or Advisors Never Refer To Underwriters As Refulgent (A Geck Maybe but Never Refulgent)
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.