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

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

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

It is long but a quick speed read!

Institute of Home Office Underwriters

1994 Annual General Meeting

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

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

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

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

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

by Mr. George Brennan.

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

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

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

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

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

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

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

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

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

MR. ROSS A MORTON

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. JERRY T. TAMURA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you very much. Arlette.  (Applause)

MS. ARLETTE M. MOONEY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MR. MITCHELL A. SCHEPPS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Thank you very much.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Whereupon. the meeting adjourned.)”

For the past three years I have heard from many large advisors (large by size of the clientele not their waistline) and MGAs that rated cases are few and declines are many. I have even had a senior underwriting leader say it is irrelevant as the key to today’s underwriting leadership is to get the standard through as quickly as possible. There seems to be less competition be it from insurers or reinsurers for the case that is not quite standard. The last time that complacency was around there were challenges to our right to underwrite! 

In various places in the article I have in italics added a word, phrase or sentence to highlight a point from today’s perspective.

In 1982 the Canadian Life Insurance industry saw an estimated $53,000,000,000 of life insurance purchased (in 2010 the amount was $215 million), up approximately 20% from 1981. In spite of such a significant increase in sum assured the number of individual policies issued was less than 7% up from 1981. The number of cases has been estimated at 1,140,000 (in 2010 the number was 734,000). Industry sources are assuming that 1983, with its projected economic outlook for hard times, will not increase either of those figures significantly. In fact, by number of cases this year should be rather flat for growth.

The latest edition of the CHOLUA membership list indicates there are some 433 underwriters working in Canada who are managed by 128 individuals with a title ranging from Manager to Vice President (with the dramatic disappearance of Canadian Life companies in past 30 years I would like to think it no longer takes 128 titled staff to  lead the number of underwriters). Looking at the positive side of these numbers we realize each underwriter approved for issue an average of $122,000,000 of life insurance. The Managers had a responsibility for some $414,000,000 of new .insurance purchases . Viewing the previous numbers, a negative feature is the fact that the average size case only $46,500 (it was $41,500 in 1981) (in 2010 the average size was $292,600 and unless it simplified issue or its ilk or a juvenile policy an underwriter never sees anything under $100,000).

Of the 2,633 cases, on average, per year an underwriter processes the average size case is only $46,500 – a very uninspiring and unflattering number. In most offices today the $46,500 case is handled on the total of just an application, both part I and II.

It is not that long ago that to give non-medical insurance above $50,000 at any age was too risky, especially for the establishment company. In1983 almost all companies’ amounts of $100,000 to $150,000 are becoming commonplace – especially in the larger companies. The majority of cases are well within today’s maximums and, as $500,000 non-medically to age 40 becomes a late 1983 reality, the number of cases requiring medical underwriting will decrease further.

Amount of Non-Medical Insurance (,000’s Omitted)

For those weak in Canadian insurance history National Life was bought by Industrial Alliance, Maritime Life by Manulife, and Mutual Life by Sun Life. The great mortality results of today’s companies experience on these old portfolios is the result of great underwriting in the period 1969 to 1989. Imagine how underwriting would be today if on the 40 year old you had a medical by a doctor, an urinalysis, an ECG, an x-ray and a full inspection. But on the other hand it wold take to long and since we seem to want business to lapse why spend the money?

Another major milestone in underwriting was the final realization by management that the inspection report was not a mandatory requirement. At the beginning of the decade of the 1970’s everybody ordered an inspection on every individual applying for insurance. It was only as the 1980’S commenced that, in some progressive large companies, the inspection is not a routine requirement for small amounts (read as under $300,000) and blasphemy of blasphemy one company never asks for a consumer investigation. Unfortunately I can’ t say this occurred because of a realization that one’ S agents could be trusted to tell you the truth or do their own appraisal of the risk. It was done more out of economic reality – the dollar spent on inspections was returning far less than one dollar of original protective information. Looking to the future- not the distant future but the new future- a $500,000 limit for inspection cases is very foreseeable.

Amount of Risk Without An Inspection

Step right up in 1984 and buy a $500,000 policy strictly on the basis of a part I and part II application and if you’re purchasing it from as shopping mall franchise, you can take it home with you after a fifteen minute wait for the computer terminal to print your policy. Good-bye home office underwriting as we know it today! Ah, but you ask, what about all those substandard cases that need expert underwriting to prevent antiselection!

Let us look at all those cases that are substandard or declinable on the basis of the underwriting requirements and standards of the year. In1960 Manulife only approved for issue on a standard basis 80% of it’s business.(Anecdotally speaking there are some advisors and MGAs who in 2012 might say that number is appropriate today!) A rather extraordinary figure, in comparison with the 1960′s number of cases that were declined – 5%. The remaining 15% were rated. Today, Manulife has 95% of its business issued standard and only rates or declines a total of 5%. In a shorter span of time the CLHIA studies reflect a continued improvement in the number of cases issued standard.In 1977 they compiled industry statistics revealing 93.8% of the business was standard, 4.3% was rated and 1.9% was declined. Four years later in the study of 1981 results these figures had changed to 95.9%, 3% and 1.1% respectively. The declines are now only 58% of the 1977 figure and substandards 70% of their former self.

Risk Classification (by number of cases)

Risk Classification 1981 (by sum assured and by case count)

By volume, the percentages do not alter that much, although one can be surprised by the fact that the percentage of declines decreases. This, in spite of the last couple of years being full of discussion on financial underwriting and how we should have been declining more speculative large term policies. More and more business is being issued at standard rates due to underwriters trying harder on cases now that more statistical information combined with experimental underwriting of the 1960′s and70′s helps to justify a broader standard categorization. However, the ever increasing limits on non-medical and medical requirements plus fewer inspections because of cost/benefit studies equates to more cases being squeezed through, standard. If one adds to this the fact that the average size case is growing slower than requirement limits, can we continue to justify individuals labelled as underwriters sitting perusing cases in the same fashion as today?

Oh, but you ask, “how come underwriters’ salaries have escalated so rapidly during the last three or four years?” I will concede that some underwriters have done very well for themselves in recent times – junior underwriters have changed companies to become instant senior  underwriters and seniors became consultants and supervisors or better. As we settle into the harsh realities of 1983, the facts as tabulated  by L.O. M.A . in their annual salary surveys for Canadian Life companies indicate a rather unexpected salary change between 1978 and 1982. What would you guess underwriters and advanced underwriters salaries increased by 1982 over 1978?

The advanced underwriter, by L.O.M.A. definition, was being remunerated 38% more in the medium size company and 46% more in the large size company. The underwriter showed increases of 39% in small companies, 39% in medium companies and 34% in large companies.

In comparison an advanced group underwriter had a 70% change in the same period. The group underwriter had 48%.

Why have we not done as well? I don’t really know if I have the answer but I think it has something to do with our calling almost anyone an underwriter, compounded by the lack of definition of a senior underwriter. L.O .M. A. uses a $100,000 acceptance level as the dividing point. This in my opinion warps the statistics in both categories . As long as we are willing to be studied in such poor fashion our status both in monetary terms and position will continue to fall behind.

Fortunately the strong and ambitious will survive and prosper. (They did thank you very much. Today’s great underwriters earn a very respectable salary and can afford to live above the poverty line, owning homes, cottages, cars and taking vacations in the south should they so desire.)Those of you, and maybe its about one half of you, that survive this decade will be better for it since you will be better recognized and have more responsibility for the new underwriting of the future. Your tasks will be more detailed – medically, legally and consumer oriented. Only problems will reach your desk …..

And I continue to wait as I greatly overestimated the the speed with which our industry would automate and find ways to truly utilize the skill set of professionally designated underwriters. In 1988 in  the Journal of Insurance Medicine I again mistook signs of change for change and thus the automation I wrote of is still not here in 2012 for many a company!

Why the following was attached to the paper is anyone’s guess. Perhaps if the article failed the poem would suffice to leave lasting evidence I was there. Never did know who wrote it but I do know it was well circulated amongst underwriters. Read it to find out why!

Chairman of the Board

Leaps tall buildings in a single bound,

Is more powerful than a locomotive,

Is faster than a speeding bullet,

Walks on water,

Gives policy to God.

President

Leaps short buildings in a single bound,

Is more powerful than a switch engine,

Is just as fast as a speeding bullet,

Walks on water if the sea is calm,

Talks with God.

V.P. of Administration

Leaps short buildings with a running start and favourable winds,

Is almost as powerful as a switch engine,

Is faster than a speeding BB,

Walks on water in an indoor swimming pool,

Talks with God if special request is approved.

Office Manager

Barely clears a Quonset hut,

Loses tug-of-war with a locomotive,

Can fire a speeding bullet,

Swims well,

Is occasionally addressed by God.

Claims Manager

Makes high marks on the wall when trying to leap buildings,

Is run over by a locomotive,

Can sometimes handle a gun without inflicting self injury,

Dog paddles,

Talks to animals.

Sales V.P.

Runs into buildings,

Recognizes locomotives two out of three times,

Is not issued ammunition,

Can stay afloat with a life jacket,

Talks to walls.

V.P. Actuary

Falls over doorsteps when trying to enter buildings,

Says 11 Look at the choo-choo 11

,

Wets himself with a water-pistol,

Plays in mud puddles,

Mumbles to himself

Underwriter

Lifts buildings and walks under them,

Kicks locomotives off the tracks,

Catches speeding bullets in his teeth and eats them,

Freezes water with a single glance,

He is God.

Anonymous Author (definitely no an agent or in today’s lingo a financial advisor or COO)

Being outside the decision making spectrum of the insurance world it is less likely that I would be invited to an industry leader’s (who services the risk selection domain) infomercial masked behind meals and golf. When asked I said yes not because of the meals or the golf (my golf game needs much remedial effort) but because the infomercial that was to be laid out was intriguing and could perhaps represent the next great turning point in the life and living benefit insurance world. I honestly and without fingers crossed attended even without the two meals and golf. The only down side to the event was that it would take up the whole day from 8:00 Am to 9:00 PM. I also wondered who from the decision making ranks of insurance would give up a whole day away from countless and meaningless meetings to attend an infomercial.

I could write a short thank you and say I enjoyed the day with the usual plaudits embellished with great thanks for the food, camaraderie, golf prices (not for longest drive or nearest pin so lets leave it at that), and anything else that came to mind when writing the Hallmark type thank you. Instead I decided to write an opinion paper on the day. I felt an urge deep within to be constructively critical knowing some would applaud the opinions while others would feel chastised for what was said or not said during the 13 hours. The following is written to constructive and yet it may end any chance of future invites to infomercials regardless of how they are dressed up.

As the day started what hit me first was the lack of significant decision makers from the leading insurers. I was sure that the “draw” of witnessing a new and better way of screening insurance applicants would attract every decision maker since how to underwrite faster, better and consistently was a stated priority of most insurers. As I gazed around the room I counted half the audience made up of the “host’s staff”. Then I saw some outsiders like myself who may have some influence in a few companies but we no longer control the purse strings of insurers’ underwriting departments. At my table alone there were three underwriters of four years or less experience and to my knowledge no where close to decision makers. There was also a renown underwriter but one with little management power. Yes from an education point of view great but when trying to sell a major change in risk selection tools you need those who control the purses. The days of open invitations to the milieu of underwriters I thought had disappeared with the last of the old time reinsures and third party vendors. Something about money well spent to get results (acceptance and orders).

First conclusion I came to was that this audience was not full of “buyers” — sort of like having a sales extravaganza for cars to an audience of 12 year olds.

The sessions started with actually some great stuff on medical items directly related to underwriting and full of information of value to risk selectors of all ranks. The presenter was passionate, clear and casual in style to the point I wished she had more time to share her insights and summaries of insurance medicine and laboratory results. I learned that the diabetes test for A1C was now a true indicator of diabetes and that even those in the shoulder levels of 5.7 to 6.1 are probably pre diabetics!. Figures tossed out, like there will be about 3.7 million diabetics by 2020 in Canada, resembled figures I had read by other medical authorities. I agreed that A1C has to be the test and  we should rely less if not never on the glucose readings once a mainstay of underwriters.  Perhaps we should screen all insurance applicants since the reward is so high (positives in the diabetic deniers or unknowns) and the price is “cheap”. Snippets of information on NTProBNP (Brain natriuretic peptide) as a heart failure test were not enough to convince me of its cost benefit reward just yet but it is getting closer. How long cotinine stays in the body was great information and it made me aware that those lying applicants who are smokers and can abstain for 4 days may sneak through. Come on if you can make it four days why not stop entirely. I think the actuaries still price for some liars (use to be 15% in the decades past) so our price is probably okay.

Second conclusion I came to was that the first session was well worth sitting still for as it had good information and was presented perfectly for any level of audience — wish the presenter had another hour as I am sure she could have filled the time with good stuff.

There was no hush of anticipation for the second session which was to be on the subject of a new underwriting tool but there was, I am sure amongst many like myself, a real curiosity. Were we about to witness the start of a new era in risk selection? Was there a better way? Was there a better and fairer system? Many of us had read the On The Risk article earlier in 2011 which perhaps left many skeptical. Would there be new facts and unequivocal evidence that this “new thing” was indeed right up there with sliced bread.(Note: I will refer to it as the “new thing” so as to offend less and not be seen as publicly roasting what my hosts were selling since indeed I did get golf, some prizes and two free meals.)

In a nutshell (nothing to be read into my choice of word) my hosts were selling the concept and software tool that could analyze laboratory results combined with BMI and rudimentary facts cleaned from paramedical measurements already used and predict mortality. The software tool was based on the study over six million files where  my hosts had vital stats and blood work. It excluded those who were positive for cocaine or HIV. “New thing” could predict on what may appear to be an absolutely standard risk which applicants would die prematurely. Somewhat like the numerical rating system (fair, consistent, and used for almost 100 years) this “new thing” would use a complicated and proprietary computer system to assess extra mortality again along a numerical grid from good to bad so to speak. I heard them say 40 US companies were now using the system. I heard them say that the value per case was $238.69 which to me implied that if the cost was less than that it was money well spent. I also heard them say that reinsurers were onside with this new form of risk selection. We were shown some examples of cases that would have been issued standard but where the insured then died within two years. Wow this “new thing” is super since not one person in the room could have ever guessed that would be the outcome.

During question period I concluded that all the questions sounded like they were prearranged. I concluded that like myself no one wanted to ask embarrassing questions or cast doubt on what our hosts were touting as a super tool for risk selection. The “way it worked” was never really explained other than it took a long time to study the data and draw conclusions that helped form the foundation of the algorithm that defined the risk criteria.

Third opinion after the main feature presentation of the day was that I have to see for myself it working in a real live underwriting department. Will it save us money? Will it liberate the underwriter from the mundane? Will it pass the litmus test of the advisor and consumer? Will it  help sustain underwriting as it comes under the scrutiny of many who feel it cannot be sustained in this world of ours? Will it indeed be the biggest game changer since the blood test!

Overall I can see the numerical rating system being modified with new tools like this “new thing” and I support work in that field. I am however not yet convinced that this “new thing” is ready for prime time. Lots of work to do. If the room had of been full of that rare breed the research actuary and pricing actuary I am sure questions would have been constructive. As it stood most shrugged and left so their bosses could arrive in time for golf.

The rain stopped just in time for golf and the hosts showed they can control the weather more than the audience of the morning. I was average in my foursome an did nothing to embarrass myself. I also only ended up down two golf balls.

Overall an old fashion day where prizes and fun surpassed serious news and thus attracted a weak morning audience but a higher level golf participation. I do not regret going but I do regret that more time allotted to the key address of the day. Maybe after the testimonials arise from all the reinsurers who endorse the system and those 40 companies using the system emerge will I have enough confidence to applaud the new numerical rating system as truly “the new thing” that all should employ.

Meanwhile who will invite me to their next infomercial?

PS Yes the food was good and the camaraderie great!

By 1960 even greater concern arose amongst actuaries for the importance of doing some rudimentary financial underwriting. Fun reading is the transactions of the Society of Actuaries 1960 Volume 12 Number 34. Phrases like “policies for large amounts” were becoming common place. Reflections on the 1953-1958 mortality study showed mortality on cheap term insurance was 122% versus the mortality of 89% on permanent insurance. Fear of cheap term on young people in particular was eating away at the confidence of actuaries throughout North America. Alton Morton, the great guru of financial underwriting of the time, as well as other iconic actuaries had numerous company studies of varying merit to review. One such study of the time showed early mortality results on young people with cheap term policies exhibited early mortality of 170%. Alto would roll over in his grave if he saw the pricing models of 2010!

In 1973 wise men through the Society of Actuaries took a modern view of underwriting the large case (some progressives now believed big was any case where in force and applied for was $250,000). In that study, “Financial Underwriting For Individual Life Insurance” by Baskin and Marshall, transactions pages 509-571(Transactions of SOA 1973 Volume 25 Part 1 Number 73), the conclusions were both applauded and questioned. A comment like the “spectacular large claims” was enough to scare everyone into action as some financial underwriting rules needed to be constructed. Thus we ended up with the 20%, 25% or 35% of income rule which stated how much of yearly income could be spent on life insurance (note: it was often graded so an income of $4 to 6,000 used 5% and an income of $15,000 used 20%). Aside from the poorly conceived percentage guides we had guides that reflected income and age bands (I.E the top salary of $100,000 justified an insurance amount of $584,000 for someone between 45 and 47 years of age). All these rules grew even in the face of hte last overall mortality results of 1970 being considered good.

Putting the paper into perspective and highlighting how inflation and realities have made the modern underwriter cynical of the findings the reader has to understand three fundamental observations: they were still very big on using 20-25% of total income as the maximum amount spent on life insurance; a large case was defined as an amount of $100,000 or more; and they did not include the very large claims as they felt it would distort the results unfairly! It is hard to comprehend allowing someone to use 25% of income to buy life insurance today as a guide — think of how much term could be bought for that amount of premium. Even allowing for inflation, $100,000 seems to low an amount to use for a case to be considered “large” — a senior life underwriter in 1973 was earning over $8000 per year. Why would they not include large claims since that is what financial underwriting is all about — to ignore the large early claims really make the study too narrow and casts doubt on its conclusions?

The SOA has to my knowledge always been fair and published the detractors’ and sceptics’ opinions which to me balanced the papers conclusions and thus made all 60 pages worth the read. The detractors’ opinions could be summarized in three points. First the study was too focused on numbers (wow, for actuaries to say this was profound) and not enough on practicalities of underwriting. Secondly there was too little emphasis on “insurable interest” and “does it make sense” (even actuaries quoted Charlie Will’s famous phrase). Lastly, and Webster most eloquently stated it, “while financial information may be available, nearly always it is complicated.” Great, a senior actuary admitting numbers can both confuse and distort by both their omission and inclusion. Underwriters of the 21^st century could take a lesson from the healthy debate and challenging insights into papers and articles written by peers. The lack of challenge within the underwriting community today serves no useful purpose, but I digress.

Before I leave the history there are two more wise and insightful actuaries who need quoting from those same pages of the transactions. Woodman stated the following in referencing papers recommended “multiple tables” for use in arriving at how mush insurance is allowed: “I caution all actuaries and underwriters to recognize that this is merely a reference point.” Hale’s words could be repeated today and probably in the next century as well: “… the chronic problem of trying to obtain adequate documentation … The more adamant the refusal to provide documentation, the less likely the existence of an adequate financial basis.”

Since the 1970’s underwriters have leaned heavily on the income multiple tables as the answer to “how much is enough life insurance”.  The tables were constructed at a point in time using, one hopes, and the best estimates of future inflation rates, interest rates and things like the cost of raising and educating offspring. All this was to have nice simple tables that according to one’s age reflected how much life insurance was needed to protect the lifestyle of one’s family at the death of the breadwinner (later to become the breadwinners plural as dual incomes became the normal). For a 39 year old in the 1970’s the underwriter used “12” as the multiple and steadfastly refused to issue more for no other reason than the table made them do it. For the same 39 year old in the 1980’s the liberal underwriter now stuck to a new multiple, namely 15 as inflation took its toll on incomes. Now in 2009, we have what marketing gurus in companies call “progressive” underwriters in aggressive companies flexing their financial underwriting acumen and going to “30” times income as a number they feel comfortable with to prevent “over insurance”. It is not the underwriters who are picking these numbers but rather the efficiency experts who press for simple rules in processing. The 30 times rule dictated from on high is just another “rule” or “process” underwriters must follow to keep the peace.

Not only have we leapt to a “30” multiple but in some companies the guide heard repeatedly is “no financial underwriting needed or done until the amount is for more than $1,000,000” (US or Canadian). The reaction of the advisor is to applaud this innovation in risk selection and hope it is forerunner of many more liberalizations. The reaction of the auditing underwriter is okay but “no financial underwriting” does not mean the underwriter forgets that there has to be insurable interest regardless of the amount. Regrettably the audits are turning up cases where there is no rhyme or reason why owner X is insuring person Y and the beneficiary is some unexplained numbered company in a country with no vowels in its name. The underwriter must make sure there is indeed definite insurable interest evident. Okay forget the amount since it is only $999,000 but make sure you see the insurable interest — I think it is even in the insurance act itself!

It has been a long time (some would argue too long while others would say not long enough) since the life insurance industry had a rash of large and/or questionable claims where either the amount made no sense or the beneficiary turns out to be totally unrelated to the deceased when viewed by the claim’s adjudicator (a master of hindsight underwriting). Perhaps what we need is a string of those “biggies” and “dubious” cases torn apart by countless hindsight underwriters where the finger points straight at the underwriter for being too lackadaisical in financial underwriting. We then would have some very naive underwriters struggling to defend publicly their irrational attempts at streamlining financial underwriting. On the other hand what may emerge is real life examples for underwriting leadership to vociferously wrestle back control of procedures and guidelines from the process and marketing gnomes. Of course I am just trying to prod underwriters into not forgoing common sense in the search for expediency and cost savings, regardless of who initiates the changes. If you introduce a new “guide” make sure its phrasing is very understandable by the most junior of underwriters. Leave nothing to chance in how the “guide” is used.

Insurable interest cannot be dismissed since it is “the law” so to speak. The underwriter has an absolute obligation to ensure it exists at the time of the policy issue. Although many times challenged some historical precedence remains the foundation for the need for insurable interest at time of issue:

• The Gambling Act of 1774 (English Parliament, 14 Geo. III, ch. 48) which states words to the effect that it is gambling if the owner of the policy has no interest in the insured.
• Later in the famous case in the USA of Grigsby v. Russell 222 U.S. 149 (1911) it was concluded that you cannot insure anyone you want and “the very meaning of insurable interest is an interest in having the life continue …”
• Again in Grigsby v. Russell there was the point made that “if a person has a valid policy on his/her own life he/she can transfer it to another person whom he/she … is not afraid to trust”.

Underwriters would be wise to never lose sight of insurable interest and its definition. There are numerous definitions, but the more one searches through the myriad of words within the definitions the more any one or two will suffice for the underwriter. For example:

• “Princeton WordNet”:  states Insurable interest is an interest in a person or thing that will support the issuance of an insurance policy; an interest in the survival of the insured or in the preservation of the thing that is insured.
• “Wikipedia” (the young’s favourite gospel): for purposes of life insurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouses and dependents. Business Partners or another individual with whom you own property would also qualify. You may insure someone that you are financially dependent upon regardless of blood relationship.

In an era of investor owned life insurance and premium financing it gets far more exciting in the underwriting department. We have some pompous insurers touting the fact that they do not condone or allow any such sales concept to be used with their product. At the same time as an underwriter recently conveyed to me — it may be so for the public relations angle but in the trenches of underwriting we are charged with getting any premium on the book while turning a blind eye to what we surmise the policies eventual ownership will be. At the other end of spectrum the industry has seen the introduction of questions to help the underwriter conclude there is indeed insurable interest now and in the near future (as best any one could). Those questions include: what is the intent of the policy, how and who will pay the premiums, has anyone prompted you to purchase life insurance? But with a two year contestable period our protection has a shorter life span than the patience of the ever clever investors.

Not sure what the answer is but the question intrigues me. Were any underwriters involved in the “Dead Peasant Life Insurance”? DPLI follows the long lineage of acronyms such as STOLI, BOLI, COLI, etc. DPLI of course is in jest but is used to reflect the supposed $120 billion of life insurance issued on perhaps unwitting employees taken out by corporations producing sizable tax breaks for many a company. Did the insured agree to the policy? Was there indeed insurable interest? Was there mandatory surrender of the policy on the employee’s termination of employment? I cannot find an underwriter who has the answers so I would like to think that these clever schemes that had the allure of revenue never had to pass the risk selection test.

Getting back to what underwriters can control, since dwelling on the surmised lack of full underwriting on the specialty products is futile, the underwriter faces the ever asked question “What is he/she worth?” Putting a value on a life is really tough since we cannot predict the future with certainty nor ever come to a real irrefutable value of a life, be it for personal or business protection. I wrote many years ago that the advisor and underwriter were singing (underwriting financially) from different hymn books (company produced or condoned guides) — and remains a most read article. I do not think either hymn book is right but is it too much to ask that a company to insist both advisor and underwriter use the same one? Let’s look at two examples: the “needs analysis” internet site with links to numerous insurers and a typical “income multiple table” in its simplicity.

Using the ever popular internet to search out “how much insurance does one need” or similarly phrased search the responses are overwhelming not to mention confusing and in some cases suspect. The one I use as a reference here is www.ehow.com since it has some good introductory “steps” and compared to some it is reasonable in its input questions and suggested amount of insurance. The steps are as follows with emphasis added where I was impressed with the “step”:

• Step 1 Calculate your after-tax income and then count the number of years of life expectancy remaining.
• Step 2 Consult a reputable agent and use an insurance company’s computer program to plug in numbers and generate a figure. 
• Step 3 Add outstanding debts, such as your mortgage, car loan and credit card debt.
• Step 4 Remember to allow for any medical costs and funeral expenses.
• Step 5 Remember that your family may also benefit from pension and Social Security benefits.
• Step 6 Consider your spouse’s ability or desire to earn income and consider extra child care costs.
• Step 7 Remember the special needs of a disabled child or a parent whom you support.

The example used for illustration purposes was an applicant with the following: $500,000 cash on hand, $500,000 life insurance in force, yearly income $195,000, wants protection to run at least 25 years (male 62), final expenses guessed at $25,000, mortgage $0, miscellaneous loans/debt $20,000, emergency savings need for sundry items $30,000, and no college fund. The recommended new life insurance for this hypothetical applicant was $3,837,218. It even comes with the “warning” of sorts which is really wise: “The recommended coverage is based on the information you provided. The amount of insurance you choose depends on how much coverage you feel you need and can afford.” I cannot refute that conclusion so should I and other underwriters accept it? Even a bigger question is “Why would an underwriter not use this simple tool on all its large financial cases? If companies lend their name to such a web site, in my opinion it must mean they agree with the analysis and its conclusions.

Leaping into tall buildings where insurers reside we find the infamous “income multiple tables” that the underwriter relies upon as a guide to determine just how much insurance is enough. They are simple tables with age bands and they attached multiple. Not happy with one company’s table I tried two and the outcomes are similar:

• Company A at age 62 uses 5 as the multiple guide and thus “enough” insurance is suggested as (5*$195,000)-$500,000 (the in force) equalling $475,000 new insurance.
• Company B at age 62 is more aggressive in its multiple guide and uses 5 to 7 and thus using 7 the suggested is (7*$195,000)-$500,000 equalling $865,000 new insurance.

What we have here is a failure to not communicate but rather agree within our underwriting and distribution departments what is the ONE method for calculating “enough”. The existing gap is $3 million dollars which is why the battles erupt between advisor and underwriter.

To be fair and to show the world is edging closer to sanity (in calculating “enough” but not necessarily in other areas of financial services) there are a couple of companies that now use “30” as a multiple at the key mid ages. I can now say I have lived through in this age band the multiples 12, 15, 19, 21, 23 and 30! Middle aged applicants are obviously worth more now than 40 years ago. This progression was once leapt over by a reinsurer for a brief period of over exuberance recommending the following to determine “enough”:

20 times gross income plus gross value of all assets plus $1,000,000

A great formula to eliminate any haggling over “enough” but really a poorly thought out answer to the underwriting frustration in the area of financial justification (note the difference from financial underwriting which is two parts — “enough” justification and insurable interest). It is at the far end of the spectrum from the multiple table used for key person insurance which is quite often stuck at “5” and has been there for 50 plus years but that is another story attached to the even more complex world of business insurance needs.

So why bother with financial underwriting? The answer is the legislation that states there must be an insurable interest at the time of issue. Failing to fulfill that mandate could impale our companies on the stake of litigation for allowing a stranger to take out (perhaps unbeknownst) insurance on anyone they feel like or to turn insurance into an act of gambling. So the underwriter pays strict attention to owner, insured and beneficiary to make sure insurable interest exists. Then the attention is shifted to what is “enough” insurance and that is where we have to harness our wanting to fall back to the safety of “multiple tables”. In my 40 years I have never seen a case at claim time where the claims adjudicator or senior executive chastised the underwriter for issuing 27 times when the guide said 22! What you see is that the insurable interest was not there or there were suspicious signs surrounding any of the three parties. From the unexplained numbered company for which no information exists to the sale of insurance on one partner out of four without rational reasons for such. So yes bother but focus more on the principals and less on the sanctuary of the tables.

The advisor could do more as well. Open up to the underwriter on how you sold the policy with details that put them on your side before they even read the application or some third parties notes on the applicant. The spin of a great advisor bowls over the underwriter most of the time but don’t stray into the stage of exaggeration. Most seasoned underwriters would agree that a well constructed story (fact not fiction) surrounding how the sale was made, what the funds are for, who is to receive the funds and is the proposed insured a nice and known person go a long way to making an underwriter say yes.

Lastly the underwriter would be wise to concentrate on the “who is the advisor”, and who if any lawyer and or accountant prepared the needs analysis. If the proposed insured and his or her advisor have sought accounting and legal advice and then concluded that $x,xxx,xxx is the amount of insurance needed (their opinion of “enough”) who is the underwriter to say the amount is too much because their guides say there is another number for “enough”? Shouldn’t the underwriter focus more on the lawyers, accountants and advisors and their quality of reputation to come to a happy spot and agree to their “enough”?

Written about for at least seven decades. Argued over for the same seven decades. Solutions found zero. Time spent on debate immeasurable. Cost to the industry priceless. Who will finally make it all disappear from the list of issues? Perhaps an underwriter!

Administration of risk was lax and tardy but, with most cedants keeping their full retention and reluctant to write policies larger than their retention, the penalty for such lackadaisical administration was trivial and easily manageable by both insurer and reinsurer. It helped that the largess of reinsurers was such that they routinely forgave blunders in insurance company administration as a sign of friendship and hoped for rewards of even more poorly administered business. The smaller companies, fearing the wrath of their reinsurers where their role was integral to their success, tended to administer risk expediently and pay promptly. The fear of not having notified the reinsurer of a big risk (i.e. more than twice their own retention) before the early and unfortunate claim arrived was paramount to their psyche. When a treaty, as casual as it was written in the “good old days”, called for notification and payment within 30, 60 or “do you really need this long” 90 days the practice was to do as the treaty was written (sort of like the Ten Commandments).

Tardiness was so rare that I once had an accountant who would call companies five days past the premium and administration due date and inquire as to where be the money and the administrative paper work for both new and renewal business. It was an extremely rare company that Lou had to call more than once in a year! The most heard response from insurer was “No other reinsurer worries about the payment being on time!” Reinsurance was indeed trivial in the scheme of things within an insurer and often the staffs so employed was both part time reinsurance administrators and worst, in some instance, far from the sharpest pencils in the company. Both insurer and reinsurer took the notification, administration and premium due dates seriously but again that was before easy credit that is so fashionable amongst the young (or was until the meltdown of late).

As smaller insurers grew into large producers of risk through the advent of “brokers” and cheap protection products scorned by large companies, and as large companies became addicted to low reinsurance pricing the amount of reinsurance ceded escalated probably some 2000 fold in Canada and 1450 fold in the USA by the end of the century. There remained a serious lack of attention being spent on reinsurance administration by either insurer or reinsurer. The insurer was faced with a myriad of complex issues from government reporting standards and how to manipulate numbers to the bottleneck that was the new business area. Reinsurance administration was rarely one of the top five priorities and had little chance of being considered as important to overall success within an insurer’s executive’s minds. The reinsurer was faced with the need for an ever and often insatiable thirst for new business (risk yes, premiums maybe) and was woefully neglect on enforcing administrative time lines with customers and potential customers. Reinsurers were by their collective mindsets a group encouraging indirectly poor administration — if one does not ask for payment or “supportive paper work” after a while one does not get it.

In my opinion, based on recollection and personal frustration, the world of reinsurance administration deteriorated yearly from 1970 onwards and it took sheer catastrophes before a cacophony of voices raised up in horror at the absolutely poor risk management in both the cedant and the reinsurer. Everyone expected the proverbial s___ to hit the fan, but everyone crossed their fingers and leaned on their optimism that carried over from their much praised pricing success. When the eruption of issues came it was like the bursting of a pimple — there was more of the bad stuff below the surface that oozed out and caused great embarrassment. The lucky ones were those new to a reinsurer or a company reinsured as they could point the finger at a generation that “blew it”.

Whether one says it was;

• the large claims that showed one’s risk was greater than known as multiple polices from various cedants were in force but not “administered yet”;
• or lapsed policies that were lazily reinstated;
• or underwriters who disregarded the follow up necessary to make sure policies that were “intended” (I hate that word) to be lapsed were indeed lapsed;
• or it was true that only one of the five policies applied for in five different companies was to be accepted;
• and the list goes on

it does not matter as in reality it was the perfect storm (an overused phrase) of eruptions within the casual risk management that was practiced throughout the insurer-reinsurer realm. Their legends and urban legends of up to three years between a risk being assumed and contract issued by an insurer and the reinsurer knowing it was on risk. In an age where everything seems to have happened yesterday waiting three years for risk information and premiums seems like a hallucinogenic dream. Although we asked “how could it be true?” we know it was true. Surprisingly the one group who appeared nonplussed about the lack of administrative diligence was the stock analysts. That smart group appeared to care less about admin and even when told of the long delays in risk management they said “but the bottom and top lines are growing so why worry”. It made me believe accuracy of numbers was not something a stock analyst worries about when drawing conclusions on a stock’s value.

Solutions were many and they ranged from better administration systems to real risk management practices. But one of the quickest solutions was to try and insulate oneself if you were a reinsurer from the administrative bottlenecks and poor risk management in the insurer who was always tardy in appreciating the importance of reinsurance administration even when 75% of the risk was passed off to one or more reinsurers! The hallowed jumbo limit was a quick and clean protective barrier to poor administration in the cedants.

Our industry defines the jumbo limit as “A limit placed on the amount of coverage that may be inforce and applied for on an individual life for automatic reinsurance purposes.  If such insurance exceeds the limit, the risk must be submitted for facultative review.”  (Taken from the Glossary of Reinsurance Terms compiled by the American Council of Life Insurers Reinsurance Committee).

If an insurer wrote the jumbo treaty clause with feeling it would probably read as follows: An overly restrictive limitation on the ceding company’s previously agreed to authority to cede specific cases on an automatic basis because the reinsurer does not trust the cedant or the insurers in general to administer reinsurance in a timely and detailed way. If the amount of insurance currently being applied for with the ceding company, which may be well within the cedant’s binding authority, and all other companies, together with the amount of insurance in force with all companies, which is rarely accurate or even known, exceeds the jumbo limit specified in the automatic treaty, the case may not be ceded automatically. Generally, as my reinsurer you insist that whether explicitly stated in the treaty or not, amounts of inforce insurance to be replaced are included in the jumbo limit determination.

If a reinsurer wrote the jumbo treaty clause with feeling it would probably read as follows: A much needed limitation on the ceding company’s authority to cede specific cases on an automatic basis because we can neither trust the cedant to pass on material risk information in a timely fashion or perform proper due diligence on the ultimate amount of insurance to be in force at any point in time. If the amount of insurance currently being applied for with the ceding company, which may be some very large sum that clouds the judgement of the cedant’s underwriters and marketers,  and all other companies, together with the amount of insurance in force regardless of “intentions” which are often fleeting, with all companies, exceeds the jumbo limit specified in the automatic treaty, the case must be ceded facultatively where our underwriters can properly underwrite the risk both financially and medically ensuring proper diligence is applied. Generally, whether explicitly stated in the treaty or not and we know from experience blunders are made often, amounts of inforce insurance to be replaced are included in the jumbo limit determination specifically because you insurers can never guarantee the replacement and are loath to follow up on after issue.

Reinsurers give two reasons for forcing jumbo limits on the industry: first they recognize that their own finite automatic capacity on a particular life may already be totally absorbed by other clients on a life with a lots of inforce insurance; second, they have learned from experience that the fine art of large case underwriting is best left to those underwriters employed by reinsurers since they know best (just like in the sitcom Father Knows Best). Having self professed prowess in the large case market, reinsurers want to control the underwriting evaluation of these cases. In several publications or articles it is boldly stated or subtlety implied that the ceding company’s underwriters overlook jumbo limits enough to scare the bejesus out of true risk managers.

A rather large eastern US life insurer has the following table published on line to encourage business:

Automatic Binding–Best Class through Table 4

It is great to see that a reinsurer or reinsurers trusts this rather large company with above average industry reputation for risk selection to the level of $50 million per life. The reinsurer(s) then take it all away and say your underwriting falls apart if there is already a policy in force for $20 million issued say ten years ago. The reinsurer steps in and has its finest underwriters of a certain vintage start all over again and makes their own decision as to the financial and medical well being of the proposed insured. The reality is that in most cases the jumbo limit is there to compensate for poor administration and risk management.

If our industry had great, sorry make that average, administration the need for a jumbo limit of such a low amount as $50, $60 or $70 million would not be needed. If at the time of application all automatic reinsurers were given notice of the potential risk and had a window of say 48 hours to respond with retention conflicts why would we need such low jumbo limits? If we had better risk management and work flow software we could almost eliminate the jumbo from a consequential level. Yes there may be instances because of “not takens” and such that a reinsurer is left with no risk but even that could be eliminated if we trained underwriters to both underwrite better and manage risk better.

Sloppy and much tolerated error prone risk administration got our industry into this mess and improved administration and risk management will truly get us out of the mess. Jumbo limits at the current levels are merely a Band-Aid on a gaping wound of a haemophiliac like industry that lags in administrative excellence.

A 2011 opinion on the relationship between advisor and underwriter.

Many many years ago I wrote an article for the now dormant Marketing Options magazine (dearly missed by all while fondly remembered by writers and readers) about the conflict often created by miscommunication or no communication between advisor and underwriter. Thus, to say that the seemingly constant battle to get a life or living benefit insurance application through the mysterious and far from transparent new business department is new has not been around for long. Like most Canadians the advisor has a short memory (just look at how we continue to elect politicians who mere months prior to election screwed us royally) and the underwriter is not paid to remember so they never stored the historical perspective anyway. This chasm of misunderstanding, poor communication and lack of empathy between two integral parts to getting premium in the door to keep the life business going strong is not new but merely in an exaggerated state unseen in intensity in the last 41 years.

Only once previously in the last four decades have I witnessed anything close to the frustration of today’s advisors who scratch their heads or other parts in bewilderment at the denizens of the insurance company edifices. It was in the early and mid 1970’s when Canada was witnessing the start of a migration of career agent only insurers (yes there were a very few exceptions) to insurers who were forced to either swing both ways or abandon altogether the career agency system. The migration was not as easy as Canada geese flying south each autumn but there were similarities with the numerous droppings the geese left along the route. Do not think for a moment that the insurers, especially the big ones, welcomed the change at first as they felt threatened by the spunky initiative and entrepreneurship of the broker who emerged, the consolidator (MGA) who cajoled, and the small and sometimes midsize insurer who provided product and a true welcome mat for those leaders of change. The third party to the change was the reinsurer who was apoplectic at the mere thought of taking on a larger share of the insurance pie by supporting the initiatives and the products with attractive pricing and even aggressive underwriting. Over time the reinsurer went from the image of forgettable nuisances to ever welcome by every big company and dominating risk takers.

As the reinsurer stepped at first cautiously into the soon to become common place mortality reductions game they soon were the very public supporters of cheap aggressive pricing and underwriting service that left the big insurers floundering as they tried to adapt. Reinsurers brought aggressive underwriting to the everyday and soon every broker or agent knew that to get a reasonable decision on a problem medical, lifestyle or financial case you had to go to the broker companies (under the charade of the single case agreement for which the insurer and reinsurer could care less about). The reinsurers armed its clients with underwriting guides (most call them manuals) that made the guides used by the big insurers look like they had been written when medicine was still trying to discover penicillin. Reinsurers’ medical directors even visited the insurers to market the aggressiveness and at times even sit an right before the befuddled chief underwriting officer and company medical director proposed underwriting assessments that seemed like sheer lunacy. Lunacy or not the assessments were gobbled up and soon the many reinsurers controlled the substandard and borderline standard market place much to the delight of the broker agent. Canadian Re, Munich and Victory Re, Storebrand Re, Lincoln National Re, Global Re, Mercantile & General Re, Frankona Re, Cologne Re, etc fought tooth and nail for every case thus enabling very aggressive pricing to be past on tot he consumer. Everybody won as insured had lowest possible price often without the stigma of “substandard”, the insurer recouped expenses and made profit over and above reinsurer’s price, advisor agent made a commission, and the reinsurer grew into one the three dominant fat cats of the Canadian insurance industry saturated in risk. The others for the most part disappeared into one of the remaining three or never ventured back into the aggressive Canadian market again.

While all the reinsurers were forging the industry for facultative business and emerging automatic business from the small and mid size companies the larger companies, lacking the same risk tolerance and initiative, turned to the CLHIA and the infamous committee pulled together to find a way of keeping the business and the growing reputation for service out of the smaller combatants. The ill fated CLHIA committee pushed the dull idea of “let us have a pool” where we can put all those risks that are not standard or moderately substandard according to the ancient underwriting guides and charge them a price higher than the reinsurer’s price. In modern lingo, “da” what were they thinking? I jumped off the committee as did all those heavy weights from big insurers when the idea finally was deemed stupid or at least ill conceived. From that point on the reinsurers’’ aggressiveness insured almost 80% of problem cases found a solution that was favourably received in the most part by advisors and agents. The tradition of aggressive reinsurance underwriting continued well into the 1990’s but by the turn of the century the experimental aggressiveness and the number of combatants had metamorphosed into something really different.

Some would say the period 1970 to 2005 was unusual in that reinsurers did everything to win a large market share of the risk while insurers gradually, but almost in unison, wanted to rid themselves of risk to use the capital for other things like asset accumulation products. Soon the aggressive pricing started to cool off and the aggressive underwriting became a mere memory as some reinsurers abandoned facultative underwriting (doing it quietly and without forewarning) while others facing less if any competition found they could win without being aggressive.

At the same time underwriting resources were being decimated by the loss of its wise and experienced masters of underwriting, its leaders who supported a leadership role in underwriting and a dramatic loss of need for facultative reinsurance. For the later automatic reinsurance had come to dominate the relationship between insurer and reinsurer and by 2009 75% of all life risk in Canada was reinsured and 94% of that was in three reinsurers! (0.4% in 1969 as a base year) Does one need to aggressively chase the labour intensive problem application when the lucrative and almost no expense automatic were filling the coffers?

So, after years of brokers and agents being supported in the 10% of the applicants who present a problem of sorts be it medical, lifestyle or financial, they find themselves today bewildered and flummoxed over what they are getting from underwriting departments. Even when I asked if there were any companies out there that are consistently helpful and flexible the answer is no. They hear the reinsurers (sure blame the reinsurer) are behind the problem as aggressive underwriting does not exist today. They hear the need for speed is behind the change as companies push getting the easy ones through while sacrificing the hard ones be it for lack of underwriting talent, reinsurers’ controls or time restrictions built into today’s process of risk appraisal and issue (or decline).

For the past year or more I have been fortunate enough to have been in front of or part of audiences of advisors from coast to coast. What I see and hear may be warped by my background (predominantly reinsurance underwriting and leadership), current status (self employed and happy for it) or penchant for bucking the establishment (it’s boring to have no changes or challenges). The following are snippets of what I have encountered from advisors of all experiences from 3 to 40 years:

• Insurers no longer send underwriters out regularly to discuss current issues or imminent changes in practices and risk selection. Instead they get pricey smartly suited men and women who tease them with marketing gimmicks, sales techniques and glossy brochures. As someone older than me once said “where’s the beef?”
• Talking to an underwriter takes patience and perseverance to wade through the layers of people it takes to get an answer and as the advisors state “able to think”. Even then the answer is often vague and gives no direction.
• Underwriters are quick to blame reinsurance underwriters for everything except the burnt coffee in the lunch room. With 95% of life reinsurance business in Canada automatically reinsured why the ruse of it is someone else pulling the strings. Unless of course they are pulling the strings.
• Underwriting requests for more information to the advisor come in dribs and drabs versus one concise well explained outline of what “all” is needed to proceed with the case.
• Advisors ask why so much is declined and there rarely is a decision for over +125% mortality — its anecdotal and biased but wow they are talking about it especially the seasoned advisor who knows how to place substandard ratings.
• Premiums are so low advisors cannot afford to talk with the younger middle income earner who needs lots of insurance for the cheapest price — the commission reward is trivial and as one said hardly pays for the gas and travel time.
• The application, in some instances, approaching 40 pages of mindless questions and “check boxes” which has more to do with product options than risk selection yet, when there is an error or omission, it is the underwriting process blamed for delay not the advisor!
• The exaggerated fear of the “pending test” seems to dominate even the routine yearly or greater routine test. For example the applicant answers the question “Are you scheduled for any test, exam, etc.?” in the affirmative saying they are about to have a colonoscopy or mammogram in 4 months (pick a number other than one month). The underwriters I am told are postponing until results are in. To me the underwriter should have asked is this routine and for no other reason than a doctor’s requirement unprovoked by symptoms. If the attending physician confirms no suspicion of adverse findings the case should be standard right now. Do we penalize those who, unfortunately without detail written in underwriting lingo, take their health seriously and undergo tests yearly or at some prescribed frequency?
• Advisors definitely feel they need more knowledge of underwriting and what is and what is not a complete answer since they cannot seem to get information or when they do they do not understand. Some of it their fault and some of it the head office’s fault.
• Advisors are turning more and more to company web sites for underwriting tips and description of various impairments. They do not want to be seen to lead their customers astray but rather convey a clear message that full disclosure up front saves time and money in the short and long term.

At the same time as the advisor is facing the exaggerated changes in underwriting, both real and perceived, the underwriter is faced with countless changes in their environment, education and on the job teachings.   As salaries escalated the demands grew proportionately. As the margins fell and the expense component was cut along with mortality component underwriters were asked to to adapt to the new reality.

There is still a disconnect between underwriter and advisor and maybe that is best. If we keep both sparring in the ring we have someone to blame for issues in our industry that impact product delivery be it from a  conveyor belt of minimally underwritten or the mysterious scrutiny afforded the larger fully underwritten case.

Regardless of the title they put on their presentation it was to me a chance for the three key disciplines in our business to explain why we are in the position we are today. You could say we are not in great shape or you could boast we are in great shape. It is the old “the glass is half full or the glass is half empty” comparison. I was very curious if the three would meekly state their case and slyly point the finger of blame at the other two or would there be challenging and perhaps even derogatory innuendo thrown freely. I knew the actuary and the underwriter so I did expect a feisty session. Surely someone would address the appalling state of customer service in the industry today as advisor and even customer scratches their head in confusion over the new business service experience. Sorry let me correct that since the service for the “vanilla” case clear of even a facial blemish does slide through unencumbered by restrictive and confusing underwriting  as recounted to me for the past two years by numerous advisors and MGAs.

What one hears or thinks they hear at a meeting and its presentations is as unique as one’s bodily appearance. We listen with predetermined biases and in some cases with a conclusion already in mind even though the presenters have yet to utter a word. I am no different and as someone truly unique (interpret that as you wish) I do have strong biases and opinions honed at the table of underwriter, advisor, actuary and customer. Thus what I recount here is filtered through my psyche and then put onto paper. I stand to be corrected or challenged by any one else who may have filtered the remarks differently.

Starting with the easiest person’s remarks to muse over one has to stretch desperately to find any recordable moments of insight from the marketer. There was one underlying theme to everything he said I think. It was something along the lines of “lower the price”. No there was no pronouncement or regaling stories of new products or broadening the target market after all who wants to bother to sell to young people who only want term for amounts that produce premiums that afford not enough commission to pay for gas and time.

I sensed no marketer shame in not being able to enunciate a way to sell or, better put, replace existing insurance than with a lower price. L\He failed to say that without a 35 year history of drastically lowering of prices many marketers could not have survived. heaven forbid they might have to look for new applicants! We saw the great opportunities produced by lower prices when: nonsmoker came along even though we know 15% were smokers who lied; aggressive segmentation called preferred even though we know some 15 to 20% were underpriced until underwriters were audited; and then we have the aggressive reinsurance pricing and overlapping lapse supported pricing. Lapse oh please lapse. Price is the bottom line and for 35 years marketers have made their quota of sales and thus the great bonuses that follow. Not surprised that I came away feeling the marketeers (not to be confused with Mouseketeer’s who generally have a very exceptionally good reputation) in general remain singularly focused and wonder why they reap such rewards.

The wise and overly self confident actuary had the chance to step forward and cast out any doubt as to why we are in the position we are today. Instead he adumbrated again what the future holds as he has in the past. We have to lower prices to attract sales since everybody does it. Is there not a story about buffalo over a a cliff? No that is wrong for there the buffalo were herded over the cliff together.  Now lemmings on the other hand do migrate blindly following one another and yes they may go over the cliff into the sea. Actuaries in the product pricing world spend countless hours trying to make it look like their pricing is original when really it is merely either their old price less enough pennies to make it be in the top 5 competitively or better yet take the number three price and subtract two pennies to assure a place in top three. The bulk of the time is spent trying to bulk up their report to look like it was all original science!

For decades it seems I have read (smuggled copies) or been told the contents surreptitiously of a noted reinsurance companies survey of Canadian actuaries. It always amazed when I heard numbers like 90% in reference to the number of respondents who think everyone else’s price is far too low yet believe theirs is right. I always viewed the respondents as anonymously telling me that their price is set not on true projections and historical merit but rather on what’s the competitor doing. Once they set a price they send it to the reinsurer who says they can even do better so why not reinsure more. Thus in Canada we have some 75% of all life risk reinsured at prices I deduce are far from adequate. Lapse oh let it lapse.

There was also actuarial jargon around large cases where the hint was htat the price was inadequate to take into account anti-selection and compensate for the every diminishing requirements. Much of our data from the past large cases were based on a requirement list that included medicals by guess who? Doctors! Also we had treadmill ECGs and chest x-rays and second medicals and far more comprehensive third party reports. Do our prices reflect stripped down paramedicals and simply resting ECGs as sufficient to define the risk?

Lastly, and this was confirmed afterwards by an actuary I respect (yes there are some of those out there and I hold them in high esteem), there is talk that the larger or mega case is showing a suicide rate unprecedented in the past and worrisome. Is anti-selection amongst the applicants for large policies growing? Many underwriters would think this a fair statement yet they can do little as marketeers have more clout. The time pressure thing takes precedence over going the extra mile to investigate.

The smiling actuary took no blame for lower prices, lower margins and emerging results but he had a good time at the meeting. I am sure he must have been thinking this was the easiest gig he has ever had. He priced it and any failure to meet long term mortality and morbidity objectives are the fault of the underwriter who has meekly accepted a price that affords them little time or money to underwrite. But maybe these are the good old days and time will say the business lapsed and the bad that did not was covered by our lapse supported product pricing.

Underwriters generally go out of their way to not rock the boat or upset those with more clout in our home offices. At this meeting the senior well respected (yes I do respect this leader) underwriting leader failed to tear apart the failings of our industry over the past decade. Instead they pointed out it was very much a case of follow the leader when it comes to things like requirements. Heaven forbid to be the only company asking for a treadmill. I heard not one mention of true and extensive cost benefit analysis. Risk and reward was where? I only sensed an accommodation to what reality laid in the palm o the underwriting leader. Minimal requirements budget, increasing underwriting salaries (often for people to read a file that is all “no” and could have been done by machine or a cohort of university students after classes) and pressure to concentrate on the “vanilla” cases letting the medically impaired fall by the wayside (is it true that we now decline 10 to 20% compared to 20 years ago’s 4%?) .

No push back. No raising the ire of marketeer or actuary. Just a statement here and there that thinks are tough out there but we’ll be alright and I am meeting budget and time service targets and there is not reward for innovation or expanding the pool of insurable lives. The leader lives in the present and gets rewarded as she should. When was the last time she was rewarded for finding a way to lower the extra premiums on an impaired group of lives.

An interesting session and I remain cognizant of the fact it was worth the price of admission if for not other reason than to have our industry succinctly trivialized by three people in a boat. they were all happy to go where the current takes them. Let’s just hope it is below the falls not above.

After the demise of the great CLHIA package of statistics on placements, declines and rate cases some years ago I did complain but to no avail. I was told that it was part of a cost cutting mandate both at the CLHIA and within companies who had to supply the raw data. It was a pity as the trends we were able to detect for the previous 30 years were to be no more.  Perhaps the extra capacities of personnel were sent to measure the great wealth accumulation products and how best to measure our industries investment exposure after all that is where the money was! I was remiss in not pursuing the matter as I could find no other underwriters in our Canadian market who seemed to care (did not ask them all but those I did showed complete apathy). The reality was as an industry we drifted into a state of an information void (in my opinion the CLHIA only gets excited about risk selection when itt falls into the press corps hands like the  last time over HIV testing) .

What prompts a few words on the subject now is because of the following:

1.       As the living benefit product critical illness is sold more and claims arise the industry is indeed declining more claims than traditional life insurance (a hiatus hernia is not a critical illness if you read the policy wording so do not expect payment). Even at the initial point of underwriting more applications are declined or rated than traditional life insurance products due to the one major difference between life and this living benefit — you do not have to die you just have to have the incidence of disease. So, what are the overall industry statistics on written, placed, declined, rated or not proceeded with.

2.       Over the past three years I have heard from many an advisor and MGA that the Canadian life underwriters are declining more or rating more or asking for far more requirements. I know advisors always complain about declines and rated cases but the crescendo of “whining” seem to have merit as examples were rolled out and their own rudimentary statistics compiled. Due to the onerous yet prudent privacy concerns of underwriters they cannot disclose the “why” behind their actions which just fuels the frustration of the advisor. The distribution side uses numbers like 20% as the current level of declines or heavily rated cases. It use to be well under 10% for the industry when the industry measured it.

3.       Reading the various postings to “foradvisorsonly” (an excellent forum to share ideas, solutions and gripes, and the repository of some great and much needed counsel on subjects made complicated or far from transparent by insurers) I have witnessed more of the frustration over both underwriting and claims.

Why are we where we are in the industry today in regards to underwriting decisions (or at least perceived decisions since anecdotal comments can mislead) and why is there a perception of more “contested”, denied or compromised  claims than ever before? I really do not have a definitive answer but I do as always have an opinion or two which I will share. Should my conclusions that are my opinions need revisiting because I am missing something I am of an open mind (honest).

Starting with risk selection we have to face the reality that our newest product critical illness will be underwritten tougher since we are dealing with the incidence of a disease and the frequency of that is more than death. IT is also in some instances more subjective than death. Death is so final and the industry has one definition only as defined many years ago and thus we have a definition that is universally agreed to. The underwriter will lean to the cautious side as we are still in the infancy of developing our own Canadian statistics on incidence having started with the bones of foreign jurisdictions results and local hospital and government records. Until we collate more results into statistical relevancy and our underwriters get more comfortable with higher substandard offerings or even deciding which is a borderline standard we will experience tough underwriting is. Field underwriting can help since it is common knowledge which medical histories are not going to get issued or even issued with a rating.

In The Globe and Mail of July 21^st 2009 there are statistics that suggest we should indeed be prepared for a more impaired clientele. Among these figures in the article are the following within the age category of 12 to 34 year olds:

·         Hypertension is up 258% amongst women and 264% amongst men and has hit a prevalence rate of 4% of the sampled population

·         Diabetes has increased 63-78% in prevalence between 1994 and 2005

·         Obesity, as we all read about daily while having our coffee and low fat raisin bran muffin at Tim Horton’s , has actually only increased less than 1% in females while males have hit a 40% increase in prevalence. Obesity in the study segment of males is now over 10%.

·         The good news is that the prevalence of smokers is down considerably in the range of 20 to 37% with females quitting faster.

Thus if we have more “impaired lives” we are going to have more rated lives. Offsetting the obesity issue is one reinsurers very aggressive build table so make sure they get all your obese applicants — they love the lard arses.

I believe that from what I have witnessed the need for speed in issue departments (which includes the momentary pause to do the risk selection) causes an underwriter to sacrifice some of the effort to find the lowest price possible for the applicant to hit a decision target or quota for the day. Evidence is expensive as is the underwriter’s time so putting a case in pending just extends the decision time and amount of time invested in any one case. A decline or a flippant +100% extra mortality gets the case to issue and out of the underwriters “to do list” quickly. In these tough economic times and working with premiums driven to the lowest levels ever the burden to do more with less has impacted underwriting just like any other process driven discipline.

Lastly, as the average age of the applicant increases partially due to baby boomers not getting their estates in order earlier in life, we have entered an era where underwriting an 85 year old is not just a dream. It is reality and actually common place for the over 75’s to be shown the way to provide family or business protection through life insurance. When I started in the business, I trembled when I opened a file to see an age last of 60. Today’s underwriters I would surmise have the same feelings for the age last 75 year olds. The underwriter needs special training in the area of older age underwriting since what we expect to be normals for the 35 to 45 year old are not the same for the over 70 crowd. Its called confidence through experience and great mentoring (and hopefully no early claims to scare them into eve4n harsher decision making).

Now jumping to claims adjudication I do hear or read about claims being contested and denied more than I did say 10 years ago. I have not though heard of one company being any different than the others. For every critical claims comment heard I hear a favourable one. We do pay claims and we are in the business to pay claims. I do not see or hear of any conspiracy to “tighten up” in the adjudication process. All the insurers I know want to protect and enhance their reputation as claims payers and being ones that provide the benefits as sold at time of need and contractual fulfilment — death or critical illness. I though have to admit I wish I had more than anecdotal frustrations over claim payments. I would be greatly appreciative of statistics on what the industry is doing. I do not need any individual company’s numbers but rather the industry composite for then I would be able to look for an industry trend — denying more or not would leap of the pages of statistics. I am of the opinion that any company when reviewing composite industry stats found themselves far from the overall trend would seek reasons why (poorer quality products, poorer quality distribution, poorer quality risk selection, etc).

Bring back the statistics while building more comprehensive industry stats and we can then either cement the anecdotal commentary to the stats and take action if needed or dismiss the anecdotal as being advisor frustration without basis. But that costs time and money and somewhere the decision was made to not spend anything on these stats for some reason which was most likely budgetary.

This Article was written in mid 2008 at the request of the editors of a magazine called Pravartak, the Journal of Insurance and Risk Management. A bit short as compared with many of my articles. Underwriting and its issues are so universal (be they the supply of top senior underwriters, the training of new underwriters, the communication between advisor and underwriter, the regulatory changes or the evolution of medicine) that articles, speeches and opinions are relevant in all insurance locales. The article was published in Volume III Issue 4, July-September 2008.

Learning to love the underwriting process or, at the least, learning to survive that thing life and health insurers do called risk selection! Just how does the financial planner and/or life agent get comfortable with the categorization of clients into the super good, better than average, non-smoking leftovers, smokers and really impaired lives? How does the underwriter get comfortable with the sales concepts of distribution, the whining of agents who feel oppressed by the arbitrary nature of risk of selection or the inability of agent to gather all the information both financial and medical from the applicant the first time? Surprisingly you, if you are the agent and the source of all sales, are not alone as even the neophyte rookie unblessed underwriting candidate struggles these days with learning the “ropes” of what has become a very complex subject. It is all about communication which by definition includes speaking and listening. As I wrote many years ago (this subject of communication or lack thereof between underwriter and agent) is far from new and far from being a problem limited to the Indian market. Just read “Two Hymn Books” at www.rossmorton.com .

The question asked by both those in the distribution channels and those trying to manage a new business process, which includes underwriting, has recently been answered by a company called LOGiQ3 Underwriting Solutions Inc. which tries to bridge the information chasm. This independent company stepped in to provide almost a mediation role in getting one underwriter (in the head office) to understand the other underwriter (agent in the field). Thus, for the underwriter to look to other markets for solutions is like looking at a shooting star and making a wish. No market from Canada to South Africa, USA to Great Britain, Hong Kong to Australia and so on and so forth has ever built solid communication between the two underwriters. I use the word underwriter for the agent as well since, in history, they were the first underwriters and are still the first line of risk selection an insurer has!

The increased interest in helping the agent or financial planner, in order to help themselves or their assistant prepare a case for underwriting, has grown tremendously. From asking questions and recording answers in a way to fast track issue to helping construct the covering letter for the most complex of medical and financial protection sales, those connected to any form of distribution want to know “how do you do that?” In Canada today it is common to hear an insurer say they are declining and/or rating as much as 20% of the applicants who cross their desks. Many an MGA has stated to me that close to 22% of applications are rated or declined. When the CLHIA kept statistics on such things up to a decade ago the number was less than 10%! This is the business that better communication can help the broker with through better preparation and case deployment. In addition to those obvious cases relegated to the bottom draw there are those large sums assured where wrestling with the underwriter to make them understand the need and justification is almost becoming an Olympic sport (possibly before women’s ski jumping). Ask many a great underwriter and they will say the case is often lost in the first instance an underwriter opens the file. Swelling the 80% placement ratio to more like the old days’ 90% represents a very large premium that currently does not reward the advisor. There are thousands of applications out there tht need more attention starting with those who did all the hard work to find them and get a signature on the application, perhaps and most likely after months of hard work.

India is no different than the rest of the insurance world in that communication skills for underwriters fall far down the on the list of qualities one looks for in underwriting talent. By their very nature the inquisitive sometimes introverted underwriter is a reader and closet doctor who would rather make a diagnosis than a sellable underwriting decision. I see no difference in the personas of Indian underwriters than I see in Canadian underwriters. As an industry we do not help the underwriter learn the skills of communication other than how to answer the phone with those opening pleasantries dictated by human resource departments. No where is the underwriter exposed to the much needed skills of communicating opinion in a nonthreatening fashion or making the agent feel in their mind and heart that they just experienced a quality decision which is both prudent and right.

Dressing up a diabetic case in the important facts to make it look like it really is and give the risk taker comfort that they know what the risk is can be accomplished with agent’s being taught how to build a file to support the application. To avoid issues at claim time how does the advisor cajole the right answers to each and every question from the applicant in a form that gives the risk taker (the home office underwriter is the bastion of risk selection) a broader tolerance in his or her action. What is trivial and what is not? What is helpful to differentiate your good hypertensive from the other advisors poor hypertensive? The answers are both through managing the information gathering process and “telling the story” when the story needs telling. Being forthright can be contagious and once the underwriter sees the information is forthcoming without aggravation they are on the agent’s side or should be.

In the book “Again, Does It Make Sense” by yours truly, there is the very real example of the multimillion dollar case that would never have made it through the underwriting process in tact if it had not been started with a great explanatory letter to the underwriter — insurer and reinsurer wanted to get the case issued for the amount applied for! A wise and entrepreneurial company works with agents one on one to get cases front and centre and then eventually through the process. The new philosophy in modern insurers is that it is very rewarding to train the agent on how to get some of that lost commission into their bank account and bring the satisfaction to the agent of having truly helped those some of us would say are the most in need.

In the 12 years just past I have had the great good fortune to visit India and see it take a giant step from single life insurer to multiple insurers and of course the ever present reinsurers. The change was meteoric with a stampede to get licensed, get staff, get product and get sales (not necessarily in that order as sales most likely raced far ahead of trained and qualified staff). With a lack of sufficient numbers of local experts, India imported the experts from other countries but with that importation of ideas and expertise came the baggage of past failures and lessons failed especially in communication. My first visits after the expansion to many insurers had me asking the questions of underwriters “Does your company train you in communications and dealing with agents?” The answer was an emphatic no! I was not surprised because none of these companies’ foreign partners practiced communication skills in their own markets. “Does your company train the agent on how to “sell” a case to the underwriter with detailed and forthright information both medical and financial?” Again the emphatic no since that skill in the overseas markets has all but disappeared. It seems bad habits are as easy to import as good habits.

With sales piling up on desks and there being no shortage of willing salespeople eager to hit the streets in soliciting overdrive, why waste time training them and underwriters to build strong relations through communication? Even the actuarial talent hardly knew underwriters existed and three “straw polls” done four years ago in Indian insurers showed no actuary admitted they had ever taken the time to communicate with underwriters on product pricing and margins. The underwriter was left to guess where and when to shave a table or two of rating. Thus I saw a failure to communicate both in the field relations and in the head office relations. How can an underwriter expect to do their job of categorizing risks without knowing the pricing foundation of those rate classes? We will worry about that when sales flatten and time permits. As an outsider sales will not flatten for years and years and thus the chasm will grow wider between the underwriter and the field agent plus the pricing actuary as they restructure prices to accommodate non-smokers and the super healthy (preferreds and super preferreds).

I was naïve in thinking India would be different and fundamental insurance education, both in technical knowledge and sales competency, would be different in India. You have thus far emulated the foreign practices of focusing on new sales, which is great as I am a believer in growing fast and furious, and foregoing building both internal and external communication avenues that negate lost sales and argumentative discourse between agent and underwriter. Perhaps unlike other insurance markets the effort will be expended sooner rather than later to bring sales and risk selection onto the same page as partners in growth and profit. The Indian market is tremendous in reality and potential and I reiterate that having seen the changes over just a decade I wish I could experience more of that exposure since growth is far more fun and rewarding than the contracting industry of North America. In the interim I have to be satisfied with the rare visit to a vibrant market that will be in many ways unique but in others will carry the same baggage as the rest of the insurance world.

Ross A. Morton, FLMI
Reassurer Advisor Mentor