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Exploring One’s Roots

It is said many times in our life and health insurance industry as in most industries or for that matter life that everything is cyclical. Sometimes we alter the cycle and sometimes it just goes away. Or so we think. Insurable interest and financial justification of an amount are subjects that keep coming back like a bad penny. Not sure where that saying comes from so I will have to research its roots.

This article was timely in 1994 and as the article read it was timely in 1930, 40,50, etc. It is an easy read for those who have any interest in our history. It should make you think that maybe, just maybe, some of our long held beliefs are not as strong as we would like. Truly most were mere suggestion that for lack of anything better they became larger than any urban legend.

The article also reminds me of the many people in the industry who gave me copies of treaties, humorous and often embarrassing letters or internal notes or historical books and notes on reinsurance and underwriting. Don Hickson, who had a voice so loud and clear the telephone was not needed, gave me the mother load of all such gifts. He gave me about 30 ancient Proceedings of HOLUA which have given me inspiration and examples on numerous occasions over my 35 years since he gave them to me. Many an article from the 1930’s or 40’s could easily pass for a current piece with only a change in the decimal point in the figures.

Thanks Don wherever you are.



Marketing Options

May 1994

One of life’s great mysteries has been the struggle to find one’s roots and thus perhaps the meaning of life. Now that is a pretty heavy opening sentence and before you readers scurry off to a more enlightening piece of prose give me a chance to explain.

It’s true very few of us really give a country damn about how certain rules of underwriting and risk selection came to be. Fortunately I am both a pack rat of history and a human of considerable curiosity. I need to know if the first Great Home Office Underwriter, in the modern sense of risk selection, went to the mountain and brought back the tablets (first manual) or did the rules, guidelines and regulations of our very existence just ooze our of the ground like the oil on Jed Clampet’s farm (owned in conjunction with Granny and due justification for a joint first to die).

Although I am curious, I am also quick to be bored and like to know the road I am marching merrily along is going to bear fruit. If doubt sets in, I cut bait and start the motor for home. Many a false starts I have had but nothing has discouraged me from randomly pecking away at the notes, books and memorabilia that clutter my basement. What inspired me recently was finding a speech from years gone by, given to the Home Office Life Underwriters Association by Dr. Edmond Harding. He was, in his time decades ago, referred to as the “Tarheel Humorist”.

This inspiration came from his opening remarks to an audience of underwriters on the subject of being up to date and the redundancy of some of our actions. He said, “I saw a horse fly on the radiator of my tractor the other day. How out of date can we get?” How out of date, indeed! Time for personal digging into one’s roots and to see if underwriting folk were toppling on the edge of obsolescence. In my search I uncovered several stories or anecdotal tales that do not necessarily answer my question nor give me solace the rules are correct. However, at least it was a beginning.

In the Precambrian days of risk selection up to the 1940s, much of the time spent at Holua meetings was on occupations. It was a heavy duty concern as they wrestled with blacksmith, cobbler, bartenders (still do!), and lumberjacks and, of course, military risks (very real in the 1940s). I never knew such in-depth attempts were made at getting occupational extra premiums so accurate. Today it hardly gets a mention as very few occupations get any of a life underwriter’s attention.

An analysis of the minutes of the HOLUA meetings between 1956 and 1967 reveals that reinsurance got one trivial part on the agendas and that just shows how young the preponderance of reinsurance issues is for us young folks. Papers or discussions on heart disease made the programs eight times in the same period. Now guess what? – no jumping and reading ahead – topics near and dear to the agent made the program 25 times! Fifteen times the underwriters listened and subsequently read about speculation and over insurance and ten times the same group listened to agents lecture them on what they needed from risk selectors! Hello, read my lips. That is an unbelievable imbalance!

Comprehending how heart disease works and the intricacies of medicine are quite complex (either that or people spend too much time in medical school before they are allowed to treat hypertension). On twenty-five occasions, hundreds of underwriters listened to agents spell out what they want from the home office underwriter but obviously it never sunk in. Based on the number of times heart disease was addressed, one could surmise that building solid agent/underwriter relations is 300% harder than learning how the old ticker ticks.

The minutes of these meetings also record what is said so that distribution of words of wisdom and counsel can eventually reach even a greater audience. In 1933, the great Alton P. Morton, and employee of Manufactures Life at that moment, (yes, there was another Morton who was much more influence than I in the world of insurance), opened discussion on the subject of financial underwriting. One of the day’s big questions was, “How much insurance is to be allowed when there is no earned income?” This was in reference to people who were very wealthy (survived the depression with money to spare) and yet had not earned income. They were merely managing a large estate or counting coupons. Discussion was inconclusive. However, there was on minutia of detail buried in his part of the agenda that at times still lingers on in underwriting circles, namely, “… the further we depart from an indemnity basis in justifying the life insurance granted, the more pronounced will be the anti-selection.” That little gem of wisdom has been passed on from generation to generation (sometimes quietly).

Should we, the liberated reader of the 1990s, be astonished to learn that part of the 1933 agenda included J. Elliot hall, and agent of renown from Penn Mutual, whose speech was not recorded. It was titled, “How the General Agent and the Agent can Aid in the Selection and Assist the Company in Maintaining a Favourable Mortality.” I can only speculate that either the title used up all available space or the fact that the title mentioned agent twice and underwriter not at all meant it was of little value to future readers. Pity, I would love to read that article. (Hope some one says that about me some day!)

Today I am often asked where the five times rule for “keyman”, or more recently dubbed “keyperson”, came from since it sounds so arbitrary and is indeed used in all too arbitrary fashion. I found the answer buried deep in the moldy copies of old minutes. In 1930, the rule was laid down as a suggestion by one mere mortal in what is often referred to as The Laird Paper of 1930. Mr. Laird explained that the “keyman” (this is pre-enlightenment) should be valued at five times their earned income for insurance purposes. This simple statement became a law that has survived numerous wars, presidents, prime ministers and CLU grads. At least we can now honour or blame a named person! To show you how powerful Mr. Laird’s paper was, it was used as justification in Doug Weir’s (a foremost underwriter of North American Life in Toronto) comments at the 1959 HOLUA meeting. After that, it appears Mr. Laird drifted into obscurity but the ‘five times’ rule lives on.

In 1939 Morton (elder, not pup) was on the HOLUA executive and, as a fan of agent and underwriter getting into the same groove, we can only assume he was a part of bringing the following topic to the fore for underwriters. The title of the HOLUA session was “Establishing and Maintenance of Good Relations By The Underwriting Department and the Field”. Malcolm Adam of Penn Mutual (Penn Mutual must have been a leader in field relations) gave a great paper which could be given to any gathering of underwriters today. He tried to make four major points. I leave you with the brevity of Mr. Adam’s headings which leave little if anything to the imagination of any reader and presumed listener of the day:

1) The agency force has a right to expect that we [underwriters] know how to select risks.

2) There should be absolute fair treatment of all agents

3) There should be consistently prompt treatment.

4) Underwriters should be reasonably educated on the subject of selection of risks.

Postscript: I had the honour of meeting Al Morton in the 1970s and he flattered me by introducing me as his son on several occasions. (I doubled checked with Mom on this to make sure it was just a joke – he left Canada and Manufactures Life in 1947, the year I was born.) He was President of HOLUA 1948 and became a full Vice President of Prudential of America in 1963 after 16 years with them. Al is now gone in body from our midst but remains forever part of our heritage and I was honoured to have encountered him, if ever so briefly.

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Too Horrible for Stephen King?

I am not a fan of Stephen King’s writings but my children are avid readers and movie goers for all King’s creations. Actually they are hardly children anymore as the youngest is now 18 years and 8 months old. Thus I wrote the references to King’s writings out o respect for my children’s tastes in literature and movies. It is hard to escape the public relations when either book or movie hits the streets. I do like horror movies but not his.

When there was a flurry of publicity over the latest King launches it made me think of the horrors that arise in the minds of insurance people (seller and risk selector) when ever the task of underwriting or merely processing a case is the issue. As old as insurance I am sure is the debate or confrontation between the producer and underwriter.

With events in the Canadian distribution segment looking for a target for its poor closure on large cases Steve (again the erstwhile editor of Marketing Options) asked me kindly to write a little on the subject of relations between agent and underwriter.

I did and as it turns out it is one of those themes that I am constantly asked to write or speak about in Canada and around the globe. I am no expert but have lots of experiences. I do not have all the answers but have an opinion. Steve liked to print for all to see my opinion.



Marketing Options

May 1992

The distance between the agent and the head office underwriter is probably greatest when the issue is financial underwriting. Then Lucidity fades as the sun dies. Long, deep shadows of mistrust and deception sweep over a barren landscape. It’s a setting created by the Master of Horror, Stephen King, where one can never be sure who or how many will pay the ultimate price before the tale is told.

In this morbid setting, the head office underwriter talks in terms of theory and the agent talks in terms of reality, all the makings for a macabre sequence of events. As the underwriter delves menacingly (in the eyes of the agent) into the file, the agent becomes nauseous with despair (in the eyes of the underwriter). The slithering tentacles of the underwriter entwine the case as it attacks with more and more vile questions and bone-crushing requests. The crafty, devious answers of the agent are snarled from between barred fangs as it fights to protect its position like some cornered mongrel.

Too horrible for even Stephen King, you say? Perhaps. But versions not much tamer than this abound in our industry today. Is there an answer to the needs of both these parties? In a conventional sense the answer is probably a rapid and off –hand “No!”, but in an unconventional sense the concerted efforts of both could accomplish what pages of aptly phrased words cannot.

Many, most, all underwriters have heard in their first weeks on the job that agents were troublesome creatures, loath to give enough details, all-in-all general nuisances to be scarcely tolerated. Only a select few underwriters have been privileged to have been indoctrinated or re-oriented by a truly cognizant tutor to the simple truth that without the production of the persistent agent over many a table, the job of underwriter would not exist. Rather, the horror stories that surround underwriters during their initiation would warp the rational thinking of any mortal. Every senior underwriting officer has a cache of stories to enthrall the rookie and set the record straight – it’s underwriting versus agent!

To imply this verbal persecution is a one-way street is childish at best since there is no shortage of agents in our industry that have tales of underwriting malice and misbehavior. What decent agents gathering would be complete without the tale of a malicious underwriter declining a case for absolutely no good reason. The facts relayed by the agent to the awaiting audience maybe embellished beyond reason, but to the eager and receptive audience, it is The Truth. It is a rare occasion when the ‘risk selector’ in the sedate safety of a head office is lauded for playing a complementary role in expediting a difficult policy on time and at standard rates.

For years these issues have not changed nor have the perceptions (that wonderful words so quickly called upon when the facts are somewhat thin and do not make the story as engrossing to the reader). These perceptions die hard and make dealing in reality difficult. Will there ever be harmonious agreement on all large cases of $1,000,000 or more? Richard and David and Joe and Jim would not expect this eventuality since they would be the first to acknowledge that at times an agent’s enthusiasm has gone a little overboard in using a projected income or anticipated tax problem. The delicacy arises in trying to guarantee that the underwriter will not go above and beyond the role of the risk classifier and, in effect, throw out the agent with the case or vice versa.

There is absolutely no substitute for the one-on-one relationship between the underwriter and the producer. The underwriter must honestly act as the assistant to the agent while selecting risks that meet the company’s profile of acceptability. Although this may seem trivial as a statement, in the real world of real applications for insurance, it is not.

There is no magic in getting the agent and underwriter in synchronized behavior if both have or have had wise mentors at their side. The mentors can nurture the best solution by teaching the need for prudent decision making taken with a large dollop of common sense. A good senior underwriter with many ears of worldly exposure can instill the desire in another underwriter to get the case issued on some basis that makes sense. The knowing counsel of a seasoned agent who has learned the ways around head office mine fields can assist another agent in preparing the case to assure quick issue for the right amount, the first time around.

To the underwriters who can teach and the agents who can explain, the industry should be indebted. To the self-righteous antagonists in both camps, may you see that your perceptions are wrong and that none should be condemned to dwell in the dark worlds of Stephen King. An exchange of views will always create what accusations can never accomplish – a concerted and understanding effort for the consumer that benefits us all.

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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.