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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Looking back I had a rudimentary education through outdated texts, medical doctor mentors and sage underwriters’ counsel in medical underwriting but an intense immersion in “does it make sense” or as many today refer to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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Brack’s Bash

In 1977 I was in my last year at M&G and looking for my next career opportunity while working as hard as ever at M&G. Like always in my life I left a person or a group of people but never the heart and soul of the company. Making the imminent departure was the fact that I thoroughly enjoyed working with a great group of people.

Dr. Brackenridge was already an icon of life insurance underwriting and a model medical director when we put a tour of the USA together to publicize his latest book. The book was a rewrite of a decades earlier version of the same title. Anyone who knew “Brack” immediately fell under his charisma and depth of knowledge and the great style of delivering sound expertise in a complicated field. We at the time wanted the Americans to meet the man for themselves, talk up the book and think better of the M&G. IT worked.

The tour was memorable and a milestone for the M&G. Many reinsurers break out of a “sameness” by doing the unusual but regrettably that is not the case today. Today perhaps we are mired in a rut of “sameness” which is just too comfortable for today’s leaders to beak from and charge forward. Perhaps a reinsurer just has to find there own “Brack” today and use him, her or it to lead that charge.

Anyway I reproduce here a story I was asked to write back then for publication in the M&G global magazine for staff. It did not get wide distribution and I struggled to find my original copy. It turned up this past week while researching for a book that I have been threatening to publish for years. Not the financial underwriting text but the one on our industry. Upon finding the old tattered copy and reading it I immediately found a smile on my face from ear to ear as the warm memories flooded my consciousness.

IT was a great “tour” and it will always remain a highlight of my reinsurance career. The people, both M&G staff and invited guests, all contributed to super times that indeed “do it for the M&G.”

Remember that it was written in a different time. The 1970’s were not the same as 2005. Political correctness was unheard of and travel was fun and novel still. If any of the words offend today I am sorry but I do not want to change it and loose the flavour. My current comments are in italics.





Once upon a time (don’t worry it’s not about Goldilocks) there was a company called the M. & G. (Note that they had yet to brand themselves as M&G) This band of adventurous travelers (N.A. expression) liked to do the unusual and as often as not wondered why the unusual became a habit.

Who else, I ask you, could think of a plan that would involve the “Movement” of hundreds of words (in book form), across thousands of miles of open terrain on the North American Continent. The logistics of the event are beyond comprehension. Not since the Indians (N.A. expression or version) sold Manhattan Island to the Dutch has there been such a momentous occasion in history. The Canadian good guys (appropriately dressed in white) sat for hours trying to think of an imaginative, taxing ordeal that would put an author of such a book as “The Medical Selection of Life Risks” through in such a short period of time.

The “Movement” started in New York and then moved on to Washington, Dallas, Los Angeles, San Francisco – pause – Minneapolis, Des Moines (why here?), Chicago, Toronto (is there a better place?) and Montreal. The Montreal portion of the “movement” has been excluded due to my inability to converse rapidly in the French language – vive le Quebec libre. (Note looking back I have no idea why I added such an end to the sentence)

GWCB and I flew to New York in the wee small hours of Monday, May 16th to be greeted by Brack, EG and RW lazily enjoying lunch. It’s 10:00 a.m. and they are having an early lunch! No, it looks more like breakfast. GWCB and I were glad it was breakfast for, if it had been lunch, we would have missed the opening performance. New York, was an amazing city (probably still is). I was constantly worried that I would run out of money. I spent $90.00 in less than five hours on tips and cab fares. Why are we doing business in this town? Our actuaries would never have allowed for this type of expense margin in our rates.

It was difficult talking to Brack and EG on Monday since they still had not recovered from being inundated with a verbal barrage the day before. One of our clients had given them a very complete running description of city during a whirlwind tour of the city. Who says our clients will not talk to us? I was told the highlight of the tour was Harlem. It’s too bad the U.S. of A. could not obtain war relief to correct the damage caused by the internal wars in Harlem. Maybe the M. & G. and Jimmy C. could work out some catastrophe coverage. (Note how much has changed since the mid 1970’s and most of it for the better)

The Park Plaza was up to the standards expected by the members of the M.M.M. (see title). Elegant surroundings and superb service highlighted the day. Fortunately for the team, the books arrived with only five minutes to spare. A great volume of needless perspiration was spent in anticipation of trying to give away forty books when we didn’t have forty books to give away. All is well that ends well, and on such an original thought we left “The Big Apple” in a limousine which was forty feet long and thirty feet wide. To end the scene one must make a mental image of Brack taking copious feet of movies of the limo ride which are nothing more than road signs, steel girders and bridge abutments. These are of interest to engineers around the world, but heaven help Brack’s family and friends.

Ah….Washington and thank God for RRW who made all the arrangements. Did he really select the hotel and a dining establishment for dinner? Yes, he did! We had charcoal coloured lobster, a steak thin as bologna, wine served in glasses still tasting of a strong antiseptic detergent and a waitress who kept saying “it is not my fault, I’m only a part-time summer student trying to learn a trade.” Back in the hotel we found that our phones did not work. E.G. was without a lock on her door and proceeded to pile the television set, triple dresser, four chairs and her purse against her door to feel secure in her bed.

Fifteen guests were expected at our luncheon, yet the original room scheduled for the lunch would accommodate one thousand guests, a flying circus, a full orchestra and the complete M&G Cheltenham staff if we could have brought them over for the occasion. After a great deal of complaining and sulking in corners we were able to arrange a more appropriately-sized room. The hotel itself got its revenge on RRW by giving him a room which had no towels. When he emerged from the shower his story was that he was forced to roll around in bed to dry himself. At least he said he was rolling around in bed to dry himself, but knowing RRW the imagination could run wild with other possibilities. It would be unfair to mention the name of this hotel so I will just say it starts with the letter “M” and is named after a famous ship in American history.

In Dallas we were met by the ever jovial PHT who proceeded to give us an educational tour of the city of Dallas which is famous for only one thing and that is not reinsurance. (Note, was it the cheerleaders? Being this was a testerone charged trip?) One gets to appreciate the talented drivers that we have in the M. & G. when one of the M. & G. representatives can maneuver down a one-way street, going in the wrong direction, and fail to notice that he is in the wrong. This was an experience and I am sure that all our travelers have tried it at various times and have met with varying degrees of success. Thank God for group insurance.

The luncheon here went well with a large attendance of forty people, all of whom were thought to be invited friends of the M. & G. The books arrived on time and EG was able to welcome the first guests on her own, since the rest of the M. & G. contingent were off touring the city or shopping. At least the rest of us arrived for dessert and handshaking. Yes, it’s Wednesday, so it must be Dallas and we must prepare to move on to the next town. On the way to the airport, once again, was our fearless PHT driving us through the myriad of interstate highways. He made an unusual detour. This was on a country road and we made a “pit stop” at a local cemetery. PHT, being religious as he is, decided not to partake of the cemetery itself but merely walked off behind the bushes to the side of the cemetery and proceeded to let nature rule his body. This has been recorded on film by Dr. Brack and will be shown at the next convention of urologists.

We’re all tired, but we’re all looking forward to Los Angeles – hopefully we’ll be able to see it through the smog and not be distracted by the pornographic material we are sure to encounter. (Note, amazing what one thought in those days of a city and why?)

Ah…..problems started to happen – started to happen is wrong since we had nothing but problems since the start of this trip. GWCB made it to LA but unfortunately, his luggage did not. I had a feeling we should have tipped that red cap. The lack of books presented a problem. RAM and GWCB spent most of the morning digging through the warehouse of Emery Air Freight trying to find a package that contained fifty books. No books – no performance. The show must go on so we left Emery Air Freight with a solemn look on our face and madly tried to write an apology for our guests. Meanwhile back at the hotel EG had set up all the books and had an hour to spare to do some shopping. (Note, EG always found the books first!) It’s a wonder she still had money since she had shopped in every town and had filled her suitcase to the point where it was at least 100 pounds in weight. She must be a pet rock collector!

It’s time to move on but the eternal question crops up. Where’s Brack? Where are his briefcase, pipe, movie camera and extra film? This was the fourth day of keeping track of this individual and by this time our nerves were being frayed and our schedules were being pushed to the limit. It was a continual cry since the time the meeting ended. “I want to see LA”. A quick five minute tour of Beverley Hills was arranged in which time he saw at least one house and fifteen sign posts that pointed to various freeways in the Southern California area. On to the airport with no time to spare and we were quickly whisked on to the plane which would magically convey us to the city of San Francisco. Ah….what luck we met another actress (Note, an actress I liked up until her very rude and arrogant behavior on the plane) but that was a story censored out of this story by MH and SAC.

San Francisco went too smoothly to be believed and the hotel was exquisite.

Thus mentioning the name of the St. Francis should come as a very high recommendation to any one else wanting to venture into the town of San Francisco. The luncheon was a success and handshakes were given to all.

The weekend – a lonely weekend – in the town of San Francisco just Brack, EG and RAM. Saturday was spent touring the Monterey Peninsula and what else? – taking movies of road signs! This should be tremendous movie equal to any Fellini production with a cost only surmounted by that of JAWS. A lazy day Sunday arriving at the airport around noon and flying to that wonderful city of the north, Minneapolis. No, if it was Minneapolis it must have been Monday but I guess we had to get there on Sunday.

Flying into Minneapolis one wondered if there was going to be a runway or a large lake to land on. Lots of green, lots of blue, but few people. Once again everything at the luncheon went well with our nerves getting back to normal and our drinking capacity reducing somewhat since we had nothing to excuse the over-imbibing that had preceded this section of our “movement”. The dinner was cheap here – we had filet mignon for the price of macaroni in Toronto. No wonder we had such a turn out. How often does the client get a free meal of filet in these days of inflation and low salaries?

For seven days now we’ve been asked the question by Brack, “Why are we going to Des Moines? I don’t want to go to Des Moines; there can’t be anything in Des Moines, etc. etc.” But, as Brack learned in Des Moines, the town was founded on the banks of a river where all the wagons heading west to California broke down. Thus needless to say this town is made up of broken down wagons or people who were not able to mend their wagons on the way to the West. Maybe the town should have been named Broken Wagon but of course that name was used by a famous Indian once before but we won’t go into that.

On the wagon again – we swore off drinks before the sun crossed the yardarm. Yet once the yardarm was crossed (we moved the yardarm) our guests arrived. Handshakes galore – no kissing – and sore arms from lugging hundreds of books across this vast continent! A pleasant place Des Moines. WH was in his glory shaking more hands than anyone else and feeling proud that this could only happen in America. Let’s get out of Des Moines before we all stick straw between our teeth and start rocking on the front porch.

Chicago – “that wonderful town, that wonderful town.” What a change after slow moving Des Moines. Well it wasn’t that it was faster since we sat in the cab for almost two hours in 90 degree temperatures on a freeway while everyone looked at an accident where somebody had scratched a bumper. No kidding that’s all the damage! But everybody felt that it was worth stopping to look at. Once again hundreds of feet of film were taken of this event and will be presented to the National Association of Road Accidents.

Have we lost Brack? No! He is merely out shopping again and taking movies of more buildings and roadsides. I think he is going to have difficulty deciding whether Smith Street was in Washington, Minneapolis or Chicago. That’s his problem; the M. & G. Canada staff doesn’t have to edit his film we merely have to endorse it. Chicago was successful – books on time, hot meal and very few “no shows” for a circus performance. RD and his lovely wife were exceptional hosts and did not have to apologize too often for the haggard look on the faces of three M. & G. staff that were now in their eighth-day of the Magical Mystery Movement. It must be Chicago since its Wednesday. Let’s get out of the place.

Ah…..home to Toronto. The town that beats all other towns and where the performance would surely peak – at least it would peak in the English language – one could not speak for the French language edition which was to follow. Toronto was a success with numerous jokes provided by Dr. C who was in rare form and provided jovial entertainment for all those who accompanied the guest. We were very fortunate to call in this guest performer and his addition to the Magical Mystery Movement and/or Traveling Circus was very fortunate. Between Dr. C and Brack it was very hard to get the meeting “on topic” but who cares. I can go home tonight and have a good sleep. Apparently, after this meeting wrapped up, several of the M. & G. bit players and walk on performers joined several of our clients in various bars throughout downtown Toronto and drank the wee hours away.

For those of you who don’t like to read a book before seeing the movie you can be sure that the movie version of this will be provided by Brack & Company. (Note, six months later the team had to sit through countless hours of a movie that had just what one expected — buildings and road signs) Admission will be cheap or at least voluntary. For those of you who think that this was an easy trip I can only quote that famous American author who once said “sit on it”. Thanks Brack!

The bit players on this tour included the following individuals EG, GWCB, RW, RD, WH, PHT, RAM, MAM plus assorted characters who were called in at the last minute for necessary walk-on performances. Of course the star of the show was “Brack”.

Initials have been used for the various characters in this performance so as to protect the innocent yet titillate the imagination enough to let everybody know who was at fault or who was doing wrong during various, performances in the nine cities.

The author of the story would like to thank Brack, for his participation and we are sure that his performance will be remembered at the Academy Award presentations for the best foreign film made in the U.S.A. and Canada. (Note, his film did not win but his book and subsequent re writes are big winners.)

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

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

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

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

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

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

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

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

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

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

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

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

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

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