Introduction

 

There is an old analogy which compares an insurance company to a car with the marketing department pressing the accelerator as hard as possible, the underwriter braking constantly and the actuary directing the car by looking out of the back window. Whilst there may be some truth in this comparison, it does fall down at least in respect of the underwriter’s role. I cannot comment on the others, but for me the underwriter should not be seen as the one slowing down the company or even the sales process; yes they should be encouraging the sales person to ease off the accelerator if the car is heading to a sharp curve, but even more importantly the underwriter should be the expert engineer working under the bonnet even before the car is in motion ensuring it is fine tuned and operating with maximum fuel efficiency. Underwriters should make the business flow more smoothly, not more slowly.

 

A second reason why the analogy would be false, certainly in respect of underwriters in much of Europe, is that for many companies, the underwriter would not be allowed to put their foot on the brake pedal; they are often considered too junior to even be allowed onto the front seats. This article seeks to question this approach and to examine what alternatives there may be for those forward thinking executives who choose to use the expertise of their underwriters in a way which improves the efficiency of their company and increases sales completed.

Role of the underwriter – case assessment

 

An underwriter spends the majority of their time assessing individual insurance applications, and this will continue to be the case in the future. Recruits to the underwriting area may come from nursing, or some other profession which brings with it some medical knowledge, but it is just as likely that a new underwriting recruit has no specialist training or experience. Such recruits tend to be relatively cheap to employ, but maybe insurers are missing an opportunity here; employment costs of underwriters may be relatively low, but they can save you, or cost you, significantly more than their salaries. Simply put, bad underwriting is bad for business. Overly cautious ratings result in lost business, and ratings which are too low result in lost profit, but even this misses out on some of the key areas where underwriters can impact both your top and bottom line. A skilled underwriter is able to make a decision earlier, which not only saves you money on medical evidence costs, but also increases your completion ratio; cases which take longer to be underwritten have a proportionally lower completion rate. Investment in the training of your underwriters could be one of the best investment decisions you make.

 

Role of the underwriter – influencing product design

Underwriters, by nature of their profession, are required to learn a little bit of everything; they need to understand not just obvious areas like medicine, finances or occupation risks, but also appreciate aspects of pricing, policy conditions, claims, and the good ones even try to better understand the sales process. This gives them a unique knowledge which should be used not only assessing individual cases, but would be better utilised in the product design process. The best underwriter in the world cannot rescue a badly designed product if they only see the end result (of the new business process part anyway), the application. If that same underwriter is involved at the start, when the product is being developed, when the sales techniques and target clients are being discussed and when the conditions are being decided, then they will often be able to pre-empt many of the predictable problems which may arise. By solving these problems before product launch, the underwriter can help avoid the issues which cause so many of the delays in the individual sales.

Some may be dubious about the merits of involving underwriters at such an early stage, so it is worth discussing an example:

An insurer decided that it wanted to sell life insurance to the elderly population; their relative wealth and low insurance saturation make them ideal target clients. Market research had indicated that the elderly are not keen on “bothering” doctors and would not be attracted to a product which required extensive medical testing, so they sought an alternative way of assessing the risks. The solution they arrived at was a sign-only declaration saying they have not been off work due to sickness for more than 2 weeks, they are not on any medication currently and they have not had any serious illness in the last 5 years. Such simplified issue questions have become fairly common in various forms, but the actual questions used need to be appropriate for the target population, and is this the case here? The time off work question is clearly wasted, as the majority of the target population had already retired (they wanted to sell to  65 to 85 year olds). The rest of the statement, however, presents a different challenge: the rough intention of a serious illness question is usually to exclude those who have had major disease such as heart attack or cancer, but most 80 year olds will view themselves as having had some major illness, even if this is not especially life threatening. It is also questionable how many 80 year old people take no medication. So what happens: the applicant is faced with the challenge of untruthfully signing such a form, requesting that they be fully underwritten or simply refusing to continue with the purchase.  From an insurer’s perspective, none of these options are satisfactory, but it will be the underwriters, or more accurately underwriting, which will get the blame for losing so many sales (or failing to prevent so many claims which need to be declined). Now I am not saying do not sell to the elderly, quite the opposite, but there needs to be closer attention to their needs and thought process when designing the product; come up with solutions which are still attractive to the potential applicant, but satisfy the risk management process in more effective ways.

Role of the underwriter – shaping legislative direction

The additional value which an underwriter can add does not, however, end with product development. Underwriters, again through their multi-skilled nature, are very good at seeing the consequences of actions. This applies not only to product development, but to the even greater area of legislative influence on risk selection. Insurers across Europe, and indeed the world, are seeing an increasing amount of well intended laws and directives being discussed and coming into force which severely limit the ability of insurers to select risks as they may have done so in the past. These laws are usually intended to protect a section of society who are perceived as being discriminated against, but laws which are created as a reaction to a particular circumstance or complaint often have unintended side effects, or may not even result in the intended outcome which was desired by the proposer of that law. Good underwriters who can get involved early can often help predict these unintended consequences and see likely issues which may arise in practice. Such insight can be used to help to persuade legislators of the possible implications of a law, and may even be able to help formulate alternatives which help to achieve some of the desired aims, without adversely impacting the whole private insurance market.      

It should also be stated that well educated underwriters make better decisions in the first place, thereby reducing complaints which could have resulted in additional pressure to legislate or enforce solutions. In addition to the accuracy of decisions, however, well trained underwriters are better able to communicate and explain their decisions to the applicants. The main complaint we hear from the various patient organisations or lobby groups is a lack of communication; if insurers better explain their decisions, obviously with due consideration of data protection obligations, then customers would be in a better position to understand the reasons for a decision with an overall reduction of complaints. 

The underwriter and the doctor

The relationship between underwriter and doctor in much of mainland Europe has been driven by historical and legislative considerations. Doctors usually have a significantly higher profile, both within insurers and externally, such that some national laws do not even take into account the possible existence of the underwriting profession. The vast majority of insurers, however, rely heavily on the underwriters to process the majority of their cases; it is simply not cost effective to use highly qualified medical doctors to process all cases, and few doctors would be attracted to the more mundane requirements of processing huge volumes of relatively straight forward cases.

Some of the additional non-case activities described above are currently carried out by the medical officers, but I would challenge if this should automatically be the case. I am not proposing to replace doctors with underwriters, the two need to work together, what I am suggesting, however, is that, in an age of constant downward pressure on insurance pricing and consequent focus on internal costs, it would make more sense for insurers to better match skill set to activity. Doctors spend many years building up medical knowledge which is essential for private insurers to operate, but this does not always mean they are always the best person to tackle a task which may be only partially medical and which may be better carried out by someone with a more general insurance experience. There are many doctors in the industry today who do take on these tasks with excellent effect, but this is usually as much a result of  their client focus, their commercial sense, and their general insurance experience as it is due to their medical training. The old boundaries between the two professions are certainly reducing with more and more overlapping areas of responsibility, what is unlikely to change, however, is the mutual dependence of the two.

The future of underwriting in Europe

So how do we bring about change? Is it possible to take the current crop of mostly case underwriters and make them into dynamic decision makers able to influence company performance in a positive way? I believe yes, and many already do, but the remainder will require some help; their work experiences so far, and in a few cases insurance linked studies, will only partially prepare them for these new responsibilities. To raise up the standard and abilities of underwriters they will have to work hard, take every development opportunity available, get involved in project work, and yes, I am afraid they will need to study. Unfortunately here lies a real barrier, for much of Europe there are very few opportunities for underwriters to take ownership of their own development and to study or take professional examinations. A few countries do offer underwriting study possibilities, such as the CII Underwriting Diploma in the United Kingdom, but most do not, and the rest are left with taking only foreign exams which are often written with local laws, practices and products in mind. An ambitious European underwriter who wants to develop themselves must have excellent foreign language abilities, usually English, and must be willing to learn some things which will never be of any use to them, such as taxation impact on insurance in a country they may never go to and will certainly never underwrite a case in.

The other obstacle which prevents underwriters seeking to advance themselves is simply a lack of incentive to do so. Underwriting in many European countries remains a clerical occupation with little opportunity for development unless they choose an alternative career path. This not only costs the profession the higher potential members over the longer term, but also discourages such people from even joining the profession in the first place. It is clear that for the situation to change, two things need to happen; companies need to recognise the value of the underwriters they have, and the underwriters need to demonstrate that they really are worth such recognition.

The first of these will unfortunately not happen until the second has already started. The initiative lies with the underwriters themselves, if they want to be recognised, and rewarded, as true industry professionals, they need to behave accordingly. Employers will not go out of their way to create career opportunities to keep their valuable employees until those same employees have found some way to really prove their worth. The best way is for the underwriters to advance their own abilities through education, by improving themselves in order to help them impress when they do get the opportunity to influence a major decision.  

The solution

I have painted quite a depressing picture of the current state of underwriting in Europe, but this is obviously not the case everywhere; there are multiple examples of excellent underwriting done across the region, and also great work done by national associations of both underwriters and doctors. As already mentioned, however, there remains a clear gap in many European countries where an underwriter can go to improve themselves and it was with this gap in mind that the European Life and Health Underwriters’ Association (ELHUA) was launched. ELHUA is a non-profit association designed to offer educational opportunities for all underwriters from anywhere in Europe. It is run by a group of underwriter and doctor volunteers from across the European insurance and reinsurance arena, giving up their time to help drive an increased level of professionalism in their line of work. The involvement of doctors in the association is essential for its long term success; doctors need to be confident that the access granted to medical data in their names is used responsibly by the underwriters and underwriters should absorb as much of the day to day activities as possible, thereby freeing up the doctors to concentrate on activities where their specialised training adds the most value. The ability of underwriters to take on such responsibility is directly proportional to their training, hence the mutual benefits of underwriter development.  

ELHUA has quite ambitious objectives for such a new organisation:

Mission Statement

•          To raise understanding and appreciation of life and health underwriting within the European insurance industry and beyond

 We intend to accomplish this by:

• Developing and administering a certified and recognised professional education programme

• Promoting awareness of the underwriting profession through publications and representation within the industry and at other institutions/organisations as appropriate

• Providing a forum for discussion and debate on any topic which is relevant to the underwriting profession

Planning is already underway to hold a first full educational conference in Brussels in 2010, the location chosen in view of its symbolic importance as the heart of Europe. The conference is, however, only a first step with work beginning immediately thereafter on developing a self-study and examination based professional qualification which would be open to any in the industry. We are, of course, realistic enough to see that we cannot change the perceptions of a whole industry overnight, but if we do not try then nothing will ever change. We face a huge mountain before really making an impact, but I am convinced that climbing that mountain is both achievable and necessary and will result in benefits not only for the underwriting profession as a whole, but also for their employers who will benefit from more educated and customer focussed decision making. 

  

John Turner is Head of L&H Underwriting for Swiss Re in Zurich and is President of the European Life and Health Underwriters’ Association (WWW.ELHUA.EU).