Posted on

Hiding under a Blanket

I do not think there is malice of forethought amongst advisors but rather just clumsiness when dealing with the words, written or spoken, of someone from the product manufacturing side of life insurance. In the past I have written about the “Two Hymn Books” and how insurers themselves quite frequently use one set of verbiage for the advisor and then a second set for the risk assessor (underwriter). That strategy of poor communications has created dozens of issues between marketing and risk selection to the point one would assume it is a prescribed management style.

The most recent issue, although one cannot be so firm since issues crop up faster than grass grows in spring, is the one emanating from foreign travel. A few years ago the world was changed forever as the realities of terrorism and bombs of all types seem to engulf more than just a few countries. Panic set in and the questions from the highest executive suites of insurer and reinsurer poured forth wondering what travel is safe? Where do we worry if people are traveling there? Who wants to take these risks? Is there antiselection? The list of questions and apprehension grew and landed on the shoulders of underwriters to insure the price was right — risk equalled reward.

Did we of the “inside workers’ fraternity” communicate our angst to those of the “outside workers’ fraternity”? Did we forewarn the advisor who we are so dependent on for distribution that changes are in the air and there will be some tough times ahead for anyone travelling abroad? Did we take to the advisor all the rationale for the stand risk selectors were going to apply to cases where the mere mention of a plane headed to Beirut or Jakarta caused extreme consternation? The simple answer is we underwriters in the reinsurers did little proactive work on the subject with the many insurers and in turn the insurers did little proactive work with their distribution networks.

That is water under the bridge since we cannot go back and only claims people like to think that hindsight underwriting and action can be done in a foresight manner. Going forward I hope we have learned that we have to be proactive as a group of professional underwriters but that is sometimes impossible given the expediency with which advisors and their head office marketing support people operate. If I could influence what did happen I know I would today say quickly tell the world that reinsurers and insurers will be tightening up on anyone traveling abroad until we can ascertain what is the real threat and thus what is a real fair action to take on the various permutations of travel.

Underwriters over the years have become jaundiced in their view of some material risk factors and travel is definitely one of them. Ten days before a flight leaves for a deemed troublesome country and the advisor says they need a million dollars of coverage and fast. All part of normal estate planning and the upcoming flight bears not an iota on the application for 10 year term insurance. Let us please get serious. The underwriter is probably right in postponing until the person is back from Afghanistan before proceeding with assessing the real risks if indeed the person still wants a ten year product. In the interim go buy travel accident insurance. The underwriter is dubious of the real motivation and thus his or her training is to take the prudent (not necessarily conservative) approach. Is that wrong? I would bet that 99% it is the absolute right call. Since none of us in the insurance world things we are perfect I will settle for right 99% of the time.

Can I as a risk taker trying to have my company make money afford to turn a blind eye to the extra risk and accept the case even though foreign travel to some parts of the world are seen as risky (see below under government advisory). Are these warnings foolish and frivolous? No they are precautionary based on best information. The underwriter has no better source on the safety for a Canadian in say Indonesia than the Canadian government’s own Web site information bulletins. I have personal experience with Indonesia, a country I have strong attachments to from the 1990’s numerous trips there, and thus can relate to warnings by the Canadian government. I was to leave Singapore, where the biggest risk was shopping to the maximum Visa authorization, when I was warned by a Singaporean friend that going to Indonesia right then was not wise. He said trouble is brewing and the risk is immense. Not to be deterred I called my company and they said no all is alright go for it. Now I am caught between two sets of opinion. As a deciding factor I went to the government of Canada site and found out that indeed Canadians should get out of Indonesia and one would be stupid to go in at that time. Okay common sense says 2 out of 3 wins so go back to shopping in Singapore.

Duty and friendship mean a lot to this Ontario lad from rural roots so I called a business associate in the company I was to work with for four days. His advise was “All is well so come on over to Indonesia”. Then he really threw me when I asked if he would be picking me up at the airport as he usually has done in the past. His answer was “No, sorry it is too dangerous to be out after dark.” The risk was real. The government was right to warn me. My friend was right to warn me. In the end I went but did not eat or stay in any American icon establishment and kept away from windows, doors and milling vehicles! I am still here. Dos that mean that all travel is save regardless of warnings? No. Three weeks later the front of the hotel I was staying is was blown off by a bomb!

The various government advisory Web sites are great ways for an underwriter to assess the current risk of a particular country and if you visit all three (Canada, Australia and USA) you get a composite picture that is either comforting or frightening. For now I will continue to use it as one of the locations of good information and weigh its significance along with all other information I can accumulate. The worst that has happened to me in Indonesia is a real bad case of Shigellosis — great weight loss but terrible illness but that is another story about “testing”.

The underwriter has to decide if there is enough of a margin in the premiums singularly and collectively to accept a broader definition of “standard risk”. When I started in this business the margins existed for insurer and reinsurer alike. As pressure from advisors to lower the price for the many and actuaries eager to show they could sharpen a pencil better than the next actuary the price for mortality plummeted some 85% between 1974 and 2003. Only your computer hardware has seen similar reductions. Here in 2005 we have no margins. Putting it another way neither insurer or reinsurer have enough margins over a thousand cases to be extra generous on any case especially in areas where we lack statistical comfort. In the distant past there was the extra dollars of comfort that allowed underwriting latitude in decision making. It is long gone folks. We traded the broader definition and tolerance for standard for the sharper price for the healthiest and blandest of proposed insureds.

Today the battle rages around the world. Distribution wants freer rules on foreign travel and facts, lots of facts, to support the decisions of insurers and reinsurers. The underwriter wants to show some latitude but has only the press, government agencies and common sense to go on. The fighting in the trenches will only end when all parties sit a the same table and devise rules that make sense to the advisors and are seen as prudent to the risk selectors and risk takers.

Tell me again why hiding under a blanket in the boot of a taxi is not normal travel from airport to hotel. All that happened was my clothes got dirty and the reinsurer had a large cleaning bill. I still think I have been and remain a standard risk, at least for travel history and future.

Ross A. Morton

Richmond Hill, Canada