An advisor I have a great deal of respect for, Lawrence Geller, asked me if I would write something about underwriting for the magazine produced by and for advisors. I think it will be published in June 2009. I was unsure what to write but tried to hit various points that were raised as current issues — although many of the issues between advisor and underwriter fall into the “eternal” category. It was fun to write and I wrote it between games of the IIHF World Juniors 2009 in Ottawa.
It is probably a stretch to say both advisor and underwriter understands the impact of illnesses or disease on longevity and mortality. Arguments rarely erupt between these two combatants, sorry partners, as all can recognize the individual with two heart attacks and poorly controlled diabetes and hypertension warrants an additional premium. There may be some debate on degree of extra mortality as the advisor argues that the applicant’s attending doctor says the individual is doing alright (but never alright compared to any normal baseline!); whereas, the underwriter knows the individual is highly substandard in comparison to the healthy insured population’s standard mortality pricing.
This paper will not try to bridge the gap in the definitions of normal or standard medical assessments but rather try and lend some insight into how the underwriter thinks when assessing those other factors that actually are many and varied, yet rare and statistically short changed. Nor do I want to be labelled an iconoclast for what will follow but admit some past actions may have already nurtured that label over the past 40 years.
Aviation, avocation and occupation have traditionally been the broad headings over a multitude of influencers of potentially extra mortality. Show me 1000 coal miners in China and I will show you gross extra mortality. Show me 1000 snorkelling swimmers and I am pressed to find any extra mortality. The three broad headings today have given way to the broader catch all called “lifestyle underwriting”.
The exposure an individual exhibits in answering our insurance questions can influence their chances of producing mortality beyond what my actuarial friends have assumed in their pricing. Our premium pricing structure today is so thin (absent any real margin for anything but standard risks) the underwriter cannot admit someone who may influence adversely the normal expectations because they and those similar will have extra mortality over time. Our premium rates used in Canada or USA are such that they reflect what we expect mortality of hundreds of thousands of individuals at various ages but in good health (insurance medicine standards) to behave like which is far different than the mortality assumptions used in many other countries. The world has different mortality rates even before or without insurance selection. If in doubt that Canadian mortality is better than Haiti just go to the World Health Organization web site for statistics. The reasons are many and I assume most of the readers appreciate why but if not I have a remedial seminar on the subject.
Suburban Canadian City It Is Not!
First I will be really upfront with the reader and state that in my personal opinion the industry over reacted to the whole notion of foreign travel and thus came down extremely hard. There was almost a stampede of upward price surcharges or outright denial of coverage for various foreign travel and most of it was based on fear of the unknown not statistical analysis. The underwriter did not know what they did not know and thus rushed to say no (in its various iterations). At the same time the advisor groups, at least the Canadian ones, fell silent on the subject but encouraged individual advisors to whine and “bitch” that insurers were truly unfair in their actions. South of the border the advisors mobilized, as only they can, and quickly got the legislators to tell insurers you cannot do what you are doing without proof or sound reasons why you are discriminating against those with casual travel to far off places. In the end we in Canada suffered years of whining and verbal onslaughts of criticism, both ways. Why we all did not work together to find a solution still flabbergasts me.
In the recent history of risk selection we have moved on and now, almost in totality of an industry, endorse far more liberal thinking when it comes to foreign travel. The basic yardstick (metre stick for the more modern) is to look at the duration of travel and where. First with the latter we are still going to decline or rate those going to places like Iraq, Afghanistan or any other “hot spot” in the world. The definition of a “hot spot” is pretty well any country that is listed on a government web site (Canada, USA, UK, Australia, etc. but not Iraq or Afghanistan’s web site) stating DO NOT GO THERE STUPID or words more subtle! Western nations warn travelers for a reason — it is not safe either in a country or a region within a country and the degree of warning reflects an ever increasing cause for concern.
Business travel (as long as you are not an armament salesperson) or vacation travel for periods of up to eight weeks is deemed acceptable today to most countries as the “no no” list has shrunk. Why eight weeks? It is better than four and not as uncertain as twelve but there is no magic in its choice. Just accept it as fair and better than four. Okay? Even though we have broadened our list of acceptable eight week travel destinations it still can bring extra risk to any traveler. I was in Mumbai on routine business travel when explosives went off and terrorists ran around all too close to me than I really wanted. Was I in danger? Yes, as airplane delay made me 20 minutes shy of one explosion and all I saw then was the bomb’s residual damage. No, in that the local staff that I was travelling with made sure this “big Westerner” was very quickly (within 2 hours) escorted to the safety of a well secured small boutique hotel well away from any terrorist or at least we hoped that was the case. Should I have been rated if India was a travel destination on my insurance application? No but if I was doing a lot of it (remember more than eight weeks) I should have been rated some extra premium as I did (do) present an extra risk while travelling away from the friendly Canada. In Mumbai the underwriting profession indeed lost one underwriter in the Taj Hotel as her room was next to the terrorists. That Hannover Re underwriter from Kuala Lumpur who travelled little was just in the wrong place at the wrong time for an event no one could have predicted.
The underwriter, although not fluent in the nuances of every countries’ standard of living, economy, legislation, accident rates, endemic status, political stability, security standards or terrorism ranking, assimilates all they and their peers know and access the same public web sites to determine if the destination is good or bad. Actually in reality they look at a dated list of good countries and bad ranked by somebody we all hope understands more than continental North America. Thus you as the advisor submitting the case gets one chance to influence the mind of the underwriter and that is right at the start when the file is first opened. Write the note that explains the situation (they will find out anyway and proactive is better than remedial prodding) so the underwriter has a favourable mindset before the file is dissected. Underwriters are human and thus can be easily influenced by good clear prose be it brief or extensive. The business man going to Mumbai can be painted as standard (within the 8 week rule) but forget trying to coerce the underwriter into taking the arms dealer going to Iraq even if they are heavily armed!
The underwriter and their company worries about all the previously mentioned issues in a country as well as one other important item namely claim adjudication and management. The various standards of legalities when it comes to getting a death certificate or hospital report is immense and many an underwriter in foreign countries have said anything is obtainable within hours for modest fees! Our industry has numerous historical rip-offs of phoney deaths and faked disabilities. The cost of uncovering the truth is immense in both time and money. Our policies are issued and administered on the assumption what we see is true and accurate from underwriting information to claims papers.
Many a time the underwriter sees a case that needs to be issued “by Friday as my client is leaving for “x” country and needs the policy before leaving. Give me a break if you the advisor had been doing your job the insurance would have been inforce for months if not years. Underwriters including the author hates those cases and is suspicious it is just cheap travel insurance or there is some hidden agenda making the insurance of utmost importance all of a sudden. Give me a break and do not submit the last minute application with threats or pleadings attached. I am not moved.
Obviously the underwriter would decline any application where there is no insurable interest (it says to do so in the manual) and thus suspicions are ripe and the odour is pungent. Underwriters will decline if the country or the person presents a high security risk like politicians, diplomats, government liaisons, public figures, missionaries (they are a zealous lot who tend to feel invincible to local crime or disease) and military. Additional benefits attached to the policy are most likely decline as the claims adjudication process would be cumbersome if not impossible. Exclusions are used but are not the answer in my opinion unless they have a clear meaning and have a sunset clause so the insured is not penalized for life for something that is as acute as travel hazards — Iraq may become the new Vietnam when the Americans are finished!
In summary if the travel is more than eight weeks or the country is not as safe as Canada I am going to charge the applicant more to cover the extra risk just as if they were a resident of that country who is already paying more than the Canadian life insurance consumer. Mortality and morbidity rates vary by country and the more the applicant is exposed the more premium I need to make up the difference from the average Canadian who does not travel beyond the Disney World adventure parks or the Big White ski trails.
The whole travel issue will slide into relative obscurity until another significant world event scares us out of our drawers and we over react. Write the note or letter as cover sheet. Make the applicant “real” in the underwriters’ eye and glean some sympathy which may lead to a more lenient result. Expect bad places to incur the wrath of the underwriting pencil (key stroke today) and if it does then mobilize to argue vociferously as a group to get fairness you may feel would otherwise escape you.
Advisors Are Standard, Explosive Handlers Are Not
When I started in this business a great deal of time was spent by research underwriters (those who built the great underwriting tomes called manuals) looking up the reams of statistics on the most obscure jobs. Once the statistics were collated, manipulated and summarized our industry was left with an ever increasing list of jobs yet with fewer of them being considered hazardous here in North America. When we added nuclear scientist to the list we rated them a few extra dollars per mil but soon realized the hazard was trivial and even a group of 1000 exhibited no measurable extra mortality or morbidity. Remember I am talking North America here and do not profess to believe other countries had the same safety standards as we do in North America. To keep advisors happy we never took an occupation off the list since there was always one advisor who would ask about the rating on a blacksmith even though for a decade or more they had been considered standard. Thus many of the lists of occupations includes ancient trades long since forgotten by many.
There are few occupations that warrant ratings these days in North America. The same cannot be said for other jurisdictions where the death rate in some industries like mining, construction and bridge building are beyond anything we can fathom in North America. Thus one could argue that today in this market we only rate those occupations where the risk is greater because either the exposure risk (off shore fishing and oil drilling) or the specific hazard like explosives adds elements to the risk that most workers are never exposed to.
Do we have statistics? Yes there are bodies like the workmen’s compensation that keep data but it is sadly lacking in its size or specifics to accurately give the insurance industry precise categories. How many people died of asbestosis that were never recorded as such as they were treated and or died in small town hospitals far from the mines themselves and the watchful eyes of government agencies? The most comprehensive survey of occupational deaths and accidents was the old 1959 study which has long gone into the waste basket once it was not kept up to date and horseshoes were seen as standard risks.
The advisor should really take the time to explain any unusual occupation to the underwriter giving as much information as possible especially in regards to the safety precautions taken in such an industry that can negate an underwriter’s potential negativity when the occupation jumps off of the application pages. It is so very rare to rate an occupation today it catches most underwriters by surprise especially in life and critical illness underwriting and less so in disability underwriting where the duties of a job play an important front and centre part of risk classification.
Crazy Things Fools Do
If you are going to submit an application on someone who practices B.A.S.E. jumping I am going to join all underwriters and decline the foolish individual. If you submit an application on the amateur skier skiing the greens, blues and blacks I will get the standard stamp out quick. Avocations are varied, misunderstood, poorly regulated, lacking statistical compilations of who does it and what happens to them, and ill defined in many cases. In addition some of the avocations are so rare and poorly defined the underwriter has only their own basic knowledge to judge its significance.
If you are submitting an application with any unusual avocation you had best attach a well constructed questionnaire completed with all details plus or instead of a letter that paints that happy face all over the application. To expect the underwriter to understand ballooning (we had an underwriter die in recent years while partaking of her first ever balloon experience) and then decide between standard or decline and all the options between based on your explicit “yes” answer to the question elaborated with the words “goes ballooning” is at best an indication of feeble mindedness! You have to explain as fully as possible and where applicable paint a picture why your applicant is better than the average partaker of the avocation..
Give the underwriter something to work with by elaborating under the following broad headings:
- Where — locally or out of country. Safety standards are seen as better here than there. Big hills or little mountains. Deep water or YMCA pool. Backcountry and out of bounds versus the greens at Collingwood.
- Who with — is it practiced alone or with instructors and guides. A group climb or solo? Was the applicant trained?
- Regulated — bungee jumping is fun here but in Peru it is downright scary and thus falls into rating class of stupid. A countries attitude to safety precautions is big factor. Is there a regulatory body overseeing the avocation?
- How often — did it once on holidays but may never again. Do it regularly and will do it more often in future.
- The picture — make it seem less of a risk or that your applicant is saner than the average thrill seeker.
The list of avocation is long but the following are a few which allow for some cryptic comments and suggestions:
- All terrain vehicles — the casual user of an ATV at their cottage or home is not the worry but the ATV rider in competition is and the variable is where, when, frequency, etc. If the person is still riding the three wheeler they are dumb as they were outlawed years ago. Ratings vary from standard to decline.
- Auto racing — how fast, how often, size matters a lot, location all play a role in determining the rating. Declines hit the formula one driver and other racers using alcohol (in the gas tank) or nitro are close to decline. There are times when the $15 per mil is used on Indy or formula drivers but mainly by reinsurers who think they know more than insurers. Weekend drag racers of stock cars without the alcohol come close to standard. If the applicant has a bad motor vehicle report or there is criticism of alcohol or drug usage they will be declined.
- B.A.S.E. jumping — if you are so infatuated with jumping off of buildings, aerials, spans and earth to the point you are breaking the law I am going to decline you. In some jurisdictions they have outlawed BASE jumping just to protect the stupid thrill seeker.
- Soccer and football and other ball games — generally standard but as the person approaches professional level the attitude of the underwriter turns to being suspicious of lifestyle issues.
- Hockey — other than concern with eating without teeth its standard.
- Mountain Climbing — show me the mountain and I will decide. The higher and the steeper the grade plus the location will influence the underwriter to move from standard for the mountain walker to the Everest climber. Trails are safer than rock faces. Ice climbing is right up there on the decline column so wait until it thaws. If you paint a great picture of a very healthy man or woman who has prepared for years to climb Kilimanjaro I want to issue standard. Show me the pudgier hypertensive dentist who on a whim wants to climb Kilimanjaro and I want to decline until they are back pulling teeth.
- Parachuting — amateur club jumping in Canada is generally around $2.50 per mil but for competitive jumping and/or no club is most often declined or excluded.
- Diving — for less than 40 feet of depth and recreational only diving it’s a standard. As you go deeper or more frequently or even professionally we get closer to decline. Declines are rare and ratings tend to top out at $7.50 per mil.
- Back Country Skiing or Out Of Bounds Skiing — there is a reason areas are labelled as out of bounds and the fine print saying do not go there as it is too risky. Those boarders and skiers who like to push the risk and thrill to the highest are presenting extra risks. The very infrequent “heli” skiing or “cat” skiing is generally standard but as the frequency goes up and regulation/oversight goes down the rating goes up tot eh $5.00 per mil. As I write this article two more skiers/snowboarders have died in BC as they went “out of bounds” and pushed their luck in search of the extreme high.
Although statistics are weak on most avocations since rarely do we have any real number of participants or all reported fatalities and injuries, the underwriter and actuary assigns an extra risk in terms of deaths per thousand. If the rating is $2.00 per mil the insurer is expecting based on all reasonable assumptions that there will be 2 extra deaths per 1000 participants/insureds with the same risk factors. The more organized the avocation and the more it is regulated the more likely the statistics will have substance and less of a guesstimate. IF the advisor wants to have a better guesstimate made by the insurer than paint the picture of why your applicant is better than average and that includes more ‘cautious” than average.
With any of the avocations, and for that matter occupations and aviation, any lifestyle criticism or health issue will exaggerate the assessment the underwriter makes when culling through all the information. The bad driving record or alcohol criticism will influence adversely the assessment. Medical issues like moderate to severe depression or a seizure disorder will definitely warp the underwriter away from the standard assessment. Exclusions are an answer but how well are they worded and has one ever been tested before? Even the longstanding and often altered (read improved in the eyes of lawyers but perhaps not the underwriter) aviation exclusion has to my knowledge never been tested in the courts. It should be seen as a last resort by both the underwriter and insured and their advisor.
They happen. The one area of extra risk associated with nonmedical factors that has been based on statistics is aviation. In North America we have for years had plausible statistics on pilots be they students or commercial, infrequent or frequent (not the Aeroplan kind), and location. Crop dusters flying extremely low under the pressure of time and cost along with remote arctic charters or unscheduled routes are all seen as having the most extra risk associated with their activity.
Has there been a year we have not seen a small plane go down and all perish in locations like the interior of BC or the remoteness of the high arctic. Private pilots flying up to 75 hours per year are seen as the most standard whereas flying at or near the 300 hour mark warrants an extra of about $3.50 per mil. Once well beyond the 300 hour mark a pilot is seen to present a more significant risk. Not sure why as I would have thought practice makes perfect and keeps the proficiency up to high level.
Once again if you add in lifestyle issues or medical impairments all book ratings are out the window and declines or exclusions become the answer of choice for the underwriter. I remember flying in a four-seater out of Regina one cold winter night and smelling alcohol on the pilot’s breath and worrying for 90 minutes whether or not we would ever make it to Lethbridge or not. Given the winds, the extreme cold and dark of night perhaps if I was the pilot I too would take a shot for the road! When the pilot asked if I could hold the rudder stick (or joy stick?) while he checked the map I knew I was on the wrong plane at the wrong time under the wrong conditions. My reward was a church dinner and a duplicate ride home. Paint the picture of the happy family man/woman with a successful and full life lacking any mood swings or depression and I will squeeze standard for many a pilot. I like the look and feel of a cautious insured not a reckless thrill seeker or a morose bankrupt.
Speaking or at least writing about statistics let me leave you with the following 10 year history (1998 to 2008/Nov) of plane ( nine seats or less) crashes (source was the Globe and Mail November 22, 2008 paper page A11) and almost all had fatalities:
North West Territories
Newfoundland & Labrador
For reference New York
For reference Idaho
That is 25 per year or for the actuaries 25.7 crashes per year in Canada! Trying to tell an underwriter that all flying is safe in Canada is a waste of time. Picking the safest pilots is not easy so the advisor painting the best picture wins (includes who maintains plane, where kept, instrument ratings, location of routes, why and with who). In BC remember it is safer to take to the train.
Toking Just A Little
I am old and from a different generation. It was an absolute that any admitted use of marijuana was a rateable offence since it was an illegal activity and it led to brain cells being abused. At least that is what are parents told us. Today since the parents are toking as much as their children the occasional use of recreational marijuana is seen as okay. Actuaries (how else do we dream up the fantastic premiums now charged the super preferred risk) and underwriters are into it as much as any other worker so we have moved the bar from zero tolerance to “occasional, recreational, or “while at a party” use is absolutely acceptable. Start moving away from that standard to the daily use or having a harder drug history or psychiatric medical issues or any other lifestyle red flag and the rating pen comes out. The underwriter quickly jumps to the $2.50 to $5.00 per mil range with almost any provocation but much prefers to just decline the applicant whose lifestyle overall is such that the risk or just the uncertainty of the risk is too great to accept.
Summary In Its Brevity
I cannot state enough that only the advisor can paint a picture of a better than average risk, a better than average bungee jumper, a better than average pilot, a better than average toker and an overall better than average avocation, aviation or occupation risk. If you do not paint the picture first the underwriter is often left with a Picasso in their mind and a rating on the tip of their pen or stroke of their keyboard. Be proactive and write the covering letter or note to start the case of on the right footing or struggle with the ramifications of a biased underwriter.
I am not alone in encouraging the advisor to step up and make it easy for the underwriter to appreciate the better risks within a group that is considered overall more prone to accidents both tragic and debilitating. Karen Orozco in her article in Manulife’s “Risky Business” pages in November 2007 stated the following:
“The outcome of any case will depend on the information provided with the application. For sports and avocations, we have questionnaires that provide the underwriter with the information required to underwrite the case. For larger cases, it is important to provide the questionnaire, as well as a very detailed cover letter explaining your client’s involvement in the activity, their level of expertise and experience, affiliation with any clubs or associations and a general lifestyle commentary.”