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Storebrand in Canada and Overseas

The following article was written for the Canadian Journal of Life Insurance (a publication that was probably the best forum for information, debate and learning in the Canadian life insurance industry) at almost the midpoint of my tenure with Storebrand. It was a great company that did not survive the 1980’s in Canada. Swiss Re acquired its operations here in 1988. The history in Norway continues but a mere shadow of it glory days. My memories are mostly of a tremendous team of people who made Storebrand work in Canada and built a first class reputation far in excess of its size.



Canadian Journal of Life Insurance

September – October 1981

On May 4, 1981, the company which today is known as Storebrand could look back on 134 years of active life. The company was founded in Norway, and domiciled in Oslo, or rather Christiania, which was the name of the Norwegian capital at that time.

Christiania General Fire Insurance Company for Goods and Household effects has undergone several changes in the past 134 years to become what is known internationally as Storebrand International Reinsurance Company Limited. In 1971, the combined Storebrand group experienced a single year’s result which surpassed the growth of all years up until 1947, its centenary year. To appreciate the company’s present status, one must reflect on history.

Conditions in Norway in the early 1800s were described as hopeless and despondent. Norwegian independence occurred in 1814, but her true economic and commercial freedom failed to materialize until the fourth decade. Even the King of Norway voiced the fact that rarely in the annals of history had there been a country to which nature had been so unkind. Yet, out of this bleak beginning there came the entrepreneurs who strove to improve the economic conditions of Norway. New commercial ventures were launched and amongst their successes were several insurance companies.

Fire insurance on goods and effects was the single objective of Christiania General, but as demand grew in public sector, extension of the company’s operations was in order. In 1856, coverage was broadened to provide insurance protection for buildings. Management at the time felt the company name was too cumbersome and not reflective of the broadening scope of coverage being offered (and this before the day of the ‘ad men’). Popular sentiment proclaimed the name “Storebrand” (meaning he “big fire” insurance company in Norwegian). This name served to show the difference between Storebrand and the other newly formed “Lillebrand” or, as translated, “little fire” insurance company.

In the 19th century, Storebrand had its own fire brigade in Christiania. The choice of name, Storebrand, was a wise choice for the particular circumstances in Norway in the 1800s, but difficulty arose in the English-speaking countries where marketing of reinsurance expanded by the late 1900s.

It was no easy task to commence writing fire insurance under the prevailing circumstances in Norway at the time of Storebrand’s foundation. The experience of British and other foreign offices, plus the acquired seasoning of the building insurance companies, was a priceless bench-mark. However, the new companies were immediately faced with many Herculean tasks which have no equal in today’s environment.

A major conflagration totally destroyed several blocks in the center of Christiania in 1858. This great calamity produced damage to the estimated cost of over 4-million kroner – an unprecedented sum for any disaster of that period in Norwegian history. The five Norwegian insurance companies suffered financial strain as a result of the devastation. Storebrand, while enduring a 345% loss ratio, was relatively in good financial standing when one recalls that three other insurers were forced into liquidation. Lessons can be erudite from such an occurrence – the imperative need for reinsurance became very evident. Up until 1858, Storebrand, like so many other insurers, had virtually carried all of its gross liability for its own account.

Storebrand’s first obligatory fire insurance treaty was signed in 1862 with eth Phoenix Assurance Company of London, England. The treaty covered Storebrand’s excess Norwegian business. The reinsurance coverage was expanded 10 years later with a second treaty with Northern Insurance Company. Both these reinsuring companies have maintained their treaty connections with Storebrand for over 100 years (interrupted only by the Second World War period).

Norway was the only county in which Storebrand operated for its first twenty years of existence. This market was, by its size, very confined and it was evident to company management that they should expand into foreign market possibilities. Through market diversification Storebrand could spread very effectively its liability at a far more rapid rate than they could ever hope to accomplish within its domestic area. In 1868, a branch office was established in Sweden and direct business was commenced in other European countries. In a short span of time, further branches were established in England, Denmark, Finland and Germany. Early underwriting and sales results as a direct writer in most of these countries failed to do anything for Storebrand’s growth, and thus the concept of expansion through this method was abandoned.

Retrenchment within Norway became the theme for the next several years and activity outside the country came to a virtual standstill. By the end of the 19th century, international reinsurance was becoming more and more an obvious route for expansion into foreign markets, avoiding some of the pitfalls or earlier attempts at direct writing in those same markets. Christiania General and Vesta Central Office for Foreign Business was constituted in 1902 as a joint venture of Storebrand and Vesta Insurance Company of Bergen, Norway. This new company was given the mandate to solicit foreign fire reinsurance, an area of expertise in which both forming companies were proficient.

Vesta was the actual managing company for the first 18 years of operation. Storebrand during this period was not content to play the role of silent partner and thus slowly increased its own knowledge of the foreign reinsurance markets. Success in this area prompted Storebrand to simultaneously increase its activities under its own name. Storebrand offices, independent of the joint venture, were started in New York and London. On January 1, 1921 Storebrand formally became manager of the foreign business of the joint venture.

As is the case today, Storebrand’s operational style has been one of slow (thus somewhat unspectacular) and deliberate growth as an international reinsurer. By 1940, when the Second World War engulfed Norway, the foreign operations of the Storebrand Group had matured into a very major portion of the total – 75% of the group’s business was now in markets beyond Norway’s borders. Needless to say, the war’s impact was tremendous on an international reinsurer who found itself in a position of being amputated from most of its premium income. Management reacted quickly by changing the New York branch office into a U.S. Corporation, under the name of Christiania General Insurance Corporation of New York. Somewhat later during the war, a similar corporation was set up in London.

At the same time, the original joint foreign reinsurance venture with Vesta was abandoned through mutual agreement of all concerned parties. After 40 years a very cordial cooperative operation was ended on December 31, 1940. Both Storebrand and Vesta pursued independently their foreign reinsurance expansion from that point on.

After the war, the new management team, under the dynamic leadership of Mr. Per M. Hansson, looked to expand Storebrand’s international portfolio. The subsidiary in New York, Chrisiania, was progressing on schedule as a professional reinsurance company in the U.S. General insurance market. Meanwhile the opposite course of events was taking place in the U.K. Market place. Storebrand’s view of the U.K. Market, through its London office, after their original marketing thrust, presented a very limited potential profit picture. After a few years of operation, the London subsidiary was sold and Storebrand withdrew from that very particular type of reinsurance business.

A very close association started in 1952, as Storebrand helped with the formation of a reinsurance company in Mexico – Reaseguradora Patria. Some 29 years later, this reinsurance company has matured into a leading and profitable reinsurer in the Latin American world. Storebrand maintains to this day a very amicable and profitable relationship with this Mexican reinsurance carrier.

Elsewhere in the world, Storebrand continued on its path of well-planned expansion through both branch offices and subsidiary companies. Storebrand International Re of Australia is today a continuation of Storebrand’s licensed reinsurance branch in Sydney, which was originally established in 1962. Although only 12 years old, Storebrand (U.K.) has today a broad and well-spread participation In the London reinsurance market. After the initial problems of the 1950s the new Storebrand (U.K.) went after a market in which they had the expertise, namely, the writing of marine insurance business.

Alpha, Compania de Reaseguros ahs its base in Panama and was formed by Storebrand and local interests in 1976. This company has taken over the Storebrand Group’s Central and South American portfolio. At the end of 1977, Storebrand Ruck with headquarters in New Hamburg, got off the ground. With paid-up capital and surplus of D.M. 20 million plus management with local expertise and leadership, it has made inroads into the growing reinsurance needs of Germany and neighboring countries. A milestone was passed in 1972, when the foreign business accounted for about 50% of the group’s total business. By the end of 1979, Storebrand’s foreign subsidiaries had increased in importance to the Storebrand group – in excess of $50,000,000 of premium income was now in the subsidiaries.


Storebrand in Canada began when the company commenced its second hundred years in 1948. Christiania Almondelige Forsikrings – Akliesselskap Storebrand, better know in English as Storebrand Insurance Company Limited – appointed Verner R. Willemson of Toronto, as “Chief Agent” for Canada on the 16th of November, 1948. Storebrand was one of what were to be several foreign-based reinsurers to be represented by Mr. Willemson and Sterling Offices of Canada Limited. They were here in Canada in name and finances only. Sterling’s offices handled the local administration, sales of general reinsurance services and underwriting authority. The life reinsurance operation did not commence until much later. The relationship between Sterling Offices and Storebrand was to exist until 1975 (non-life) and 1977 (life). In 1975 the general reinsurance went under the umbrella of a newly-formed reinsurance brokerage – Universal Reinsurance Intermediaries Limited. U.R.I. By the end of 1980 was ranked number 1 (net premiums written) amongst reinsurance companies in Canada (Canadian Insurance, Statistics, April 1981 Annual Review). Since 1975 (non-life) and 1977 (life) Sidney Gordon, President of U.R.I has been Chief Agent in Canada for Storebrand International.

Active pursuit of life reinsurance in Canada commenced in 1967 with the formation of a life branch of Storebrand Insurance Company Limited. Securities of $213,000 were deposited with the Minister of Finance and Receiver General of Canada under the provisions of the Foreign Insurance Company Act. These original deposits were split between Government of Canada Bonds, Manitoba Hydro-Electric Board Bonds and Province of Newfoundland Sinking Fund Debentures. A local Life Manager was hired and the marketing of life reinsurance began in Canada.

The timing was perfect since the two main “professional” reinsurers in Canada were still under the control of one parent company and the third reinsurer was just starting to become a force to be reckoned with in the market place. The conditions could not have been better for an aggressive reinsurer, but unfortunately Storebrand approached the life market in a very modest fashion (contrasted with the dynamic impact of Munich Re and Victory).

Hindsight allows one to speculate, in a biased way, on the reasons for the ten-year performance 1967-77. The head office in Oslo was cautious during this period so far as life reinsurance was concerned. Thus they could be faulted for not appreciating the needs of the Canadian market. Local management was also “spreading’ itself too thinly – expanding into the U.S. Market place before fully servicing the Canadian Market. The combination of head office and branch management decisions meant Storebrand drifted through the years 1974-1977. Production fell in relation to insurance sales and Storebrand International Reinsurance Company’s reinsurance market share fell to less that 1% (based on new reinsurance sums reinsured).

From 1973 to 1976 the branch statements showed net losses totaling $528,295. These operating results plus the relative stagnation of Storebrand International Reinsurance Company’s life portfolio in Canada prompted the Head Office in Oslo to pursue a means of turning the situation around, in keeping with the Group’s international growth and prestige. By late 1976, an actuary was added to the Toronto staff and for the first time in 10 years, local actuarial talent would provide guidance. This was the start of Storebrand International Reinsurance Company’s rejuvenation program in Canada. Robert Smith, F.S.A., provided the impetus that led to a total change in Storebrand’s approach to the Canadian reinsurance market.

The latter part of the 1970s presented an ideal scenario for Storebrand to re-establish itself within the Canadian Market. The new management team in Toronto found itself in the midst of a period of rapid growth for reinsurance premiums in Canada. A look at the figures for the reinsurers (excluding companies who are direct writers in Canada as well as reinsurers) Shows reinsurance premiums doubled between the end of 1975 and the end of 1980[see accompanying table]. In force sums reinsured rose to almost ten billion dollars – an increase of 150%. The numbers for new business sums reinsured likewise increased by almost 190%.

Storebrand International Reinsurance Company took an aggressive stance in late 1977 and thereafter in its pricing of reinsurance both for facultative underwriting and actuarial quotations. A transfer of just over $1,000,000 was made from the Head Office in Oslo (supported by the two Danish partners) to the branch in Toronto. There was now no doubt that the company was in Canada to stay and encouragement to increase Storebrand’s prestige and market share was forthcoming in tangible terms.

In spite of the fact that Storebrand International had started to provide lower reinsurance costs to direct writing companies in late 1977 and thereafter, the early results were somewhat disappointing. Life insurance companies in Canada were, in 1977 through 1979 period, reluctant to change the status quo concerning their reinsurance outlets. Storebrand International, as well as other “new” reinsurers, were often providing the better (i.e. Lower) reinsurance costs but were losing at the final decision time to the existing reinsurer who was being asked after the fact to “match” or “beat” the lower cost. In fact, some 94% of all new sums reinsured in 1975 were going to the three larger reinsurers – Canadian Reassurance, Mercantile & General, and Munich Re & Victory. Comparable dominance of premiums (83%) and in force sums reinsured (93%) also existed at December 1975.

The early frustrations soon diminished, existing only in very isolated instances, as the “new” reinsurers including Storebrand International became acceptable alternatives in Canada to the big three. By offering an alternative reinsurer that was flexible and operated on lower expense margins, Storebrand International increased its market share of reinsurance premium income from 1.6% in 1975 to 7.5% in 1980. the impact on the three major reinsurers of the new competitiveness was a reduction to 70% of total reinsurance premiums, 82% of inforce sums reinsured and 80% of new sums reinsured.

The 1,000% increase in the number of cessions to be processed per year and the increase in facultative underwriting volume of the same magnitude, has meant a 50% increase in Storebrand International’s staff size over the last four years.

Storebrand International is now firmly entrenched in the Canadian life industry and has re-established itself as a viable alternative to the three major reinsurers. The market itself has changed and the decade of the ‘80s should offer life companies a competitive and varied source of reinsurance companies from which to choose.

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Zap Goes Underwriting!

I am enthralled by the outsider’s view of underwriting as an arcane process that has remained mired in its narrow hallways for decades. “Why underwrite?” asks the banker new to insurance risk. “Because we will not take the risk otherwise!” says the mortality outsourcer or reinsurer in yesterday’s jargon.

One COO has observed that every time he looks at the process, he concludes that many underwriters are performing limited underwriting but large amounts of clerical work. “Yes, but if you do not have all that senior talent reading all the files you may miss something,” says the scribe of underwriting fame. Wise answers to complex questions? Who are we kidding? The wisdom comes from refusing to spin the sporran around and call it a fanny pack!

We must reinvent the risk selection process. One does not have to write at tedious length to make the point. Our industry cannot continue on with manual underwriting labour being the tour de force in the new business department. Computers should handle 80% of the cases — those that are clean and unfettered by medical, avocation, aviation, occupation or financial issues. Save the under- writers for 20% of the cases that are unique and beg for more attention.

Is this revolutionary? Hardly. A few selected companies have made the break from the manual tedium of that well-paying clerical function called underwriting to embrace real risk selection by top-paid professionals. Couple the computer with inventive ways of managing the real underwriter and you have a winning company.

Years ago in MO, I said in one of my visionary moments that the world of insurance would be swamped with underwriting technology by 1999. Instead, we have the debate over which is better — the numerical points system born of the ancient but still practical numerical rating system or the “in/out” method. (The latter is not a variation of the rhythm method but rather a poor descriptive of the yes/no method to determine one’s eligibility for a product’s price.) Is this debate a mere sham to delay the decision-making process to automate the mundane?

The in/out method uses the simple decision tree that if any answer is positive you are out of the price assigned to the product class applied for. This is a good system and accommodates rudimentary risk selection. Because an individual applicant fails one question, does that mean they are indeed an inferior risk? If you priced it that way, then say it is so. Then it’s a no brainer and companies can hire the cheapest of talent to “underwrite” all their cases. Fortunately, to protect some jobs, exceptions were built to add a dimension of thought to the under- writing process. A positive answer could be ignored if all other answers are negative.

Now since even that secondary process of gray area underwriting may be automated with a rudimentary rules engine, underwriters developed the personal touch. On a given day for a given agent, the underwriter can always “give in”, “make a value decision” or just want to feel good by ignoring the positive answer(s). What we do not know as an industry is how often that is happening. Is the twentieth underwriter in the department making far too many exceptions and how would I ever know that in a manual environment?

The points method is closer to the historic risk selection methodology. It assigns points or takes away points depending on the various positive or negative answers. It tries to weigh the total to see if a person falls within a range. Thus, unlike the in/out system, with points it is known in advance that one can have negative results but with strong positive features one can still fit into a favourable category. Is it better? In my opinion it is — simply because it allows far more latitude in assessing the longevity of an individual but it requires far more structure at the outset. It is my favorite but that does not make it the “be all/end all”. Underwriters can still overrule the points total and still give away the shop unless data is collated and delivered that tells me what all underwriters are doing.

What makes both of the above effective is the workflow manager and reporting tools that deliver regular and concise reports to management about how many exceptions are being made, the degree of those exceptions, and the cost of those exceptions. I can tolerate exceptions to the rules on, say, 1% of cases or amount of insurance, provided I know that number. Only automation can do that. The system can put the risk in a category approved by underwriting, medical, marketing and

actuarial. But the system must point to underwriters who are going too far in their exuberance to say “yes”. This type of data allows you to evaluate whether your rules are too harsh or your underwriters too liberal.

Give me the consistency that comes from the likes of Cprompt’s AUS software or any of its competitors and I am an ecstatic executive. Load the software with the rules that all agree to and can see and, voila, consistent equitable underwriting. I know that the portfolio of risks that I am assuming is well within my tolerance for long term financial rewards and not long term surprises. The system will tell me which underwriter needs cajoling or an infusion of dogma. It allows an underwriting executive to meet the glares from the upper echelons with confidence as he reels off statistical proof that the company’s risk selectors are earning their salaries.

Here’s how one major life insurer and their underwriting leadership view the technology question and why they are moving to reconstruct their underwriting area to meet the challenges. I thank them for allowing me to quote from their executive summary. It clearly illustrates how they intend to meet their underwriting challenges.

“The principal benefits which we want to obtain through the use of an Expert Underwriting System are:

“(1) More consistent decisions. System-driven assessment processes ensure that all salient features are taken into consideration, and weighted appropriately. This applies to standard and substandard business.

“(2) Elimination of errors on quantifiable preferred underwriting criteria. The evaluation of preferred cases, with multiple risk factors, creates room for human error. Basic preferred underwriting criteria are based on quantifiable information, such as height and weight or blood pressure. Machine screening eliminates these types of errors.

“(3) Reduction of inappropriate preferred exceptions. Underwriters may be under considerable pressure to grant exceptions to allow preferred rates on cases which do not fit within our rules. In some audits of non-system underwritten business, exception rates of up to 20% have been identified, with serious preferred mortality implications. Automated underwriting reduces these situations. Rules for allowable exceptions are built into the system. Other, underwriter based exceptions, are limited, and the system produces reports listing exceptions which can be used for quality control purposes.

“(4) Strengthened audit control. Expert systems provide a clear audit trail for identifying numbers and types of exceptions, as well as evidence and substandard/decline ordering rates on each underwriter. These enable both insurer and reinsurer enhanced ability to review underwriting activities. This ensures that company and reinsurer underwriting standards are adhered to, and that risk to both is reduced.

“A second important objective will be to optimize the use of our tele-underwriting system. We intend to realize the following benefits, which will impact us financially (aside from soft benefits such as increased agent and customer satisfaction):

“(1) Better quality underwriting information. By replacing the agent with an objective and trained professional interviewer, and the use of effective drill-down questioning, we believe that there is less undisclosed or understated client information, and that the quality of information obtained is superior to agent collected information. We believe that this will result in more accurate risk assessment and improved long-term mortality experience.

“(2) Reduction in discretionary underwriting requirements. Due to the more detailed information obtained via our interviewers, we can reduce the percentage of cases with discretionary underwriting evidence, which will reduce our other product costs.

“(3) Reduced discretionary requirements also reduce administrative costs. Significant administrative costs are incurred whenever we order and have to subsequently follow for requirements. Reduction in ordering results in product cost reductions on the administrative side also.”

Software such as this company is now seeking brings consistency to the process that lets us move on to daring remuneration changes that finally reward the premier risk selectors. On a visit to another company in a foreign land, I witnessed one of the most creative remuneration packages for underwriters in action. My first reaction as a pessimist was to say it would doom the company. My second reaction as an optimist was to say that this is the answer.

This company rewards underwriters over and above the standard salary package with a true performance bonus. On a monthly basis, there is a reward for exceeding the standard number of final decisions made on pending cases (potential revenue sitting in the system). Make a final decision and, low and behold, revenue is earned. Thus, if an underwriter is expected to make 15 decisions a day and he hits 20 cases per day for the month, a bonus of $X times 5 times the number of work days in the month equals the bonus.

The second tier of bonus compensation is even more avant garde. Yes, the company went even further in enticing underwriters to be more revenue and marketing focused. At the end of the year, an underwriter earns a bonus based on a percentage of all premiums that they underwrote that went into force. For about a third of the underwriters in the company, the bonuses can be hefty — equating to multiples of base salary. For other underwriters there nothing has changed — they are of the old school. End result? The company gets far more from fewer people and it wins by pocketing the money it would have paid out for the more traditional head count increases in underwriting staff.

The Nay Sayers come from all sides, speaking of ruin and integrity issues. Yes, it is a stretch I would be the first to admit. With this type of inducement, won’t underwriters accept everything and anybody? The industry would be ruined!

But consider this. Why would an underwriting professional put their company at risk when they are under more scrutiny than currently exists in most companies? Internal audits and regular and frequent audits by the reinsurers who actually take the risks must be within the tolerance of prudent underwriting. Failure to meet the standards means a forfeiture of the bonus and perhaps one’s job, should the underwriter be deemed wantonly careless. Is it any different than the pricing actuary getting a bonus based on production? Professional decent people will not do you harm. Scoundrels will be found out through scrutiny shared by all the players. The current system minimally differentiates between the brilliant underwriter and the mediocre.

This company is ecstatic about the positive benefits they are witnessing. The producers and marketing people feel that the underwriters are a breath of fresh air. The battle between the underwriter and commissioned producer is slipping into obscurity. I applaud the innovations and I hope we see similar revolutionary thinking enter the Canadian market. The medical superiority of today’s underwriter now has to metamorphose into a marketing sophistication, supported by software tools and company tolerance of new reward systems. Then it will begin to resolve problems, such as expediting applications that take 8 minutes to complete on the Internet and 100 days to issue.

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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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Cohabitation is more fun than coinsurance

By 1991 the distributors’ questions about reinsurance and how it worked were front and centre. One mystery was the method of paying the reinsurer for taking the risk. How were premiums transferred? What did it cost? Was it done case by case or en masse? Marketing Options editor gave me the push and the space to try and answer as best I could in terms easily understood by a mass audience (Steve’s MO was probably the most sought after life insurance publication of it’s time and its worshippers still abound and mourn its demise).

I am still at Manulife Re at the time of writing this article and thus I was deemed neutral and tried to remain so as to give none of Manulife Re’s clients cause for concern.

Reading the article today I find it still makes sense. It could be more sophisticated but to this Ontario farm boy it says what it says and brevity rules since it is time to milk the cows again. Okay I lie, Grandma and Grandpa insisted I never milk because it was too harmful to the precious teats.



Marketing Options

March 1991

There are many mysteries attached to the term reinsurance. Most mysteries are exaggerated to keep the allure of the marriage between insurer and reinsurer attractive to all concerned. Whether your favorite insurer is practicing polygamy (the use or abuse of many reinsurers) or monogamy (exclusive hanging in there with one familiar face), the methods of reinsurance and terms are rather tried and true.

The terms involved are mundane compared to the awesome terminology with which you’re familiar. One popular reinsurance term is ‘treaty’ which simply refers to the formal and, in this day and age, usually written arrangement between insurer and reinsurer. Working with a reinsurer, and insurer can either make use of a yearly renewable term (YRT) treaty or coinsurance (CO) treaty but in exotic lands the modified coinsurance (MODCO) agreement is still a practice that has maintained a role in insurance just like the rhythm method in society. The treaty can accommodate the insurer by accepting the ‘risk’ on an automatic basis (99.99% safe), a facultative basis (99.97%) safe, or the more adventurous facultative/obligatory (99.96% safe). Each could be value rated at 100% if the chance of human error is nil but as you and I know in a head office environment that is as likely as 150% first year commission on an annual renewable term plan.

Occasionally agents boasts that their favorite company makes use of only coinsurance and thus their policies are handled faster, better, and with more security that if YRT were used as a method of reinsurance. The agents making this out of character exaggeration are wrong in their perception of the relative merits of this method of reinsurance.

Coinsurance is the ‘co’insuring of the policy in a predetermined proportion that basically shares the costs of issuing the policy, the face amount, the agents commission, and all ancillary benefits attached to the policy. In the end the sharing of the claim or the cash surrender value consummates the agreement. The benevolent reinsurer pays the insurer a yearly commission that should reimburse the insurer for its costs of operation and, in most cases, a shade more- thus rewarding the insurer for having such good agents producing such sterling business. These payments are guaranteed to the insurer as long as the insurer continues to pay the reinsurer its portion of the basic premium, an event that the author recalls never witnessing otherwise.

The simplicity of the insurer and reinsurer being in synch with the premium flow allows for both to be in a profit mode at the same time. Should each of the parties assume different patterns of cash flow, one could be in a loss position while the other is in a profit position. This reflect one of two realities – one wants to have loss carry forwards while the other wants to take profits early or, one of the participants is making a mistake. In the case of the latter, and it has occurred, there is only one thing to do and that is to chalk it up to the experience. Other attractive options include readjusting mortality, expense and profit assumptions or praying that the product doesn’t sell well!

As all of us realize, mortality increases with age except for that anomaly of mortality between age 16 and 25 when brains are lagging far behind fast cars, peer pressure and cash for exotic experiences in life besides those curing acne. The humble yearly renewable term method of reinsurance simply charges the insurer for the expected mortality that should occur in the year currently being lived. The premium here is the rudimentary mortality table, an actuarial work of art that evolves from numerous statistics raised to the nth power where n is very big, plus a tiny amount for expenses and less for profit.

If an actuary were available at this juncture, we would have an elaborate and unfathomable explanation for the premiums but if one looks at an annual renewable term plan one can see at a glance what reinsurance YRT premiums resemble. The logic is the same and there is nothing wrong with the insurer paying for its risk coverage as needed provided the insurer is saving a portion of today’s premium to pay for the increasing cost of reinsurance in the future.

The agent should be safe in making the assumption that the insurer has done its homework and can accommodate all eventualities. After all, haven’t the companies’ auditors spent hours investigating the in the insurer’s and reinsurer’s practices and haven’t the provincial and federal government insurance inspectors made absolutely sure everything is safe for the consumer?

Bottom line! Whether your favorite insurer reinsures on an YRT or CO basis, the impact is, for all significant reasons, negligible to the agent.

Incidentally, MODCO is coinsurance except the reinsurer gives the investment portion of the premium or the reserves back to the insurer to invest on the premise that the insurer is a smarter investor than the reinsurer. This obviously maximizes the chances of the reinsurer’s investment yield matching the insurer’s! Enough said since the employment of MODCO in Canada is a neglected art form that is about as common as a Toronto Maple Leaf winning streak.

Trust between a reinsurer and insurer is truly evident in the automatic treaty. What this form of trust shows is how much the reinsurer is willing to allow the insurer to bind it without the necessity of the reinsurer reviewing (re-underwriting) the complete file of the proposed insured. Quite often the senior underwriting talent in the ceding company, the life company, can accept a case for millions of dollars while retaining (keeping for themselves) only a $100,000 or more. What this says is that the underwriter is acting on behalf of both the insurer and reinsurer.

The automatic treaty guarantees the case in proportion to the risk sharing and both parties have combined to the risk sharing and both parties have combined strengths to support the consumer via the agent. Wise use of the reinsurer through automatic facilities enable the ceding company to complete with other institutions who opt to retain far more of the mortality risk for themselves which is often a function of their size. The basic premise of the automatic treaty is that the insurer must cede a portion of a policy to a reinsurer and the reinsurer must accept said portion. Two musts make fro a marriage of tranquility since there are no options.

Facultative reinsurance involves the physical handling of more paper by the reinsurer since it must review (re-underwrite) all the cases. This by its very nature consumes valuable time which the agent can ill afford thus it is more often than not only employed for problem cases – those vary rare occasions when case warrants and extra premium or financial scrutiny.

An insurer can use more than one reinsurer to obtain the best possible price for the case and this ‘facultative shopping’ for the lowest price frequently involves sending copies of the underwriting evidence to several reinsurers. Once the policy is issued, regardless of ceding company’s retention on this single case, the security of the reinsurer is of the same magnitude as in the automatic treaty. The premise here in facultative land is that the insurer may seek the facilities of a reinsurer and the reinsurer may take the case or part thereof at some price.

Facultative/obligatory, or as it is affectionately called ‘fac/ob’, is simply the opportunity for an insurer to pick a case and ask the reinsurer to take it. The reinsurer is obliged to take the risk. Once again slowly – the insurer may cede the case to a reinsurer and the reinsurer must take the case. Or, as practiced by some, the insurer may cede the case but the reinsurer must take the case if it has not already filled it retention on this life with previous cases. This form of treaty can be potentially written to accommodate the most unusual of situations but in reality its purpose is diminished by the far more attractive automatic treaty.

Courageous insurers make judicious use of all forms of treaties and methods of sharing some of the meager premiums with the innovative reinsurers. The industry has been well served by the combination of talent that permeates through reinsurance treaties. Contract is never used as a term since it lacks the diplomatic and global magnetism of the word treaty which implies great powers coming together to solve the needs of the agent.

If the curious policyholder ever wanted an explanation of the world of must and mays, the industry might have to invoke a 20 day free look. Thank heaven, behind both the musts and mays is, in most instances, a formidable alliance of insurer, reinsurer and retrocessionaire (how could I forget my role?) waiting to assure the best price and best security.

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Is The Worst Over?

Insurers blame reinsurers. Reinsurers blame insurers. Advisors scratch their heads and other parts if they are ex baseball players or rock singers. When the world of risk selection took a turn for the worst everyone wanted to be seen as an innocent bystander. No one volunteered to take the heat for what seemed like chaos. We all want to circumambulate the issue. But has it gone away?

A prolix definition of the issue would not endear me to the advisor or underwriter so I will use limited verbiage to describe my view on the changes in underwriting. The following has lead to the environment for underwriting becoming far different than in the good old days. The following means frustration for those who distribute our products and our decisions. The following was not a conscious tactic or strategy by any one company or the industry.

Training of new underwriters appeared to come to a sudden end. Yes there has been the odd company training new underwriters but the “experience” side of their development lagged and the wise old sages took flight. Retirement, reading attending physicians reports at home, working as an anonymous consulting underwriter or just plain disappearing grabbed many a talent from the experienced pool. This hurt the mentoring process as well as depleting the wise counsel the advisor sought on the problem cases.

Salesmanship or simply building self confidence was not seen as essential as medical knowledge. It appeared we wanted our risk selectors to have the knowledge of the neurosurgeon but the delivery skill of a nerd without his/her tapped glasses. As I travel the globe I realize this is a global issue so do not feel it is unique to Canada. Courses or mentoring on how to sell your decision and communicate well are a rarity. Without that skill set the esteem of the advisor drops further as they say “the blathering idiot of an underwriter left them comatose” ( I myself would never refer to an underwriter as an idiot).

Prices fell. Requirements were minimized. Speed was the mantra of the day. Reinsurers struggled with the whole concept of auditing to determine what the benchmark perfect underwriting decision was. All that occurred without a master plan. Risk selection or categorization was almost an afterthought of the marketing visionaries. Low prices sell so service surely must be a distant second or third on the advisors’ “want list”. How many advisors would dearly like to see a higher price accompanied by almost guaranteed better service from the new business processors? How many companies could sustain better service? When one senior industry spokesman was heard saying that their 2006 service goal is “to be no worse than everyone else in Canada” I have to ponder the likelihood of real tangible service improvement.

Despite all the mergers and acquisitions there is a shortage of senior super underwriters even though there may be many waiting to get to that esteemed title. Thus we have advisors scratching there “whatevers”.

Is the worst over? I think it is, as a quiet calm develops between insurer and reinsurer as both agree on a reasonable middle ground forged by trial and error more than skill and diplomacy. As witnessed by a more realistic approach to foreign travel, when all put their mind to an issue a solution is found to any problem. Separation of clerical function from technical function is becoming paramount to empowering the underwriter to really manage the cases with issues attached. New management directives will apply limited resources to the problems and find simpler ways to handle the mundane in new business work flow. Senior executives are now leaning to service as the true differentiator since the price we charge has reached a low point bordering on the point of looking like it was derived by the unconscious incompetent.

I sense the worst is over but the communication shortfall has to be addressed if we hope to stay positive and hope that more underwriters do not disappear to run a shebeen in Ireland. Surely it has to be easier for an underwriter to talk with an advisor than manage the frequenters of a shebeen.

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Zymurgy is the act of fermenting with respect to the making of good wine or beer. Well for that matter zymurgy can also produce bad wine and beer! I had to stretch to use the word but it is so apropos given that the fermenting going on in the insurance business is far from spring waters (Evian spelt backwards is naïve!). We are part of the great cauldron of fermenting financial services. We in Canada are not alone. We are mere followers of a global trend. We may even at times, heaven forbid said the American, be leaders. In an industry shrinking in terms of participants and at the same time short of leaders emerging in sufficient numbers, we are fermenting into unknown ale unless the ingredients are modified to meet the needs of future stakeholders

We are all too well aware of the mergers and acquisitions that abound and have been slowly occurring for the past decade. They do mount up and on reflection we have lost many but few of us would resurrect any of them. The leaders of each disappeared into retirement, bigger insurers or became consultants given their credentials. The consolidation of our industry which has escalated in pace is the foundation of our brew.

Gone are the stand-alone life insurers of British Columbia having succumbed to acquisition mania. Who remembers Seaboard, Glazier, British Pacific, Fidelity or even the old quaint North West Life? Gone from Alberta are the flamboyant and often controversial Life of Alberta, Sovereign cum Family Life, Rocky Mountain Life (does anyone have in their garage a purple Cougar, the Cougar car that is?), Paramount Life and the early Financial Life, or even the agent’s friend Substandard International (the near insurer). Saskatchewan said goodbye to Pioneer Life but hangs on to Cooperators and gained Crown. Gone from Manitoba are Monarch and the original Citadel. Solid and bland but gone. Ontario has a list too long for the editor yet they include previously strong names and even reinsurers. There were many and each had its quirks and unique attributes even in their demise. Gone from Quebec are just as many one-time regional life giants like L’Unique and Cooperants. My lack of fluency shortchanged my intimate knowledge of their stories. I love the Maritimes but I am hard pressed to find something to follow after “gone are ….”

The visionaries after a good smoke had predicted that the workers in our industry would run out of places to work by this new century we have entered. Why is it then that I constantly hear the wailing of presidents and senior executives as they face the truism “there are not enough good people to go around these days”. I never heard that when I was a young man just yesterday. We don’t say too loudly yet “I’m looking for a good man” since today the good man could be and often is a woman. Thank the heavens for the passage of time and the death of “only men will be tested for their potential leadership in our company.” The later being a very true statement by an early “boss” (now there is an antiquated word) who felt it was wrong to invest in females in the company since they would not be around for the duration nor could they be company leaders. So today where are all the good people?

The Globe & Mail of 00-09-22 had two articles on employees and it adds to the mixture of issues within our industry even though they were general comments. Barrie McKenna’s article titled “Take this job and …” talks of the least loyal employees. Nothing in the article will surprise any reader and one wonders why it got so much space. Canada ranks in the middle of the 32 nations covered. Is anyone surprised company loyalty is greatest in Columbia? Hello, read the front page for a while. That company loyalty is greater in the US than Canada was the only surprise but maybe the insurance industry is just not your average industry. Hong Kong and Singapore are at the least loyal category and that is as expected given their zeal for capitalism and making money right now thanks. Buried in the article was the comment I wrote about recently and that is ethics. The story states “nearly one-third of Canadian workers have witnessed unethical behavior by their employer within the past two years.” Hopefully not in the insurance business. The other relegated to page 12 story was by Madelaine Drohan and she asserts that research shows we (Canucks) are not as insecure in our jobs as some pundits believe. I agree with her and that’s all I am going to say.

Murray Axsmith is considered a world leader in career management services and in its role it provides the marketplace with its annual survey (see highlights in Transitions Volume 12, No. 1) of what’s hot and what’s not in the recruiting or dismissal business. I’ll be positive and stick to the summary of hiring highlights while leaving the ten top dismissal issues to the David Letterman’s top ten list someday. The survey, under the auspices of a John Hamilton who I am sure would love to talk to you about the detail, compares trends from year to year and thus is a great benchmark for employers as well as employees.

If you are one of those people who can’t lead a team to the bathroom nor converse with aplomb and passion with your staff, you are in the majority. After writing that masterful sentence I realize that in my experience those of you who are in the aforementioned group most often do not realize you are in the aforementioned group. Again, after writing that second masterful sentence I realize there are many of the human species that don’t wish to lead people anywhere let alone converse with the milieu. Everyone is different and our skill sets or innate desires vary in humungous fashion. The survey is emphatic in stating that the most difficult skill sets or competencies to be found are interpersonal skills and team leadership. Thus the reason for the return of the one on one interviews with other than just the human resource staff. Reference checks on these hard to quantify skills become very important. The study talks of increased use of the interview, reference checks, testing while dropping the inquisition panels that were once popular yet s warm as Inuvik in January.

So here we have it, a shrinking home for talent and an even faster shrinking reservoir or cauldron of talented leaders and people endowed with interpersonal skills. But is that being fair to the human race as we race through our daily lives? Today the reward is for the here and now not the there and future. “Give me the quarterly results and make sure this year is 15% top line growth coupled with 15% bottom line growth,” said Ms. Y (name withheld for sake of sanity). In the age of instant gratification and rewards that must be felt, smelt and tasted immediately there is perhaps no room for saying lets wait 10 years and see if the product emerges as per the assumptions so cleverly constructed to squeeze another penny from the price. How do you inspire staff and leaders to leave a company in excellent shape, as judged 10 years from now, when stock options, bonuses, compensation and gratitude stem from the latest quarter or years results? Stand up the 3 of you who deep in your hearts have any real intention of being in the same company (or the new owners company) five years from now. All right all you 60 year olds we already discounted you in our severance calculations (early retirement whether you want it or not).

Is the fermentation creating putrid vinegar just beyond our sense of smell and vision of three-year plans and rewards or is this new twist of ingredients (short rewards, ethics, loyalty, leadership and interpersonal skills) going to produce a fine wine to be left for the connoisseur of our industry? I wish I knew. I do know what I hear and that is a lack of faith in finding the leaders with the criteria to make it work. The good news is the admonishments buried in the surveys will surely change in subsequent surveys, as the leaders appear to fill the void.

We just have to adjust to the new millennium’s prerequisites to success. That is, enjoy it while you can for a new longer-term reward packages will emerge to prevent the emaciation of our industry. Will it stymie the creative brilliance that has escalated the competitive bar? Not a chance and the brilliantly creative may even learn to talk to their staff about it in sentences of more than three words! The convergence of people skills and company needs has often been out of synch (just look at the good old days of only actuaries running the industry) so by happenchance we may have all our leaders emerge at once fitting the exact requirements of the companies’ “qualities in staff we want to hire list”.

I know I am still waiting for my personal rhythm to fall in harmony with some company’s rhythm.

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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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It’s not in the Numbers Stupid

For the past 4 years, no forever, financial underwriting has been a mystery to all the neophytes approaching their first large risk appraisal. With great trepidation the risk appraiser moves cautiously, page by page, in search of the holy grail (they did find it is Daniel Brown’s book, right) in insurance. Pellucid financial justification or the undeniable link between owner, insured and beneficiary is the mandate of the underwriter. It is indeed the underwriters’ Holy Grail.

The underwriter has studiously spent years learning all the medicine they need to know to do heart surgery or make a psychiatric diagnosis. One wonders what a psychiatrist would label a person who believes without formal medical training that they can predict the rate of death of people. We label the person an underwriter. They do spend an amazing amount of time learning medical underwriting as it is called to the point they are so engrossed I nit they may not see the risk from the impairments. This is not meant to knock today’s underwriting education but merely but merely, no vociferously, state there has to be a balance between the medical and the nonmedical. The risk is more than a well controlled diabetic at age 42. It is a 42 year old diabetic who wants to buy insurance now for what reason — who is to benefit? Who is to pay the premium? Why now? Why so much?

Looking back I had a rudimentary education through outdated texts, medical doctor mentors and sage underwriters’ counsel in medical underwriting but an intense immersion in “does it make sense” or as many today refer to as “holistic underwriting”. The whole risk is most often greater than any sum of the parts and the mechanical approach of today’s underwriting clinicians seems at times to be blind to whole risk. Regardless of examples learned the hard way in many markets around the world they go ignored under the mantra of “it will never happen here” or “that only happens in textbooks to scare us”.

On a recent tour of duty and pleasure amongst global underwriters I heard of current (right then and there real cases) issues arising where because of poor diligence 5 insurers were faced with what appeared to be a case of fraud where the insured loaded up from five companies and then “died” (at least there was somebody’s body in the funeral pyre). Each policy was greater than t he average size normally issued in the market. In total the amount was extravagant and the agent’s notes were pathetic but overlooked by the eager medical underwriters (five of them). Did they all miss the risk? Yes but medically they did a great job.

Quickly on to the next country. Man makes claim for loss of left arm from below elbow. Poor man lost it at job site where as a butcher’s helper he says he accidentally cut off is arm. That is certainly sad and it makes me want to pay the “dismemberment benefit” soonest. Wait! What is this; the arm is not at the work site nor is there any blood on the table the “accident” supposedly happened at? Further digging reveals the arm was found in an old shed and the person it turns out was out to defraud the insurer. Buy as much as you can and then inflict the unthinkable (at least in my world) by chopping your own arm off! Luckily the claims person noted it all made no sense — relative to person’s income and status in life the amount was exorbitant but okay as who really does financial underwriting on dismemberment policies or benefits? Long court case to fight and in the end the cost is still high to say no to the claim. Could the underwriter have foreseen the pending fraud? Probably not and thus we move on even though there is lots of controversy over that companies financial underwriting.

Next country and we see the North American phenomenon of lower prices bring “churning” and rampant replacements as soon as the charge back period is over. For years actuaries fall over each other lowering prices based on ever greater speculative pricing. They hide the steep and slippery slope downwards in ever harder to delineate risk classification monikers while pricing out the cost of delineation. Now the savvy and fiduciarilly sound advisor (agent, broker, and producer) has a strong duty to client who remains in good health or is cleverly hiding ill health to “churn” the business. Then full circle back to the actuary who says that is not fair since it leaves my old portfolio stripped of the much needed healthier lives and my mortality results will pale in comparison to that which was assumed in pricing. Not to worry because I am writing much more “new” business at lower premiums and inferior underwriting (remember the costs have been stripped to eliminate many standard requirements used that helped build the great mortality results of the 1980’s, 90’s and early 00’s.

In spite of the hazards of racing the price downward and encouraging “churning” these new countries know that like NA they can blame the “churning” on marketing and sales or better still lets tell the underwriter to fight the marketing people over justification and keep the actuary pure and free of incrimination.. Talks of cost slashing justification is focused on using smoker non-smoker splits and then let’s go to preferred even though we hardly have enough statistics to reflect select premiums from aggregate. In the emerging “churning” markets, without a clear mandate to control true replacements or seriously restrict the issuance of the new with the lapsation/termination of the old, the issues are a rising again without solutions. Instead overinsurance abounds as they do nothing to guarantee that the total in force is controlled beyond the weak “it is my intent to replace”. The latter comment in most applications has about as much validity as saying the Toronto Maple Leafs will win the Stanley Cup (last won in 1967 so at least I was around to witness it).

What is the solution to the underwriting the whole risk including “does it all make sense”. We can start with an equal amount of financial training by accountants, preferably those who did not work on the likes of Enron but do have forensic expertise. In most of companies the expertise lurks in both the investment and accounting areas where people routinely read, analyse and conclude on t he validity of value of an enterprise. That is our wise counsel. To take the financial texts of investigative accounting and investment and distil it into underwriting texts is the challenge and we as an industry have yet to do that.

In the very early 1980’s or very late 1970’s one of the world’s wisest underwriters had assembled the true financial expertise (both accounting and legal) and held education sessions for a handful of eager ears. Most of those ears went on to be the best “holistic” underwriters of modern times. At the same time those who became engrossed in only the medicine of more laboratory testing and mechanics fell woefully short of being “holistic underwriters”. Bob left the industry and with it his ability to garner the educators and the students to a common goal. Today there is indeed a grave shortage of mentors on the subject of “holistic underwriting”. Medicine is more than well served by tremendous expertise. Every where I poke my head (the rest of the body is slower to arrive these days) the demand for financial underwriting training — more please is the call over and over again.

It is not in the numbers stupid. It is in the whole case from the agent who writes the application up and their supposedly field underwriting to the senior officer who approves the underwriting budget. Somewhere in there we have to be able to learn to look between and through the numbers and discover what is really happening. In 99% of the cases it is obvious and there is nothing to get nervous about but to find the other 1% we have to look a t the whole case. Thanks Charlie (and Mom) for constantly asking me to ask “Does it make sense?” Wherever I go today it is still the best lesson to learn in underwriting and I hope every neophyte learns it early and before they are faced with 5 claims, five companies, five agents and worth five times more dead than alive. It does happen and in every country that ignores the global experience and underwriting weaknesses.

Ross A. Morton



Approximately over Regina, Canada

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Testing and Confidentiality Under Review

I wrote this paper to clarify what I said in numerous speeches at the time. As is often the case when I open my mouth and present a topic to an audience, be it large or small, I get asked to put my opinions or views in writing. Sometimes I forget what I said in the speech and thus the written word comes across as different, Perhaps I should write what I am going to say first but that would take the element of surprise (for both the audience and myself) out of the equation making it all boring.

1990 was not any more notable a year than any other but it was the year I entered the giant company environment where I was to last 4 years and 5 months trying to conform. I was far from a conformist (read politically savvy aspirant) and despite numerous attempts by many senior executives (some who quit while they told me it was good if I stayed!) and psychologists I never did adapt. I did learn though about privacy and the need for it in a company,

Since 1990 the insurance world has built far more stringent privacy guidelines after taking the initiative or being legislated and regulated into change. Information continues to be protected and it is not taken for granted. After 14 years since the article I cannot recall any lawsuits over a breach of privacy in regards to the HIV test result. If there have been one or more actions I am unaware and can only assume that lack of public ridicule and press means we did and are doing a good job.

The HIV tests and the masks around it have shrunk in number but the testing amount remains at about $200,000 and the sentinel effect is credited with being the main reason for keeping the routine test. There is a chart showing the costs of AIDS related deaths by type of insurance from the late 1980’s and it would be interesting to see a current chart. Only then could we see what impact all the effort produced.

Ross A. Morton


Written during period with

Manufactures Life Insurance Company

March 28, 1990

In the early 1970’s when I was a mere novice to the world of life reinsurance, I was in awe at the purported depth of expertise and business acumen of my superiors. That quickly became a shattered dream when a humungous claim presented itself to several of the more significant reinsurance companies. One day prior to the anniversary of the policy the insured was found murdered in his home in Oklahoma. The spectre of a premature death claim for $15,000,000 (U.S.) was too much of a shock for the executives of the reinsurers.

A hastily called meeting at the Chicago airport resulted in a hastily concocted statement based on incomplete data about the claim. The message implied to the lay reader that the likely cause of death was suicide and thus under the contract no payment was forthcoming. End of story.

The problem was that someone forgot to await all the information and a subsequent note indicated there were two bullets through the man’s head. This case was eventually settled for one half the amount and ahs become a classic case of overreacting in too urgent a fashion. It also showed that reinsurance executives are human and thus prone to at least one error per decade. I hope I do not commit the ‘90’s only error.

Today, as a human being, I want to convey the message that over the past five years the insurance industry has struggled to find the most acceptable method of risk classification, especially for HIV positives. Beyond the actuarial numbers and the increased payment of claims, (Chart 1), I have witnessed the frustrations of applicant, agent, insurer and reinsurers in trying to cope with the issue of testing and confidentiality. The solutions have emerged as the wisdom of the industry discovered fair and equitable alternatives to just declining to insure certain “profile” individuals. “Wisdom is the ability to discover alternatives; there are many ways to reach solutions.” (From a fortune cookie by Far Eastern Cookie Co. Ltd.)

The past decades have been full of many instances of reducing the price of life insurances for the majority of purchasers. Pure life insurance in the form of term coverage has fallen to nearly 30% of the 1970 price, especially for those in their thirties who are non-smokers. The AIDS issue is almost the only example of a medical impairment that reverses the current trend. In the early days of applicants applying for insurance with a history of auto immune disorders the risks were quite often accepted due to the oversight and ignorance of the lay and medical underwriters. As evidence of rather early and thus unexpected claims emerged the industry found itself in a corner surrounded by the realization of mounting claims that surpassed the expected. How to correctly perform the needed risk classification process became everyone’s quest in all parts of the world that had a life insurance industry.

Insurers are able to provide protection because they can predict, with reasonable accuracy, how many individuals in large, fairly homogeneous group die from year to year. On the basis of this predictability, they assign to a given group those people with similar characteristics….mainly age, sex and health. The information provided by the applicant enables the insurance company to decide the level of risk that person represents and thus the group to which he or she belongs.

Like severe coronary artery disease or recurrent metastatic cancers, AIDS and HIV positive individuals presented the industry with a risk that is could not adequately classify and price for at this time. How to fairly perform the risk classification process, with what tools and at what cost became evolving challenge.

In Britain the industry adopted a series of new questions to be answered by the applicant as well as the use of HIV test. An excerpt from the typical application for insurance is as follows:

“1a) Do you belong to any of the following groups:

i) Homosexual men

ii) Bisexual men

iii) Intravenous drug users

iv) Hemophiliacs (although in the UK it was spelt with an “ae”)”

The representative questions were targeted at those groups of individuals who were deemed to be most at risk. A positive answer to any of the questions was considered as enough reason to refuse to provide a contract of insurance. Failure to answer the question ended any change of insurance coverage and failure to disclose the truth invalidated the policy. The questionnaire was required for all policies where the applicant was a “single/divorced/separated male” but only mid size policies on “married/widowed males” and for extremely large amounts on “females”. Coincident with the questions, HIV testing was mandatory in the aforementioned categories for similar varying amounts.

The following is the form of questioning adopted by the Australian Life insurance industry again in tandem with HIV testing similar to the British example. Should a proposed insured fail to answer yes to all of these type questions the insurance company proceeds to question deeper into the individuals lifestyle or just refuses to proceed with the file. As you can read, the question is extensive and is in addition to questions one would judge are similar in context to those included in the North American style of medical history questions. However, this question goes well beyond what is deemed reasonable in North America.

“6 Since 1980, I have not:

i) Worked as, or engaged in sexual activity with a prostitute

ii) Engaged in male-to-male anal sexual intercourse.

Iii) Injected myself, nor been injected, with a drug which was prescribed for myself by a registered medical practitioner.”

All those involved in underwriting in our market have helped construct a fair method of evaluating the risk presented to the industry. Our standard questions have been tested and refined but are all very similar in context and intend. The “AIDS” questions are included in all applications for all ages, sexes, marital status, etc. The questions reflect a universal need to screen all applicants as we would for other medical impairments, hazardous avocation and occupations. In addition the majority of Canadian life insurance companies now use the HIV test in all applicants for an amount of $100,000 or more.

On reflection, it is only five years ago or less that we did explore a more selective method of testing. Trying to categorize people into classes as the British and Australians do was found to be unacceptable to the industry, the agents and the applicants. As the accuracy of the insurance laboratories improved, their prices fell and the methods of collection expanded, thus the universal testing approach gained acceptance.

The chart you would see from any laboratory represents the flow of an HIV antibody test as the industry, with the assistance of the numerous independent laboratories, strive to ensure only the truly positive are faced with a rejection of life insurance due to the test. As an aside, in some U.S. States the serum antibody testing was not allowed and the so-called “surrogate aids testing” became the test of last resort. The poor predictive accuracy of these test (mainly the T Cell test) of around 10% meant that some U.S insurance companies found themselves declining to issue 9 out of 10 positives unjustifiably. To discriminate and try to pick out the true test on the basis of age, sex, marital status, etc. Might have created a field day for lawyers. Repetitive testing had a predictive accuracy of only 33%, so the industry was still faced with inappropriately declining 66% wrongly.

You all know the final chapter. In 1989 states like California allowed antibody testing for life insurance!

In 1989 one could estimate that 300,000 + blood profiles were completed on Canadians applying for life insurance. The blood profiles all included the HIV antibody test as well as the test for up to eighteen additional blood chemistries. The industry was witnessing about 0.05% positive as you could see from any labs monthly reports. In a representative mid size company, they had four positive HIV antibody tests discovered in the latest calendar year. A quick synopsis of each follows:

Case 1

Male, married, age 48

Earned income $200,000+ per year

Excellent medical history

Excellent finances

Applying for $1,000,000 of permanent insurance

Case 2

Male, single, age 38

Earned income $100,000+ per year

Excellent medical history

Excellent finances

Applying for $1,000,000 of Business insurance with 4 partners

Case 3

Male, single, age 33

Earned income $25,000+ per year

Admitted homosexual with history of numerous S.T.D.

Admitted to having HIV antibody test several times

Applying for $50,000

Case 4

Female, married, age 30

New arrival to Canada

Spousal rider $25,000

The last example also points out a practice of a growing number of companies. Individuals of all ages, sex and martial status who have not been a resident of Canada for one year or more are being tested.

The chain of custody for the blood sample, the pre-notification and authorization of the individual and the confidentiality of the record has improved ten fold in the past five years. The applicant now knows they are being tested. The sealed sample follows prescribed handling that strives to avoid loss, replacement and error. The test results, if positive, is communicated directly and under the strictest of control to either the chief underwriting officer or medical director of the life insurance company. That individual then takes on the responsibility of communicating the information that the case has been rejected by the company. This communiqué is forwarded to the applicant in the form of a letter that states that the application for insurance will not be proceeded with do to abnormal findings on one of the tests performed on the applicant. The company offers to send the complete results of all tests to the attending physician for review and discussion with the applicant. If permission is granted the information is sent to the doctor of choice with a recommendation to the doctor that they themselves have the tests corroborated.

In actual practice I have heard that in only 50% of the cases do the insurers receive permission to release the file to a doctor.

Complete new procedures have been developed within the paper storage or file administration areas of life insurance companies. A concentrated effort has been put to the task of ensuring even stricter enforcement of the confidential natures of the declaration regarding health and laboratory results. In some instance all medical evidence from any source has been purged from the financial contract synopsis. This set of confidential information is then restricted to the viewing by medical director or senior underwriting personnel. The professional insurance doctor and underwriter are cognizant of the need for confidentiality. Even in the instance of internal studies and statistics gathering, these prudent professionals use only a numerical reference as opposed to anything that could publicize the individuals identity.

Currently the chain of custody for blood sample and results is closely monitored and controlled. With the recent advent of urine HIV antibody testing the industry is faced with re-evaluating the handling urine samples. Historically the industry pre AIDS allowed agent and branch employees to collect, label and ship the urine sample. The ease and simplicity of the urine collection and the subsequent testing for sugar and albumin was comfortable. Not so for HIV urine test which has left the industry with three yet to be resolved issues:

(1) Only the Elisa will be done on urine. Thus who will do a follow up Western Blot for samples that are positive? Will the follow up request for a blood sample expose the potential of a positive test to the agent and thus fall outside of our controlled confidentiality?

(2) Tampering with urine samples has been evident for some time especially when drugs of abuse are being sought. By involving the agent in the collection of urine samples will we become counterproductive when more than drugs of abuse are being sought?

(3) The urine test will produce more false positives than the blood test. Is the industry prepared to acknowledge that almost all positive tests in an insurance population will be false positives?

The foregoing will be resolved because the industry will accept only what is reasonable as it searches for cost effective testing that is equitable to the insured and does not jeopardize confidentiality.

Stepping away from the HIV testing and returning to the eighteen other tests plus the test done now on urine, the life underwriter is faced with trying to discern the meaning of all the other tests. Unlike HIV testing there currently is no built in confirmatory test in the typical blood profile. In fact the underwriter sees fewer than 50% of the profiles falling within normal.

The following chart, taken from the Journal of Insurance Medicine gives one company’s opinion of the economics of certain actions prompted by a positive test. In the example we are faced with an abnormal GGT. In summary the chart shows a loss of $1,000 + if the company accepts the risk at standard; $50 if the company declines; and $119 if the company charges an extra premium. With those kinds of odds, no wonder the easy way out is to go on vacation and let someone else make the decision.

When the laboratories offered to throw in a test for cocaine on the standard urine test the industry was skeptical. People who are sold life insurance are not likely to be cocaine users. When the laboratories offered a three-month money back guarantee if not satisfied, the life insurance industry said all right, since we have nothing to lose. For only 80 cents per urine test we now are finding a surprising number of individuals who show evidence of cocaine residuals in their urine test positive for the substance cocaine. In fact most statistics reveal a rate of positive that is five times that of HIV infection. A positive cocaine test brings about the same insurance consequence as HIV positive…decline!

The confidential nature of this test like all others is protected with the same vigor. One difference in approach is that some companies will often write a registered letter to the proposed insured stating that a positive test for cocaine was why they were declined.

Billy Martin once said as skipper of the New York Yankees (a USA baseball team) once declared “I feel strongly both ways” when asked to take a position on something that had more than one side. Extending the immortal words of Billy Martin, I feel strongly all ways. The industry is not perfect as no industry is perfect. The public trust that rests in the confidential nature of the files within the insurance industry is well founded today in spite of ever more sensitive data being stored. The industry must protect its financial integrity as mandated by the share holder or par policy holder. On the other hand, while fulfilling that objective, we must continue to protect the individuals privacy and employ only the fairest of testing available. Assessing the risk is paramount to the private voluntary life insurance underwriting process. Risk classification allows the life insurance company to provide individual policies at the fairest prices to the greatest number of people. Fairness by definition means equal treatment for equal risks.

As a professional underwriter I can only hope that the various impairments that reduce our life expectancy or encumber our ability to enjoy our lives become as extinct as the following from three centuries ago:

1. Apoplex and Meagrom 17

2. Bloody flux, scowring and flux 348

3. Consumption 1797

4. Convulsions 241

5. Dropsie and swelling 267

6. Flocks and small pox 531

7. Rising of the lights 98

8. Teeth 470

Taken from Natural and Political Observations by John Graunt a citizen of London in his book on actuarial statistics 1632. Total buried that year was 9535.

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Cynical About Travel

This year I have traveled for business to a few countries — South Africa, India, Malaysia, Singapore, Thailand, Hong Kong, Taiwan, China, Germany, Tobago and the United Kingdom. Many an underwriter would say just a few months ago that I was rateable for some of that travel. Today I finally escape the dreaded rated or decline category. What has changed? Is the world a safer place? Have I avoided the mythical “hot spots”? Do I travel with protection (two legged kind that carry a weapon and not the one in a hermetically sealed envelop)? Was the whole travel issue, so bewildering to advisor and underwriter, some cockamamie, self inflicted punishment for nothing?

Nothing. No. No. No. Yes. The answers to the above mini quiz.

Years ago the industry had a standard travel question buried amongst many questions we ask the applicant for life or living benefit insurance. The question was close in words or implication to the following: “Do you plan on traveling outside of Canada or USA?” The rare modern types in legal preferred “North America” to “Canada or USA” but many countered that we then would accept Mexico as a legitimate destination free of extra risk. It was probably a function of which legal counsel had experienced Montezuma’s revenge. There was also the broader question “Have you or do you plan to travel outside of Canada or USA?”

For my first three decades in the life insurance business neither choice of question presented itself as an issue. That does not mean there was an absence of arguments over travel since occasionally the insurer and the reinsurer were asked to quote on unusual travel. As a reinsurer you would experience maybe two to five such travel issues in a year. Rarely did the issue of the moment escalate into a frustrated diatribe of a long-lasting feud.

In those long forgotten days we had three main categories of travel concerns:

  1. The “missionary” going to some far off land the underwriter could not spell or find on a map. The broker/agent was always just as cognizant of country facts as they always said the country or city therein was safe, clean and completely modern in all its facilities. Everything the underwriter read led them to believe running water was the river or the local well, sanitation was a trench you dug upon arrival and friendly environs meant no one had been lost that year. We risk takers really did not like odds of the person having normal mortality or morbidity, being able to investigate a claim or in some instances retrieving a body. The easy answer and most common was to just say no and no meant no. Amounts were small, premium trivial and commissions measly thus no real confrontation between agent/broker and underwriter.
  2. The “cheap travel insurance” purchaser always came in with the note attached from broker/agent that read “Proposed insured leaving in three days for Bogata and company mine site in the Andes so please rush standard decision.” Underwriters preferred to just postpone these cases until the return (if they returned) since the anecdotal experience was most lapsed upon return since it was indeed cheap travel coverage. Agent/broker always argued that the three days before trip was not a factor as they had been working for months trying to make the sale. I do not recall any of these escalating to upper management where the plea would be the risk selector’s decision was unfair or stupid. Amounts were middle of the road, premium reasonable and commission after charge back for lapse would be small but if no factoring of lapse into it the commission would be large. Confrontation minimal and short lived.
  3. The rare person of substance (wealth not girth although often they go together) who was going home, being transferred or was to be temporarily stationed abroad for a variety of legal reasons of which Canadian taxation played no role. These were always the difficult cases to ascertain how to best charge a premium tht reflected the additional risk if any existed. Rough residency tables, often years out of date, were referred to for guidance. The agent/broker was probably just as ignorant as the underwriter as to the real additional risk so in the end there was little debate over the underwriter’s decision. The underwriter was always worried about the same things — Could I validate the claim? Was there truly extra mortality? Would the premiums be paid? Amounts were larger than normal. Premiums generally high as proposed insured “loaded up” on cheap insurance. Commission great because of the latter two statements. Confrontation large but short lived.

To say underwriter and advisor lived in blissful peace would be an exaggeration. It was, by my recollection, three decades of rare and short lived skirmishes over who are travelling where and why and the ensuing trauma of finding out that certain global locations presented an extra risk be it medical, occupational or criminal. Were there facts to back up all the decisions? No. Did we make money on foreign travel and residency? I honestly do not know as I have never seen any meaningful insurance statistics (remember an insured population mortality is different than that of the general population). The numbers that any one insurer or reinsurer would amass were so trivial it would be near impossible to develop any meaningful statistical data. Anecdotes too were in scarce supply although every underwriter could relate a story of the unexplained death of an insured in a far off land where the body was quickly buried, burned or otherwise disposed of. Where there were more witnesses to the death than normally seen and the claims cheque was to be sent to the twin brother or sister we knew nothing about.

Then it all changed almost without any one event triggering the minute focus on travel. Yes the war on terrorism moved front and centre. Yes the incidents of foreign discontent seemed to grow. Yes certain countries became synonymous with extra risk, real or perceived. Yes reinsurers tightened up as they too faced tighter rules from their retrocessionaires. But in the end it was a fear of the unknown that led risk takers to take a broader and far more cautious approach to foreign travel and/or residency. Premium rates are 80% cheaper than three decades ago (if you are the super healthy non-smoking applicant). Margins are long gone in both the mortality component and expense component of the products. The target is a much smaller one and the tools to hit the target are much reduced. Compounding that is the fact that on preferred business the advisor may not even know the final price until the underwriting process is complete.

It has to be stated right from the outset that the following comments about why people are rated/declined or additional information is sought because of foreign travel has no relation to:

  1. ratio of consonants to vowels in name.
  2. race, creed or colour
  3. ethnicity of advisor
  4. where parents were born
  5. where underwriter was born
  6. reinsurance quota system
  7. location of insurer’s home office

I have heard or read an amazing array of reasons why advisors think they were “picked on” and their proposed insured singled out for special attention and scrutiny. Most of it was pure unadulterated balderdash generally stemming from the advisors own ignorance of what the real risk was and their own lack of understanding the true risk. At the very same time the insurer and reinsurer was trying to be extra cautious while they tried to create the right answer. The industry has always taken a safe route until it finds the most prudent solution which may indeed in many cases be a relaxation of stringent temporary measures. It is why smart insurers have not gone out of business and careless ones have opted to sell while the selling is possible. On the medical impairment side we forget that 30 years ago we rated all myocardial infarctions, 12 months post episode, at +200% and $35.00 per thousand extra whereas today the rating can be +150% in best case scenarios (the rare ones).

We were too cautious on reflection but only on reflection. As we dug into what is the right thing to do there was little or no cooperation between sales and risk selection. I heard of no advisor or advisor’s group stepping forward to work with underwriters to find the equitable solution so that those truly presenting an extra risk (similar to the obese coronary artery patient/applicant) would be charged accordingly. Underwriters or pricing actuarial types never approached the major advisor associations to find a common ground of constructive risk selection. We just screamed at each other and looked absolutely reactive and unprofessional.

What seemed like three years of mass hysteria ended with little notoriety and almost as limp as a wet noodle. As 2005 ended the industry found itself accepting a new question which read along the lines of the following: “In the upcoming 24 months, do you intend to travel for holiday or vacation to a location outside of Canada or United States for more than 2 months or 8 weeks whichever is less?” If yes the details were added. If no the truck driver taking a holiday in Iraq is home free if I understand the question correctly. The variations on the question were significant but not earth shattering. The eight weeks may have been reduced to four weeks in two years. Canada and USA may have been extended to Europe Union. If anything the variables made the question broader in terms of who could now answer no. Gone in a flash were holidays or business trips to China, Israel, Indonesia, etc. Gone was any need to furnish where in Israel or Indonesia you would be staying or visiting. Gone was the need to know which the good countries are and which the bad are. Generally speaking the industry was saying that if the travel was of short term nature for vacation, and in some questions business, you are a standard risk and need tell us no details.

What a remarkable turn around as most scrambled to get with the new definition of worrisome travel or really the reverse; what was bad travel. I am still in awe of how generous the new question is and wonder how rare it will be to see a positive answer and wonder what the details will look like. Will I ever see a positive answer?

Was it all a “tempest in a tea pot?” Perhaps but the industry needed to look at facts and fiction and then judge what is the right answer to be equitable to all applicants and at the same time prudent for owners.

I am still close to a decline or a decline depending on the mood of the underwriter and company I try and buy from the day before getting on a plane. I cannot answer truthfully that my travels will be less than twenty weeks let alone four. I am also a klutz and seem to attract war, insurrection, epidemics and poor restaurant staff hygiene. That reminds me to refill my extra strength Imodium container.