to great length to keep each other informed of new plans, wordings, etc. to ensure uniformity.

An article published in 1937 outlines the growth and magnitude of reinsurance in the early years. This same article describes the swiftness with which the reinsurance fortunes can and did change; a lesson well remembered in the 1980’s. I feel the article is a splendid dissertation on the historic early years and thus I am including the majority of the material entitled “A Survey of Reinsurance of Life Insurance in Canada” by J.G. Parker (Toronto) in the following excerpts:

“…. that this reinsurance should, in the great majority of cases, be obtained by contracts co-insuring all the terms and conditions of the original company’s contract rather than by the reinsurance of the excess risk on the renewable term plan.”

The reinsurance thus obtained proved to be profitable due to the comparatively favourable mortality and the relatively low expense of conducting the business. As a consequence several of the Canadian companies went beyond the borders of Canada seeking reinsurance, generally on the same terms as they had previously granted within their own group. This resulted in a marked growth in reinsurance received, particularly during the years 1920 to 1929.

The extent to which the business of reinsurance had grown is shown by the fact that during the year 1929 there had been received by the Canadian companies over 172 millions of dollars of reinsurance, an amount equal to 11% of the gross amount of business written by these companies in that year. There was in force at the 31st of December, 1929, over 774 millions of dollars of reinsurance constituting over 12% of the total amount of the business in force in Canadian companies.

The change in business conditions during the so—called depression years had a serious effect on the business of reinsurance in Canada. New reinsurance diminished to about one-third of the former amount due to the great decrease in the number of large policies being purchased. Not only did fewer large policies offer, but also the companies became decidedly stricter in their selection of large risks, and the possibility of over-insurance made companies look somewhat askance at applications for amounts of insurance, which previously would have been accepted and reinsured. Moreover, the changed business conditions seriously affected existing reinsurance by producing an excessively high rate of termination among large policies and also producing a large increase in the rate of mortality due principally to deaths arising from cardiac impairments and from suicide.

The extent to which the business of reinsurance was affected by these changes is clearly shown by the fact that during the year 1935 only 26 millions of dollars of reinsurance was received, or only 15% of the amount received in the year 1929. This was, however, a substantial amount as compared with the total new business written by the Canadian companies, being 4% of the gross business for that year. Moreover the reinsurance in force had decreased from 774 millions of dollars at the end of 1929 to 537 millions of dollars at the end of 1935.

As has been stated, while the Canadian companies originally obtained their reinsurance mainly from their own group, about the year 1920 there began to be received an increasingly large volume of new insurance from United States companies. A comparison of the amount of reinsurance ceded by the Canadian companies themselves with the amount of reinsurance actually received affords an approximation of the large amount of business, which came to Canada from sources outside of the Dominion.

Of the 774 millions of dollars of reinsurance which was in force at the end of 1929, approximately $360 millions had been ceded by the Canadian companies themselves, and of the 172 millions of dollars of new reinsurance obtained in that year, $70 millions originated from Canadian business.

It would therefore appear as if $414 millions of the reinsurance in force or over 53% of the total, had come to Canada from outside companies, and of the new reinsurance received in that year $102 millions, or 60% of the total, had been obtained from sources outside the Dominion, mainly from companies situated in the United States.

At the end of the year 1935, the figures, while reflecting the decrease in business received and in force, also showed a considerable change, particularly in the division of the reinsurance received. Of the 537 millions of dollars of reinsurance in force at the end of that year $265 millions had been ceded by the Canadian Companies but of the $26 million of reinsurance received $17 millions had been ceded from within their own group. While, therefore $272 millions, or about 50% of the reinsurance business in force originated outside of Canada, only $9 millions, or 35% of the reinsurance received came from without the Dominion. With the revival of business, applications for large amounts of insurance are again being made, but it is doubtful if the Canadian companies will be eager to accept any large amount of reinsurance, as in former years, from outside sources but will be more likely to content themselves mainly with reinsuring such risks as are undertaken by their own group.

The reinsurance transacted between the Canadian Companies has been largely co-insurance, the reinsuring company guaranteeing all of the benefits under the original company’s policy. In many cases no special reinsurance contract exists, the companies being free to offer the reinsurance where, they might see fit and possibly where there might be some opportunity of securing reinsurance in return. In all such cases the papers concerning the risk are forwarded to the reinsuring company for its acceptance or declension. Under these circumstances all matters such as commissions, expense allowances, etc., in regard to each individual case are arranged at the time that the reinsurance is submitted. On acceptance a copy of the original company’s policy is forwarded to the reinsuring company to have endorsed thereon a clause guaranteeing to the ceding company the benefits under the original policy and this document constitutes the reinsurance contract applicable to this particular case.

“The agreements further provide for certain types of risks to be submitted facultatively to the various companies in the group. Such cases are infrequent and usually involve some special hazard not encountered in the ordinary risk. Where facultative reinsurance is offered all of the papers are forwarded to the reinsuring companies for acceptance or declension, with full particulars of the action of the original company and the amount that it proposes to accept at its own risk. On acceptance the reinsurance proposal is completed in the usual way.

“In general the mortality experienced by the companies accepting reinsurance has been as good as the general mortality of the original company ceding the business. This is particularly true of the reinsurance ceded by the Canadian companies themselves, of business underwritten by their own agency staffs. Unfortunately a very heavy death rate was experienced for about three years following the year 1930 in that reinsurance which originated outside of Canada. It was composed mostly of reinsurance on lives carrying very large amounts of insurance, or what was termed “jumbo risks”. The two principal causes of death in this group of cases were, as has been stated, cardiac impairments and suicide.” (Emphasis added).

In Canada the companies in general arrange all of their reinsurance with Canadian companies, or with those, which are registered in the Dominion. In this way in preparing their annual statements of account they are allowed to deduct from their liabilities the reserves on the amount of the policies that they have reinsured. In business which originates outside of the Dominion of Canada and under which deposits of reserves or other deposits have to be maintained in the country where the business originates, reinsurance may be arranged with companies not registered in Canada and the reserves on such business may be deducted from the total liabilities of the company in making up the annual report for the Dominion.

In addition to the co-insurance contracts, of which a general description has been given above, some reinsurance in Canada has been affected by means of reinsurance agreements providing for the reinsurance of the net amount at risk in each year under a Yearly Renewable Term policy. (Emphasis added). The amount at risk in any year, is the amount first ceded by the original company, decreased each year by the reserve which the original company accumulates under a like amount of the original policy. The premium is usually a net premium, making allowances for initial expenses and for the initial favourable mortality due to selection by means of an especially low rate of premium in the first policy year, generally 50% of the ultimate rate. Under such agreements the same arrangements are usually made with respect to automatic coverage as have been described under co-insurance agreements. The reinsurance contracts are non-participating, without surrender values, providing for an amount of insurance decreasing yearly covering the risk of death.

The experience under this type of reinsurance has been favourable, especially where the reinsurance was obtained from companies with a small limit and where as a consequence the business ceded included a normal group of average lives. Where, however, a group of large insurers were included in the reinsurance the experience has been unfavourable, the same as has been the experience under co-insurance of this same class of risk. (Emphasis added).

The outstanding feature of the reinsurance business in Canada is the case and expedition with which reinsurance may be arranged among the Canadian companies. A committee of Medical Directors and Actuaries of companies associated with the Canadian Life Officers Association has met periodically over a period of many years and has done a great deal to promote uniformity of practice in the selection of risks. Laws governing policy conditions are in force throughout the various Provinces of Canada and ensure uniformity of policy contracts in their essential provisions. Agency contracts, while differing widely in maximum commissions payable to the agent, yet are in many respects similar, making it quite feasible to arrange satisfactory commission and expense scales applicable to reinsurance. A committee of those in the various offices having charge of the settlement of claims meets regularly to discuss their various problems ensuring a consistently uniform practice in this regard among the various companies. Similarly there exists a practical uniformity in the method of reinstating lapsed policies and in the rules governing changes of policy contracts. “Consequently it is only natural that reinsurance should be easily arranged amongst the Canadian companies themselves and the favourable experience of the past years would indicate no change in the practice which has been so consistently of value in the expeditions and profitable handling of excess risks in the life insurance business of Canada.”

The above article is an excellent reference on an era that was the same as today yet different. Concern with pricing and mortality was expressed yet not in an overly cautious way; similar to the early 1980’s when we have the same concerns. This was the time of no licensed, foreign domiciled, predominantly European reinsurers. The element of competition seemed to be missing in its current exaggerated form as the literature from the early days portrays more reciprocal agreements. The competitive aspect of reinsurance was secondary to the insurers primary intent to cover excess risks at a price that both the direct writer and reinsurer were comfortable with as representative of the risk. Because of the duality of numerous treaties, the reciprocity feature also allayed any concern over possible adverse pricing. The premiums and volumes that were exchanged represented approximately 7% or less of all life insurance in Canada. Of the new business issued in the latter years of the decade of the 1930’s only in the region of 5% was subject to reinsurance.

The growth of exclusive reinsurers in Canada was in an embryonic stage and a future article will try to document the growth to maturity of the exclusive reinsurers of the 1980.

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A Quick Trip to the Far Side of Vancouver Island

Another article earlier in my career by three years was called Morton’s Meanderings … and it chronicled my feelings towards the emerging markets of Asia Pacific. AP, as its affectionately known in insurance circles, albeit small circles, took up a great deal of my time from January 1990 and through to 2002. My experiences were many and great. Farmer Ross meets the wisdom of the Orient cultivated by the harrows of local and current talent. Again Marketing Options published a version of both the earlier writings and this current one. Steve of MO wanted my up to date view especially if there were changes.

Long plane rides made for the perfect environment to write until the batteries failed. Now I am spoiled with “plug ins” to keep the electrical juices flowing.

If I write an update much more has changed. Some good. Some bad. Regardless it has changed to the point it is almost unrecognizable to anyone who has been away for the decade.

Will I go back is the often asked question. In a heart beat, for the right person and at the right time.



Marketing Options

March 1994

Three years is a long time. The number of changes that have occurred in the life insurance industry in Asia Pacific, relative to North America, is phenomenal. Remember, I referred to it as Pacific Asia? Now I know that people there take offense if the continent isn’t named first – something to remember if you’re from America North.

In Issue No. 89, I wrote on the emergence of a much more aggressive market of the life insurers in various parts of Asia Pacific with particular reference to Indonesia. A lot of water has run under the airplane since then and a considerable repositioning has occurred in several of the region’s countries. The issues that were not previously evident, but common in North America, have reared their ugly or pretty little faces (depending on your perspective.) Let me explain as I take you along on a speaking tour of six countries in 10 days.

Toronto to cities such as Taipei, Hong Kong or Singapore requires patience, lots of good reading material and pilots who can fly without sign posts. Twenty hours of travel is almost a day, regardless of who is counting. Even the most comfortable seat and pleasant on –board amenities cannot lessen the mental fatigue. Depending on my mood, conversation with the individual sitting next to me is either encouraged or discouraged. Mentioning that I am in the insurance business often abruptly ends dialogue. On this trip my language shortcomings prevented any depth to conversation and so I communed with my laptop.

After surviving the loss of my precious luggage (it wanted extra time in Vancouver) by buying the only size 17” neck shirt in Taipei that had a body long enough to cover my upper torso [Ross is six foot four – editor], I proceeded to visit local insurance officials. Traveling from the hotel to the speaking engagement in this capital of Taiwan involved one of the most harrowing taxi rides of my life.

My presentation was about large case underwriting and once I hit question period I felt right at home. The most prominent questions being thrown at me (politely, of course) were the same as I would have had to field in the U.S. Or Canada. This is a mature market with mature issues that pointed out that communication deficiencies between underwriter and agent knows no geographical boundaries. No, I did not instigate the issues to prove a point!

Sharing of information and trust were high on the agenda as we wrestled with how to bring peace and prosperity to the insurance world. I was looking for an answer more than contributing a solution. The definition of large case was the same as in North America, just the number comes up smaller. Most purchased of life insurance are for under 100,000 (local currency) and a large case is a million (local currency again for those not keeping up). Perhaps here the influence of North America has been too great – the minority of agents there who know how to beat the system are matched by a number of home office underwriters who know how to shackle the seller when necessary.

One question addressed lifestyle underwriting because of the number of accidental and unusual deaths in the initial policy years here. Early mortality in North America has often been attributed to lackadaisical underwriting of occupation, avocation, aviation, driving and lifestyle options. Combining any or all of these, even when anyone looks borderline standard, with mild or greater abnormalities of blood or medical findings warrants extreme caution before agreeing to issue. Early deaths, of which recent large case studies show and abnormal number, can be prevented if risk selection is stringent where adverse lifestyle issues are evident. There is no substitute for agents working closely with underwriters to ascertain the degree of any lifestyle issue for proper risk selection. I speculated with the audience that extreme price competition in the market plus poor liaison between pricing and underwriting realities also contributed to early claims.

Hong Kong raised the specter of blood, urine and guts. Participants asked why so much blood is being drawn. Was it true that it was being used to fertilize corn fields in Kansas? Blood testing has been growing in stature here with the increasing concern over AIDS. At the same time, North American companies perceive and escalating need to screen for Hepatitis B. For the latter there is growing concern that premiums shrinking to levels only half justified in North America are going to be unjustified when the Hepatitis B starts playing havoc with insured mortality. In truth, “havoc” is a term unused by local experts but referred to frequently by many visiting insurance practitioners. The other side of the coin (there are coins here however don’t let them encumber your pockets when you come home – currency traders in Toronto refuse to accept them) is that the rates of mortality in the pricing will always reflect the total mortality of this colony. It is only three more years until this place of my wife’s birth reverts back as the lease is nonrenewable. Perhaps it is this truth that is dogging the actuaries.

Is urine HIV testing a substitute for blood HIV testing? This question was posed by both home office underwriters and agents. The answer, of course, rested in the world’s experience that alternatives to blood testing are available and in use to make everyone’s life easier.

During a session with underwriters and claims personnel, a heavy discussion on what is truth and what is a lie on applications developed over an actual case. This is a world wide issue. If an applicant states they saw a doctor yesterday for the infamous “checkup”, what are the repercussions if the underwriter waives the attending physician’s report only to learn that the checkup was for pain or symptomatology that eventually led to death? Ws the underwriter wrong for waiving a perceived routine APS? Was the applicant wrong for failing to declare the real prompting for the checkup? The answer was a simple, yet complex, “yes”. Underwriters get paid for making value decisions based on information garnered from agent, medical examiner, attending physician, etc. The information trail is a delicate one and if trust is involved most underwriters start by believing the applicant. Regardless of country and product description the issues are the same!

I left with the comforting thought that not only are pampered palates of Canadians susceptible to occasional and distressful turmoil in the guts (stomach, upper and lower intestinal tract or acute and painful assault on the duodenal area for Larry of The Underwriting Edge fame). When one of the doctors in attendance from Indonesia told me he was under the weather (my translation) due to the food adjustments he had to make in Hong Kong, I felt I was not singled out for tummy upset and subsequent eructations. Must be common to all us worldly travelers as a genetic shortcoming for which insurance companies will soon be testing as part of their zillion-part laboratory protocol.

First time for Ross’ big adventures to enter into China’s mainland, if only for a 30 hour visit. The time of my visit was chiseled out of my speaking tour and thus its hallmark was brevity. Exciting thoughts of exotic pushcarts, sameness of dress (gray, turned collar, militaristic jackets) and true Chinese foods had filled my bedtime moments the night before. All my delusions, shaped by countless hours of ancient stereotypical movies, however, were squashed forever in the first few hours.

As the train rapidly took us to the border crossing, I steeled myself for all forms of potential episodes I would hopefully live to convey to my great-grandchildren. Like in Calvin and Hobbes, my imagination was running wild and then the bell rang and I faced the tedious reality of an uneventful border crossing.

Stepping into a Mercedes taxi to take me from the train station to the hotel was also a lunch bag letdown. It was to become one more of many. Exotica was nowhere to be found as the trip was spent counting BMWs and Mercedes while seeing a town of 10,000,000 – hustling and bustling, not unlike Hong Kong. As I entered the charm of the local Hilton, I wondered if this was all a ruse and my erstwhile Manulife colleagues (plug for the company that pays for my worldly ways) was playing a practical joke on a grand scale.

Bottom line, after 30 hours I came to understand that modern China in the areas where there is encouragement of classic growth is like boomtown Canada of the 70s. The biggest exotica was adding sea slugs to my list of lest favourite objects to that are put on my dinner plate. Right up there at the top with ducks feet, pickled, steamed or fried! For those unaccustomed to any delights of foreign cuisine, neither the feet nor the slug fit McDonald’s idea of crowd-pleasing fast food. I must add, however, that there are times when I do thank my dear wife’s passion for Chinese food and the use of her culinary skills to entice me to explore this new cuisine after growing up on potatoes, cabbage and red meat (never really red by the time my Mom was through with it).

The visit was too brief with the local insurance experts and leaders of a company that is doing quite well in a market that has more potential than anyone can imagine. The topics were, of course, reinsurance related and as such I was in my domain. I hope that as policy size grows because of stock-redemption policies, key-man insurance and estate protection, so can the role of the reinsurer, especially this Canadian reinsurer. In the interim my ‘Special Risk’ colleagues can provide immediate reinsurance capacity and council as the market for personal accident coverage is here and growing.

After two days of recovery (recovery is a recurrent theme of my Asia Pacific trips), I entered the vibrant economy of Malaysia and its extremely well organized insurance industry. The host was the Malaysian Insurance Institute and one could not help but be impressed with the dedication to improvement that the Institute portrayed. I got to lecture on hold people and large cases with a smattering of both mixed, when appropriate. In such an immense economy, the number of large cases is increasing and the education provided is from one source. Both agent and underwriter get their education from the same body – the Institute. The knowledge for both is combined. Their text books the same. Their goals the same – good business for agent, customer and company.

The Malaysian Insurance Institute is an impressive operation and one that has a good thing going in my opinion. Questions were brief but they were able to convey the depth of understanding the Malaysian insurance staff have of the issues. They know how to avoid agent and underwriter discourse from the outset. Lance Secretan, author of The Way of the Tiger and Managerial Moxy, has written about it and Jim Burton of PPI renown has lectured about it and its called mastery, chemistry and delivery of the subject, regardless of industry. I left Malaysia with the strong belief that the insurance industry is united in its conquest of these three disciplines.

Singapore is Singapore. There is no country like it. Everything went without a hitch a the sophistication shows all the earmarks of British formality and Singaporean efficiency. The subject matter here was again the oldies (not rock and roll nostalgia but mature applicants and rich people). With an audience of pure unadulterated home office life underwriters I was safe from the harsher slings and arrows. There were a few barbs as one Singaporean expert wondered how we North American underwriters could have allowed poor large case early mortality to happen. The old adage, “to err is human”, brought very little solace from this audience.

Last stop and the on where my two hour dialogue is rewarded with 16 hours of lectures from experts flown in from around the world. The seminar was sponsored by a local reinsurer, MAREIN, who spared no expense in putting on a top-notch educational affair. Issues were training at all levels, lack of capacity and price wars. A review of the program gave no hint that I was in Jakarta since the topics were universal – people, productivity and competition. A review of software for insurers added to the seminar’s international appeal (and not just because I was speaking on underwriting by computer).

The time at this conference just flew by because the content and attendees’ input was thorough and one never seemed to have enough time to digest every new point or opinion. Excellent dialogue from every perspective made me realize how much more there is to learn about a business that can be so very simple yet appear to be so complex. As always, Indonesia and the friends I have made there never cease to amaze me with the intensity they exert towards this business of life insurance.

Quickly home (if 24 hours traveling could ever be considered quick) was the last leg. Uneventful other than convincing customs that I don’t smoke (thus no cigs), don’t drink much (thus no booze), faint at sight of needles, bought a T-shirt for my daughter and the horse was a gift from a benevolent host in Indonesia.

Why a horse you ask in closing? It’s a beautiful gesture that means Good Luck to both the receiver and the giver and that summarizes the trip. Can’t wait to go back for Trip Nine.

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A Loss of Trust

It is so very hard to imagine that this article from Marketing Options was written 7 years ago. It is so relevant today. The world may have changed but the search for trust amongst the reinsurer insurer relationship continues. Reinsurance has become a commodity and culminates in far more extensive treaty arrangements. Yet each party must fundamentally trust the other for success long term.

Adding to the comments of 1997 must include the rip offs of trust by large corporations who are now before the courts where judgment is sought for what I like to call a misuse of trust. Liability insurance has sky rocketed to help bail out the poor insurers who dominate that market. The more prices go up the more the average consumer seems inclined to get the money back! The dubious claim becomes a game for some. An expensive game for all who end up paying. That is you and I.

Happily I am glad to report that as the number of people I have met grows so does the number I trust for their honesty and especially their forthrightness. In the day s of the dealmaker the pressure to forego forthrightness mounds and many succumb. In the end there are still fewer people than the number of digits that I possess who I no longer completely trust and it is usually the lack of forthrightness that does it.

Ross A. Morton


Marketing Options

April 1997

Looking back at 27 years in the insurance business, I feel fortunate that it has been predominantly packed with lessons in trust. Trust extended. Trust rewarded. Trust rarely abused. If the latter did occur the person was often banished to some menial tasks or even another trade.

As a paper boy, I was entrusted numerous times to “come back later” with the change for a significantly large denomination like a $5 bill. I was so worried about this responsibility; it often seemed I was back on their doorstep with the correct changed before they closed the door.

When I entered the world of insurance, I quickly realized that customers put this faith, and even more, in the trust they showed their broker. The largess of the insurance proceeds, whether life or disability, depends on the intermediary who understands the customer and culminates that understanding in contracts for future performance of considerable financial proportions. Having been involved with numerous family deaths over the past three years, it has been heartening to work in an industry that has expediently delivered on contracts bought 35 years ago.

Six months out of university, I found myself working in reinsurance where the gentlemen who led the industry taught trust before all else. The handshake meant more than the written word and a commitment verbally conveyed was sacrosanct. An early claim that needed paying even before full treaty wording could be etched unto paper was all this neophyte needed to witness to appreciate the trust in a handshake. I saw trust further demonstrated by reinsurers who frequently accepted the rules of a ceding company’s underwriting department – rules often not written, for if the rules were not written, an agent could not challenge them, nor management manage them.

Reinsurers put a lot of faith in the company to sell the product to the agreed upon market, to obtain the assumed spread of risk, to manage the underwriting process to achieve mortality assumptions, to do everything possible to insure persistency (although term 100 brought out new meanings to managing persistency!) and to pay only the legitimate claims.

I only recollect one company who abused all of the foregoing. That California company of the 1970’s made better use of the telephone book to gather lists of names for the reinsurer than any other company on record. (This west coast company was the inventor of telemarketing without the expense of any telephone charges or commissions paid.)

This abuse of numerous reinsurers’ trust ran rampant until excessive greed caused the failure of one of the insurance industry’s greatest scams. I always felt blessed that the M&G Re, my company of origin, was not licensed in California at the time or I, and the band of M&G Re leaders, may have shared the other’s fate – massive reinsurance allowances paid on bogus business, which produced no corresponding premiums! In addition the claims for fictitious deaths swelled the transfer of cash from reinsurer to insurer.

This scam had nothing to do with the agent or broker. Quite the contrary, it was conceived, gesticulated and brought to fruition by the back room boys who succumbed to the greed of rapid growth. The closest comparison in Canada that did involve agent and broker was Project Lion, one of the more paltry scams some ill-begotten con artists dreamt up to take advantage of the industry’s front-end commission structure.

Is there less trust today? Yes, I believe we have moved towards a state that is far more litigious and unencumbered by historical rhetoric concerning the value of the handshake. Brokers find themselves in need of ever increasing errors and omission insurance as companies are not willing to blindly support the producer who may have erred. Companies seek to distance themselves from the actions that are taken by the broker who today represents numerous companies. With choice comes pain and extra costs. With choice come more perplexing contracts that can never hope to cover the unexpected or new conundrum.

Can trust be restored to the industry? “Never, “says my brain! If the goals or aspirations of so many are rooted in short term gain and not long term integrity, can the conclusion be any other? From a personal and speaking from the heart (a recent standard issue, I will have you note) perspective, I will not throw in the towel. That ever shrinking band of zealots that nurtured me will console me that I am not alone. We must just accept that there are truth sayers and then, there are others.

There seems to be a trend that moves even the staunchest of integrity’s supporters to throw in the towel. Mind you, I still assume the majority would gladly just wave the towel if they thought there was a chance of winning the trust game. Just like Toronto Maple Leaf fans, the majority painfully endure failure hoping for a second coming of the teams of the mid 1960s. Those who can remember working in our business, I believe, carry the same hope and optimism for a return to the trust that nurtured us.

The consumers trust their financial advisor to massage their financial picture, current and future, into a mosaic that is easily understood. The meaning being that the results of certain current actions will produce the consumers’ desired level of peace of mind. The broker, agent or purveyor of financial advice trusts the consumer to be honest and forthright (my interpretation of forthright is someone who volunteers all the salient facts versus the one who only volunteers the bare minimum and never elaborates on the facts). The poor agent in the Mullendore case who placed a huge case on an Oklahoma man in the 1970s must have wished there was more openness from his client. If he only knew the whole truth, he would be alive; poor, but happy. (before the second premium was paid, the client was shot dead. The agent was subsequently murdered in Alliston, Ontario and his assassin was eventually found dead in Montreal.)

As an underwriter at the time, I was just happy that my head office made a faster decision to commit its full retention to this case than I did. I was one of only a few underwriters who did not take a piece of that action and can so boast of it today. (However, when questioned I do volunteer the whole story and my underwriting prowess is less revered.)

Time has penetrated my very being, for when I started in this proud historical business of insurance I never looked over my shoulder. Rightly or wrongly, I trusted everyone I worked with. Today, as I slowly recover from the knives embedded in the back of psyche, I realize one either walks backward (the choice of many in the industry) or embraces the weight of a flak jacket. The flak jacket’s construction is one of legal paraphernalia and a strong caution in weighing the integrity of your partner, employer, customer or competitor.

Yet, I have learned that my trust that remains today is trust for an individual, maybe not so much a company. Cultures in companies change. One individual can do that and all others working for him are driven to follow. On the other hand, by actual count of business cards collected over the last three years of international travel, I have met 1,500 people. Of those, I would trust 1,499.

As my father said after World War II, “Only losers have to look over their shoulder 100% of the time.”

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“It sure is a boring summer with nothing exciting happening in our business”, said the old timer who likes to feel the vibes of change. He of course was talking about the sleepy life insurance industry. He also has become so accustomed to rapid and exaggerated change plus unwelcome headlines that he no longer labels the now routine noteworthy.

Lets start with the KPMG Ethics Survey 2000 that I have read snippets of but since I am too frugal with my time I have not read every word. For those interested in the survey it is available at .It is full of all the great statistics of how ethics are not being nurtured and few companies give this a priority. My first reaction was to resurrect the “semper ubi, sub ubi” article from MO’s archives. Then I said to myself that that windmill has already been challenged. On questioning a friend of mine who is close to the MBA circuit and continuing education for executives I learn that ethics courses are in such great demand people are being turned away. I thought the ethics of an organization were instilled in new employees by the old guard and the leader. Has this become so specialized that it is now outsourced?

If one (the proverbial employee of nondescript features) has not learnt enviable ethics before entering the workforce can one ever learn? If one has not learnt ethical values from one’s first leaders can one ever learn? If the actions and verbal utterances of one’s current leader are not reflective and definitive of true ethical behavior can one ever learn?

Can a daylong course on ethics and a certificate hung on the wall equate to an insurers integrity being of high ethical standards? Something like two thirds of companies said they are implementing practices but there is some concern for the amount of time to fulfill those practices. Of the responding companies some 42% have a senior level manager that has the ethics conundrum under their list of to do’s. Training in ethics is provided by about 39% of the companies in KPMG’s survey. I am sure no company is spending more time than the Royal Bank conglomerate who just had the bad fortune of being at the very public end of intense scrutiny over in my opinion ethical behavior! Just imagine what has not been uncovered in our financial services industry. I take heart in the KPMG survey that included about 1.5% life insurers and I will imagine they are all on the higher ground.

Before the ink had dried on the above paragraphs I am stunned by the news my industry has taken a body blow to the kidneys with the Transamerica immediate and complete disclosure of their problems with a few staff. Could anything have been done in the midst of the burdensome acquisition of one company by another that would have at all costs maintained the sanctity of Transamerica’s reputation? Possibly not. The compliment goes to the leadership who immediately went public, took remedial action, avoided the pitfalls of mendacity and limited damage as best they could in the circumstances.

Dull summer? Not a chance. Our financial services industry has had a wake up call and the onus is on all participants to elevate ethical behavior to a priority. Training courses may keep the issue alive and actually instill the no nonsense importance of ethical conduct but if you have in your midst someone(s) whose ethical instructions in early life training leave a lot to be desired “you gotta problem mista”. Finding the rotten apple in a barrel of red Delicious only happens when you hand wash each apple.

In sharp contradictory contrast to the ethics survey is the Queen’s University School of Business survey of participating CEOs in Ontario. Of the top 12 challenges facing CEOs on the Queen’s list the only one that can be stretched to include ethics is the challenge of finding staff that possess the right personal qualities in addition to their technical skill.

This study would have warranted days if not weeks of public and private scrutiny had it been in the “old days”. Today it is just another study of our accepted practices that lean heavily on performance judged by numbers here and now, versus long-term implications of ethical versus unethical behavior. This should not be taken as ho hum! Rudimentary ethics emerges like zymurgy. Over decades and even centuries our “norm” has been forged like the fermentation of wine. Is being forthright always the same as never telling a lie? Is exaggeration in the same leak as abuse of information? Is a conflict of interest always a conflict of interest or does it depend on the consequences? I remain a student of the ethics debacle and hope that in time any doubt about the definition ebbs, which would mean I have found the holy grail (or at least someone let me glance it while there was still time). With age and an ever increasing scope of acquaintances I learn that the definition is now more elusive than ever since there remains no one definition of business ethical behavior. If there were would there be any employees in the tobacco business?

The prize awaits the person who can guarantee a test to weed out the ethical behavior that is not in compliance with the leaders which one hopes is in harmony with the Board and its traditions. The problem is whose ethical behavior is the model since it is on may occasions so subjective. We certainly do not want to leave it to the press to decide.

Next we have the more mundane within the insurance vill. The merger first here in our Canadian community of CU and NU (sort a sounds like canoe), which then transformed into parents saying sell the whole thing. Add to that the potential but soon stop of the sale of C.N.A. life operations globally, ING continuing to acquire NA companies especially Aetna’s financial services side and you have lots of excitement. Talk heats up that Canada and Clarica will be devoured by the likes of any number of large European mega companies in less than 30 months. Banks can come into the US life market. Royal Bank buys into the US life industry. Underwriters are being given signing bonuses of considerable sums plus salaries that finally distinguish them from senior clerks. Pricing actuaries who can make a product price plummet and a reinsurer pay dearly for the privilege of acquiring the risk are in demand that exceeds the demand for a Stanley Cup team in Toronto. Reinsurers are happy that so much risk is being transferred to them since it is their specialty.

News has come out that some of the insurance Web site sites are still not making money. Enormous losses abound but optimism runs rampant. The expectations are that everybody will be enthusiastically searching out sites to buy life insurance. The summer is full of growing e-commerce optimism for the public consumption but finally from under the terrible income statements comes the first glimmer of concern that life insurance is sold not bought.

A small string of words in The Poisonwood Bible on page 309 sort of sums up our life industry as we head towards the end of summer. In fact not even I could have written and been edited into such a distinctive combination of words.

“I am telling you what I’m telling you. Don’t try to make life a mathematics problem with yourself in the centre and everything coming out equal. When you are good, bad things can still happen. And if you are bad, you can still be lucky.”

We certainly have become numb to change and so blasé that even the pundits are bored. Guess we need to make some greater bad happen.