Author: Ross Morton

Great literature has included the experiences of one person from one culture experiencing the life and nuances of another culture. Reading the book, the Reader’s Digest abridged edition or watching the movie cannot convey the depth of the impact another country can have on the uninitiated. Travelling between the two super powers of North America is virtually seamless — Melrose Place, As the World Turns and the latest hockey scores and trades are available in all local media. If only we could make the border patrols or better known customs and immigration officers understand that it is a seamless border.

Get on a plane or, for the claustrophobic and acrophobic traveller (one could add mysophobia to the list given the conditions I have on rare occasions experienced), a boat and journey abroad to a far away land of inherent differences. Only then can you truly experience what is the perception of us Canucks and also the scorecard on how we are doing. As the millions of readers of MO know I have been blessed with business travel to the green pastures over both oceans. I will however curtail my writing to over the Pacific for reasons of brevity and my laptop batteries are running on their last legs. Unless I forget I will stay away from digestive feats that test the squeamish and only bring back memories of an embattled sphincter muscle. I also act presumptively in assuming the reader will not mistake my prose for great literature.

Canadians have been doing business from a life insurance view in parts of Asia for over a hundred years. Regrettably some of the companies have not lasted as long as the countries. Reversing that statement one can also record that some of the countries no longer bear the name earlier voyageurs ascribed to parts of Asia Pacific. The second great war coupled with the conflict in Korea provoked some Canadian companies to leave international expansion to all the pink countries and retreat to Canada and the pinkest country, Britain. Those that stayed often were very narrow in their choice of countries and very narrow in their tactics for expansion. In fact some or perhaps most were content “to just be there.”

By the year 1990 the Asia Pacific region was the “in place” to be and the gold rush was on. Rumours, bravado, innuendo and actual performance fuelled expectations of ROI’s of 30% or better when the Western markets were struggling to get double digits. In fact ROI’s of the former magnitude were being realized by entrepreneurial (yes, my broker/agent friends, insurance staff can be entrepreneurial) life insurance companies. The winners were often those in first with the new products and new means of recruiting and retaining career field agents. First, generally meant the competition both local and foreign (we are the foreigners outside of the confines of N.A.) was too comfortable or too slow to react to change in consumer demands. First, also meant being ahead of both local insurance regulation and reserving requirements while great pressure landed on the lap of pricing for the mortality where no mortality statistics existed. Actuaries without their mortality tables are like politicians without their constituents.

Canadian companies have tended to do well in the region and for the most part have excellent reputations both taken alone or in comparison with other foreign enterprises. Our staff in the region tended to be great at making allies of local governments, staff and the general public. We are seen as a benign people who add value to the region and are not associated with terms like plunder, taking advantage, selfish and dictatorial. You know, typically Canadian, eh.

Singapore, Hong Kong and the Philippines have been home to decades of Canadian “expats” who have slowly constructed leading companies in each country. Well, not always leading but a least consistently there. Through wars, economic and military, and political uncertainty our mutual companies stuck to the region knowing the life industry could and would survive these sporadic dailiences. Our Canadian confreres neither dominate a market or play second fiddle to large local or international players. Wherever I have ventured in these three countries it is with pride that as a Canadian I can share in the reknown.

More recently in the past, recorded live by CNN or frequent flyers, the Canadian contingent has made strides (well sometimes baby steps) into Indonesia, Taiwan, Malaysia, Vietnam, India, Thailand and South Korea. Often the start up operations are tough on staff and boards as local governmental obstacles and personnel practices tax to the utmost our Canadian ingenuity. Each market is different and requires the wisdom of past experiences tempered with an in depth study of the current local business culture.

Generally speaking patience, an understanding and committed board of directors and a big wallet pave the way to success. The timing of success is never certain and at times looks elusive but it generally arrives. The amazing thing about the timing is that success often arrives well after the initial management that made the risky decision are long gone due to retirement or reenginering.

Indonesia is a super market with a potential customer base of 195 million people. An emerging consumer group that regardless of its religious nuances (some notable religous groups are against the very idea of financial gain at time of death, which has curtailed the potential of some markets except for the takaful cooperative concept of life cover) will prove to be the most spectacular country for real and sustainable profits in the next five to ten years. The strange anomaly here is the lack of Canadian expats and the predominance of Australian, New Zealand and American expats. So many of the actuaries and accountants were from the land of Aus yet it was not for their familiarity with kangaroos (have never seen a kangaroo in Indonesia). There never seems enough Canadian content, yet we have a surplus of both disciplines in Canada and I am sure most of us nonCAs or nonFSAs would help them pack.

Like a lot of countries Indonesia insists that foreign companies partner with local companies and our two large mutuals who are in Indonesia have both chosen wisely. Picking a local partner is a serious business akin to picking a marriage partner. The conscequences of a failed marriage can pale in comparison to the failed business arrangement. From all points of view it is generally conceded that our Canadian companies have done a superlative job in picking partners. The partners have helped negotiate or perhaps navigate the local intricacies. The marriage of Canadian life insurance know how with local political and cultural savvy has produced leading offspring.

Indonesia was also the home of one of Morton’s lessons of travel. The lesson learned was read the papers and avoid countries that a Canadian statesperson has recently blasphemied for some human rights indignation and/or attack on the sanity of their government. On a trip to Indonesia, where custom was for a speedy flow through customs and immigration, I dutifully handed my passport and visitor paperwork to the man in uniform only to see the eyes grow fierce and the demeanor change from welcoming to threatening. I was immediately and without forewarning (no time for one phone call) whisked away to a private room where I was left to ponder my fate. What had I done? Why me? Would anyone care? MO might since Steve needed an article!

After what seemed like an eternity, but was probably 90 seconds, in walked three uniformed officers with bars and stripes that denoted power. They glared at me as I jumped to attention (Boy Scout salute in hand). Finally they attacked me for blasphemying their government and supporting terrorists on far off islands under Indonesian control. After some pleading and crying they let me disappear but not without a very stern warning that I should caution the Canadian Government about keeping their nose out of places it does not belong. I trembled for days wondering how I a mere slave of the insurance industry could tell Ottawa how to manage when even the CLHIA doesn’t listen to me! The fact that Ottawa had made a statement condemning Indonesia for the way they handled the East Timor incident was only hours earlier a piece of newspaper trivia. Everything can and does in my case affect my travels! It was the only time my Canadian passport let me down. If chastisement prevails in the papers I no longer visit the chastised. The next time the water torture or matches under finger nails may break me.

Korea, the south part, has been slower in its acceptance of foreign intruders and as such growth and future growth are not as one would target. My brief experience in this market made me feel very alien and very much the outsider. Contrasted with Indonesia’s warmth (with the one exception) and openness, I found Korea to be colder and very barricaded to new entrants. It is like visiting those rich and famous relatives who make you feel like you should go home early. Once over this initial cultural depravation I am told that there is a point when you are accepted into the business community but never 100% — that happens between the diverse sections of Canada so we should not take offense!

The Philippines are carrying the legacy of Marcos and ensuing turmoil, uncertainty and much ballyhoed assassinations. Since my first visit there I felt comfortable, even lying on the floor of a taxi as we sped through a spot where snipers may lurk. I like floors of taxis, what can I say. In all seriousness ( my dear wife thinks the former sentence was in all seriousness) the people of the Philippines are warm to visitors. They are fully cognizant of the North American failings in the insurance industry and want to avoid them locally. They have a preponderance of insurance staff that carry all the correct credentials to run life insurance companies very proficiently. Our Canadian operations here make use of both “expat” and local talent. Local talent will shortly man (or woman) all key roles since there is a plethora of talented staff in Manila or willing to return from far off lands to ply their insurance craft in a home environment. The Philippines has been under rated for too long and in my opinion it gives all the appearance of shaking the past’s biases.

My favorite country or city, depending on your perspective, is Hong Kong , perhaps because my wife was born there and I have so many business friends there that have educated me in the ways of Asia Pacific. They made sure my errors were minor, my recovery swift and my sins humourous. Their patience with the Canuck made me comfortable with all aspects of the local industry from agent to reinsurer. Canadian companies have an excellent reputation here although we are not the leading companies. We have one of our mutuals ranked in the upper echelon for so long it is taken for granted that its prowess will be eternal. Many a local leader has been founded in the principles of life insurance through working here in a Canadian operation or getting their early education and mastering a discipline back in Canada. Our ties are strong in a very tough market.

Hong Kong has such a dependence on strong distribution systems that Canadian expertise at building same especially within our mutual companies has made us often the model for staff development. Competition has hit Hong Kong but not to the same degree as in Canada. Rates are approaching North American aggressiveness (mortality is reported to be better in Hong Kong than it is in Canada). Term insurance still lacks a following because of commission structure and the tax advantage of permanent cover like endowments. I can explain an endowment to anyone who will send me a stamped self addressed manila envelop. This market is oblivious to 1997 and only those without a Canadian passpot show any concern. Life in this dynamic city state will no doubt remain state of the art and prosperous.

What are the odds for success in a country of 2.5 million people, 13 life insurance companies, strict capital regulations and severe agent recruiting and retention rules. Pretty slim! What is purported to be the toughest market in the world has proved just that for Canada’s largest mutual (not my words, theirs). This is a country known for no gum chewing, caning and a great airport. Canadian ingenuity coupled with a strong local partner failed to take our insurer to the top of the heap. We are still in the heap and perhaps the next century will accommodate our climb to the top.

Malaysia, Thailand, India (home of my worst travel experience which has MO’s editorial staff sick to their stomach), Vietnam, and other local countries all offer the opportunity for expansion and I am sure each will have the benefit of a Canadian company when the doors open. The Malaysian insurance industry has been praised in the past articles for MO and at this juncture I remain enthralled by its potential and its depth of insurance personnel well trained in all the insurance disciplines. If only they would open up the market to foreign operations. Canada had an open invitation to help build Indonesia’s own reinsurance company; but, for reasons I still do not fathom, walked away leaving somewhat hard feelings.

China is so big it deserves an article on is own but my brief trips there could not qualify me as an expert in any way. Beg for permission to open a representative office. Stay in the line and out of trouble for three years. Keep abreast of all the key political players. Only then you may get a license to actually sell insurance. I would rather sit back and wait for the gates to open wide which may be in 3 years or 30. My preference is for some semblance of insurance regulations to be tested and understood. Currently we are witnessing the birth of legislation, regulation and interpretation that will lay the foundation for future generations. One of the legacies of our mutual company par policy holders may be that they financed the birth. Generous policyholders all.

Given the creativity that abounds within the heirarchy of insurance leaders in China and propensity to adapt quickly, I am positive this market unequivocally will be the world’s greatest insurance market someday (for those of you laying bets the “someday” is anyone’s guess).

Lately Canadian companies not known for adventuresome movements have taken the plunge. Perhaps it was the Board decreeing that “we too should be global and earn potentially 30% on our investment. More likely it was management in need of new focus and distraction from the contraction of our home market. Surely it could never have been the attraction of 14 hours on a plane enduring tiny seats, meals and toilets. It gives a whole new meaning to “oh, what a relief it is”.

Following Sun and Manulife’s early lead the likes of London, Mutual and Canada have laid the foundations of new ventures in numerous countries. Each has a different view of which country, in which order and in which manner but they are all definitely on the move. It is a momentous occasion to see such giants of Canadian insurance history move back to first principles in new markets. Their historic expertise, if still available, in building and retaining career agents will certainly set them up as potential success stories since distribution is the key. Their respect for local customs and icons plus a marriage of their Canadian strengths with local people strength is guaranteed to hasten success.

I should not forget the smaller players who have been involved in the region over the decades. Imperial and Crown are names that emerge in conversation in the region. Both have never figured as major players or ascended the ladder of publicity others have but their names have added to the mosaic of Canadian enterprises throughout the region. With our shrinkage on the home front there may be no more new Canadian adventurers in the region, just expansion of those already entrenched. Pity. No one for me to consult to or hold their hand (figuratively of course).

Surprises do occur and the magnitude of statements, so far away from insurance related, can have on the average Canadian like me is never anticipated. In one country that was and is still a favorite, it was a shock to have an initial accusation thrust at me for which I had no predilection. I had no more met the local regulator when he and his associates asked if I and the company I represented (worked so hard for in Canada that was expanding depth and breadth in the region) would desert the market when the going got tough. Taken aback and short for words (an anomaly soon corrected) I asked the naïve question “Why?”

No sooner had my humble question pierced the stoney air than out came the answer followed by nods of agreement from those sitting opposite me at the inquisator’s table. In as few words as possible the local authorities recounted how just after the WWII a Canadian company pulled out of the country for reasons interpreted as unacceptable by predeacesors of the current bureaucrats. No hint of leaving obligations behind, merely not wanting to write new business (is it possible to write old business?). It firmly etched in my skull the implications of any error I may perform since it may for decades infringe on other Canadians entering the region. I would rather just be known as “He of delicate sphincter muscle”.

Never assume the past is the past and long forgotten. Governments and their legion of staff can and do document everything in the Asia Pacific region. Unlike this side of the Pacific, where time is fleeting and hardly worth preserving, the attitude over there is that everything said is worth preserving. Since if it was said it must be important. I also thing the odd one is just sadistic enough to try and catch those who change their tune every visit.

The Asia Pacific region is rich in human resources that are the equal of the world’s finest and often surpass so called Western nations who today often lack the enthusiasm for the future that abounds in every country over there. Canadian companies are part of the phenomenal growth and are doing Canada proud by transferring expertise and capital. The rewards are both monetary (par policyholders and share holders) and personal as our staff working or visiting the region acquire new respect for the world and its diverse people.

How times have changed. This was a follow up to the article entitled “Players” about the reinsurers in Canada and market share. It starts with a reference to global leaders and although the chart is not reproduced here the message remains clear for its time. In 1993 and ‘94 the talk was all about the giant Japanese companies and how they are growing to the point of dominating the top ten insurance positions in the world. Then bang as fast as they were idolized they were chastised for faulty management and leadership that almost bankrupt the financial services. The cry to run companies more like the Japanese quickly left the usage of all the motivational speakers. References were no longer glowing and Japanese examples declined from public view. By the end of the century there was no one referencing the Japanese conglomerates other than in a negative sense. Big without transparency was not good. The world was set on a course where “big” quite often meant problems once someone really uncovered the real financials!

I have come at the subject of reinsurance from many angles before and will continue to retool the subject to fit the times. Years ago there was unwarranted fear of the reinsurers who operated in the Canadian insurance industry somewhat fueled by reinsurance mismanagement on the other side of the insurance industry, namely the property and casualty side. All of us in the industry deeply buried or sitting on the edge, must keep the role of reinsurers in perspective. The egos of some in the business would escalate the role beyond comprehension, while others meekly hide from any mention at all across the nation.

The Canadian industry has some giants at work yet in terms of our relative size we pale in comparison with the global giants. In Chart A you can see that our two bastions of life insurance no longer rank amount the senior global leaders. This is not all bad since a glimpse of the leaders’ points out that big is not necessarily good. In Canada we, too, have come to appreciate the old adage that the bigger you are the harder you fall (at my size this is more than a metaphor).

Notice how the Japanese companies have maintained a very strong presence in the top 10. If there was room and time to analyze the complete listing of 50 companies you would see a shrinkage in North American players by number and by relative size. The new world order reflects the expansion of foreign companies who increase their bulk and make their names universally recognized. Being on the edge of this list merely means one has to try harder internationally while protecting the national treasures with financial strength.

Reinsurers are merging, acquiring and globally expanding in pursuit of stable earnings, spread of risk, and economies of scale. Is there room for small, niche reinsurers? My guess is no. I see the need for significant spread of risk and avoidance of the variances of one market. Competition at times is so fierce that it is frightening. To be dependent on one overheated market place can lead to pressures on financial stability that belies comparison. In 1994, there was some merging and acquiring, plus lots of global expansion. Signs are the reinsurers are preparing to face the future with much stronger operations (have no fear the life reinsurers of the world are making money and are in strong financial positions). Watch for more strengthening in 1995.

In a 1990 publication by Actex Publications, called Life, Health and Annuity Reinsurance, the word or activity we all love called reinsurance was defined as: “Insurance purchased by an insurance company to cover all or part of certain risks on insurance policies issued by that company.” A great definition and quite acceptable to both the life and general insurance industries. On the general side there are some unnamed names who wish the definition was far more explicit. Personally speaking and out of fear of reprisal, I am forced to never name the names that are unnamed in any publication read by said names.

The reinsurers operating in Canada have been reviewed in a previous edition of Marketing Options and I know Steve could dig them up from the bowels of his computer if you asked nicely. Suffice to say not much has changed. They are all still here and the relative pecking order has not overtly changed. Volume of new sums assured remains the measure most publicly referenced, and, as such, falsely proclaims winners and losers in the fight for new business. When OSFI gets industry numbers out in a useable form and in timely fashion, like the developed nations of Singapore and Malaysia do, we may have far more comprehensive numbers to digest about our industry – insurers and reinsures alike.

All the reinsurers are as concerned with making money as the direct writers (the reinsurers’ term for companies that produced actual insurance policies). Most reinsurers would candidly admit that operating in the international arena brings a discipline to money management to survive. As companies look to reinsurers to be their silent partners in growth and capital management a demand for more than free lunches and golf tournaments emerges. Chart B shows which reinsurer is writing which volumes of new business. Notice how some companies have exited the industry in Canada while others have curtailed operations to better fit their Canadian strategy.

As the competitive pressure on reinsurance price increased and demand for jumbo cases (my definition is the $5 million up policy) decreases, the role of the retrocessionaires decreases. Note in Chart C the flat figures for retros (the affectionate name for retrocessionaires plus it saves twelve keystrokes). As always the retros are needed by the reinsurers to help spread risk as well as supply another source of silent and indirect capital for growing companies or those direct companies who wish to reconstruct their capital usage.

As an aside, because I like asides, when I got to this point in typing this article I used spell check. Several times my fingers hit wrong keys when spelling reinsurers. The suggested word, when “reinsurers” was found as wrong, was reindeer. Ho apropos as I fly north the day after the Santa Claus Parade in Toronto! Who says these laptops cannot think up humorous interjections? If it was foggy my laptop companion would probably recommend Rudolph.

Agents still are unsure about the reinsurers and the role they play with insurance companies and specifically their policy holders. To say, “Have no fear” would be repeating what one large company president said about the safety of very big insurance companies. He now avoids press releases and reprisals for that cavalier statement. Today in the wake of the unheard of, it is not sufficient to echo the phrase. There are few guarantees but the name of the international reinsurers is worth far more than the abandonment of any one country’s liabilities. There is not a reinsurer or international insurer that could survive the abandonment of a market without guaranteeing all future liabilities on its contracts and service of those contracts.

The very fact reinsurers are active in numerous life insurance markets around the world protects against the singular country financial downturn. Mustering the resources from all the other operations around the world helps negate the financial burden of any one county. Political, monetary and risk diversity is the strength of these global giants. They also stay very liquid in their investments, relying on very safe investments to protect them from any nuance in the bond or stock market. To the best of my knowledge there is no Canadian reinsurance operation on the life side that has any real estate investments. In fact, I believe only staff mortgages are held in the reinsurers’ portfolio (handcuffs on key staff).

The onus is on the insurance industry to be unified in its spreading the word on our security. Throwing mud at small or large companies does no one any good. In fact, the splash back on the perpetrator is most likely of greater magnitude than anticipated.

What has become evident to me in the last ten days is the need for unified education of all concerned so that there are no misconceptions about any facet of our industry. Tell the agents about insurance – both risk premium and coinsurance. Tell the agent that there is no binding contract between the insured and the reinsurer. Tell the consumer that there is protection in spreading the risk via a company that meticulously disciplines itself to spread risk. Do not cast aspirations on your fellow insurer because it is often the case that the recipient will not remember more than, “some company is in trouble.” Let us not fear the arrival of the banker in our midst. If we are the masters of mortality and morbidity, why are we worried about the neophyte in our domain? Show me a company that has excelled with a banker at the helm and I will show you a dozen life masters who have succeeded. Amen!

Preaching is complete. I still see us winning the battle of our lives and we will do it together. The “we” will exclude the few who sit and stew on the stove, scuttle their competitors, forget who the customer is and what the customer wants, and finally the industry leaders who long ago lost track of what it is we sell.

Canadian Reinsurance Assumed Amounts in U.S. $Millions

For the past 4 years, no forever, financial underwriting has been a mystery to all the neophytes approaching their first large risk appraisal. With great trepidation the risk appraiser moves cautiously, page by page, in search of the holy grail (they did find it is Daniel Brown’s book, right) in insurance. Pellucid financial justification or the undeniable link between owner, insured and beneficiary is the mandate of the underwriter. It is indeed the underwriters’ Holy Grail.

The underwriter has studiously spent years learning all the medicine they need to know to do heart surgery or make a psychiatric diagnosis. One wonders what a psychiatrist would label a person who believes without formal medical training that they can predict the rate of death of people. We label the person an underwriter. They do spend an amazing amount of time learning medical underwriting as it is called to the point they are so engrossed I nit they may not see the risk from the impairments. This is not meant to knock today’s underwriting education but merely but merely, no vociferously, state there has to be a balance between the medical and the nonmedical. The risk is more than a well controlled diabetic at age 42. It is a 42 year old diabetic who wants to buy insurance now for what reason — who is to benefit? Who is to pay the premium? Why now? Why so much?

Looking back I had a rudimentary education through outdated texts, medical doctor mentors and sage underwriters’ counsel in medical underwriting but an intense immersion in “does it make sense” or as many today refer to as “holistic underwriting”. The whole risk is most often greater than any sum of the parts and the mechanical approach of today’s underwriting clinicians seems at times to be blind to whole risk. Regardless of examples learned the hard way in many markets around the world they go ignored under the mantra of “it will never happen here” or “that only happens in textbooks to scare us”.

On a recent tour of duty and pleasure amongst global underwriters I heard of current (right then and there real cases) issues arising where because of poor diligence 5 insurers were faced with what appeared to be a case of fraud where the insured loaded up from five companies and then “died” (at least there was somebody’s body in the funeral pyre). Each policy was greater than t he average size normally issued in the market. In total the amount was extravagant and the agent’s notes were pathetic but overlooked by the eager medical underwriters (five of them). Did they all miss the risk? Yes but medically they did a great job.

Quickly on to the next country. Man makes claim for loss of left arm from below elbow. Poor man lost it at job site where as a butcher’s helper he says he accidentally cut off is arm. That is certainly sad and it makes me want to pay the “dismemberment benefit” soonest. Wait! What is this; the arm is not at the work site nor is there any blood on the table the “accident” supposedly happened at? Further digging reveals the arm was found in an old shed and the person it turns out was out to defraud the insurer. Buy as much as you can and then inflict the unthinkable (at least in my world) by chopping your own arm off! Luckily the claims person noted it all made no sense — relative to person’s income and status in life the amount was exorbitant but okay as who really does financial underwriting on dismemberment policies or benefits? Long court case to fight and in the end the cost is still high to say no to the claim. Could the underwriter have foreseen the pending fraud? Probably not and thus we move on even though there is lots of controversy over that companies financial underwriting.

Next country and we see the North American phenomenon of lower prices bring “churning” and rampant replacements as soon as the charge back period is over. For years actuaries fall over each other lowering prices based on ever greater speculative pricing. They hide the steep and slippery slope downwards in ever harder to delineate risk classification monikers while pricing out the cost of delineation. Now the savvy and fiduciarilly sound advisor (agent, broker, and producer) has a strong duty to client who remains in good health or is cleverly hiding ill health to “churn” the business. Then full circle back to the actuary who says that is not fair since it leaves my old portfolio stripped of the much needed healthier lives and my mortality results will pale in comparison to that which was assumed in pricing. Not to worry because I am writing much more “new” business at lower premiums and inferior underwriting (remember the costs have been stripped to eliminate many standard requirements used that helped build the great mortality results of the 1980’s, 90’s and early 00’s.

In spite of the hazards of racing the price downward and encouraging “churning” these new countries know that like NA they can blame the “churning” on marketing and sales or better still lets tell the underwriter to fight the marketing people over justification and keep the actuary pure and free of incrimination.. Talks of cost slashing justification is focused on using smoker non-smoker splits and then let’s go to preferred even though we hardly have enough statistics to reflect select premiums from aggregate. In the emerging “churning” markets, without a clear mandate to control true replacements or seriously restrict the issuance of the new with the lapsation/termination of the old, the issues are a rising again without solutions. Instead overinsurance abounds as they do nothing to guarantee that the total in force is controlled beyond the weak “it is my intent to replace”. The latter comment in most applications has about as much validity as saying the Toronto Maple Leafs will win the Stanley Cup (last won in 1967 so at least I was around to witness it).

What is the solution to the underwriting the whole risk including “does it all make sense”. We can start with an equal amount of financial training by accountants, preferably those who did not work on the likes of Enron but do have forensic expertise. In most of companies the expertise lurks in both the investment and accounting areas where people routinely read, analyse and conclude on t he validity of value of an enterprise. That is our wise counsel. To take the financial texts of investigative accounting and investment and distil it into underwriting texts is the challenge and we as an industry have yet to do that.

In the very early 1980’s or very late 1970’s one of the world’s wisest underwriters had assembled the true financial expertise (both accounting and legal) and held education sessions for a handful of eager ears. Most of those ears went on to be the best “holistic” underwriters of modern times. At the same time those who became engrossed in only the medicine of more laboratory testing and mechanics fell woefully short of being “holistic underwriters”. Bob left the industry and with it his ability to garner the educators and the students to a common goal. Today there is indeed a grave shortage of mentors on the subject of “holistic underwriting”. Medicine is more than well served by tremendous expertise. Every where I poke my head (the rest of the body is slower to arrive these days) the demand for financial underwriting training — more please is the call over and over again.

It is not in the numbers stupid. It is in the whole case from the agent who writes the application up and their supposedly field underwriting to the senior officer who approves the underwriting budget. Somewhere in there we have to be able to learn to look between and through the numbers and discover what is really happening. In 99% of the cases it is obvious and there is nothing to get nervous about but to find the other 1% we have to look a t the whole case. Thanks Charlie (and Mom) for constantly asking me to ask “Does it make sense?” Wherever I go today it is still the best lesson to learn in underwriting and I hope every neophyte learns it early and before they are faced with 5 claims, five companies, five agents and worth five times more dead than alive. It does happen and in every country that ignores the global experience and underwriting weaknesses.

Ross A. Morton

Approximately over Regina, Canada

Insurers blame reinsurers. Reinsurers blame insurers. Advisors scratch their heads and other parts if they are ex baseball players or rock singers. When the world of risk selection took a turn for the worst everyone wanted to be seen as an innocent bystander. No one volunteered to take the heat for what seemed like chaos. We all want to circumambulate the issue. But has it gone away?

A prolix definition of the issue would not endear me to the advisor or underwriter so I will use limited verbiage to describe my view on the changes in underwriting. The following has lead to the environment for underwriting becoming far different than in the good old days. The following means frustration for those who distribute our products and our decisions. The following was not a conscious tactic or strategy by any one company or the industry.

Training of new underwriters appeared to come to a sudden end. Yes there has been the odd company training new underwriters but the “experience” side of their development lagged and the wise old sages took flight. Retirement, reading attending physicians reports at home, working as an anonymous consulting underwriter or just plain disappearing grabbed many a talent from the experienced pool. This hurt the mentoring process as well as depleting the wise counsel the advisor sought on the problem cases.

Salesmanship or simply building self confidence was not seen as essential as medical knowledge. It appeared we wanted our risk selectors to have the knowledge of the neurosurgeon but the delivery skill of a nerd without his/her tapped glasses. As I travel the globe I realize this is a global issue so do not feel it is unique to Canada. Courses or mentoring on how to sell your decision and communicate well are a rarity. Without that skill set the esteem of the advisor drops further as they say “the blathering idiot of an underwriter left them comatose” ( I myself would never refer to an underwriter as an idiot).

Prices fell. Requirements were minimized. Speed was the mantra of the day. Reinsurers struggled with the whole concept of auditing to determine what the benchmark perfect underwriting decision was. All that occurred without a master plan. Risk selection or categorization was almost an afterthought of the marketing visionaries. Low prices sell so service surely must be a distant second or third on the advisors’ “want list”. How many advisors would dearly like to see a higher price accompanied by almost guaranteed better service from the new business processors? How many companies could sustain better service? When one senior industry spokesman was heard saying that their 2006 service goal is “to be no worse than everyone else in Canada” I have to ponder the likelihood of real tangible service improvement.

Despite all the mergers and acquisitions there is a shortage of senior super underwriters even though there may be many waiting to get to that esteemed title. Thus we have advisors scratching there “whatevers”.

Is the worst over? I think it is, as a quiet calm develops between insurer and reinsurer as both agree on a reasonable middle ground forged by trial and error more than skill and diplomacy. As witnessed by a more realistic approach to foreign travel, when all put their mind to an issue a solution is found to any problem. Separation of clerical function from technical function is becoming paramount to empowering the underwriter to really manage the cases with issues attached. New management directives will apply limited resources to the problems and find simpler ways to handle the mundane in new business work flow. Senior executives are now leaning to service as the true differentiator since the price we charge has reached a low point bordering on the point of looking like it was derived by the unconscious incompetent.

I sense the worst is over but the communication shortfall has to be addressed if we hope to stay positive and hope that more underwriters do not disappear to run a shebeen in Ireland. Surely it has to be easier for an underwriter to talk with an advisor than manage the frequenters of a shebeen.

Prologue

Great West Life was magnanimous in renting out Glenn Chudley to help RGA Life Reinsurance Company assess the claims processes and procedures of one of Australia’s largest financial institutions. Getting Glenn to say yes to 3 weeks in the sun and fun of Australia was easy. Getting Great West to say yes was slightly harder but they saw the inherent benefit in Glenn learning the intricacies of a mature critical illness market and a claims market not unlike Canada. It was going to be a win for all parties to have Glenn on the team since he is recognized as one of the best at his trade in North America.

I was to understand later that he should adhere to claims since driving for a living is not a viable option.

The Tale

Left I Say, Left!

The first week of the assignment went exceedingly well as Glenn’s depth and scope of claims expertise was more than we had imagined (we did have limited imaginations). The team quickly delved into the intricacies of a very large organization and uncovered many an aspect that could be changed or at least amended. Glenn worked diligently at the task putting in long hours and avoiding the attractions of nearby Bondi Beach. We made sure he was too exhausted at days end to want to attend the midnight Fringe Festival which featured nude surf boarders.

At the end of week one, in recognition of his days of toil and suffering through sunny 32 Degrees Celsius we decided he could have Saturday off and Ross would take Glenn and his dear wife Carol off to see the Hinter Valley and it’s hundreds of vineyards. Renting a car was the logical choice at the time although on hindsight a bus ride may have been more relaxing. If only Ross had not conceded to let Glenn drive! You could sense an excitement in Glenn as he spoke more passionately about driving in a country that has right hand steering and uses the left side of the road. We picked up the car and without much investigation or prescreening allowed Glenn to take the wheel out of the parking lot.

Glenn’s immediate right turn into the right lane (wrong lane) was a precursor of things to come. For the first 3 kilometers through city streets with turns and stops Glenn practiced corrective measure after corrective measure as he perpetually was recovering from right turns into right lanes (wrong) or left turns into right lanes (wrong again). Glenn would get better I assured myself sitting immobile and strapped in the front passenger seat. I later realized why Carol preferred the safety and the oblivion of the rear passenger seat. What you cannot see cannot hurt you mentally.

Next we were on the rather major city street with its four lanes — two of which I assured Glenn were for cars coming in the other direction. Was it I or was Glenn really able to drive that close to cars on his left without losing his left side mirror. Wow I thought, Glenn is a great driver since he can come as close as a millimeter without harm to either car. Yes I checked and seat belt was done up and I was sitting ready for any eventuality.

Fifteen kilometers of Glenn playing chicken with cars on our left going in the same direction was about all I could stand and thus I was thankful to see the freeway entrance. Surely Glenn will drive differently at 110 Kms per hour there than his left leanings on city streets.

Wrong! I have never been on a freeway for 70 minutes where the driver could for 90% of the time drive on the corrugated warning strip and not move the car back into the center of the lane. I guess I should be thankful that he at least chose the left lane of the two and spared scrapping cars. We were so far from cars on the right we created new tracks on the soft shoulder. Did Glenn not feel the clicking of the warning corrugation or the pot holes that occasionally sprang out of nowhere in the dirt? Carol, bless her, remained silent in the rear of the vehicle probably deep in prayer. The M4 freeway running out from Sydney now has a third lane thanks to Glenn’s driving.

Off the freeway and into a parking lot where I grabbed as politically and diplomatically as possible the car keys. It was my turn to take the wheel. While we visited the tourist information office not a word was said other than “Gee Glenn you drive a little too far left.” Uneventful visits to a couple of vineyards and I continued to drive in a proper fashion but I have done this before many times. The question was would Glenn ask to drive again?

It happened sooner than expected. Like a kid in a candy store Glenn wanted the adrenalin rush of being behind the wheel again. Thankfully Carol spoke up in her soft manner and said “Glenn do you realize how much you drive too far to the left?” This was my cue to reinforce the remark by adding “Glenn you are really driving dangerously close to the side of the road and didn’t the clicking of the corrugation or the pot holes tell you anything?” Glenn acknowledged our concerns, said he would correct his error and got behind the wheel.

No more than 2 kms late the adventuresome Glenn was at it again. I swear he hit every pot hole possible on the soft shoulder (left side) and oh we came so close to wiping out the poor cyclist that I can still see the look of sheer terror in her eyes at a car so close! DO I say something or wait for Carol to break the silence once more? Into the laneway and a chance to relax from the tension of being Glenn’s passenger. The serenity lasted mere seconds as Glenn decided to trim the tree that was well over on the left side of the laneway with the rental car. I rarely drink but it was getting close to finding a distillery and a tall glass for nerve soothing.

Okay he can have one more turn behind the wheel but I will drive the majority of the afternoon. After all Carol and I can outvote Glenn 2 to 1. His last session behind the wheel and he still struggled with getting out of the parking lot after consuming an Australian hamburger (lots of pickled beats please). Stay left Glenn but not the soft shoulder please. Paved roads over pleasant countryside with little or no traffic to scare out of their minds. If anything happened I was going to revoke Glenn’s Canadian citizenship. For about 10 kms Glenn actually steered the car correctly about 50% of the time. He was improving I foolishly thought to myself.

That is a bend in the road up there I said to myself. A slow easy bend to the left over a modest bridge spanning a small gorge was all Glenn had to face. Sitting in the front left passenger seat gave me a first hand picture of the curb that also accompanied the bridgework. “Glenn surely sees the curb”, I thought. “He must see it now!” kept entering my thoughts as we sped towards collision with an immovable object. The only remaining question was would he mound the sidewalk or hit the abatement straight on?

With a thunderous clatter hubcaps went flying, tire exploded and steering became even more erratic than Glenn’s usual driving. As we coasted to a stop some 100 metres along Glenn’s favorite place, the soft shoulder, I asked Glenn if he saw the curb or did it jump out of nowhere. Friend or no friend Glenn you drive too far to the left. I left most of the superlatives to Carol who said she had never thought hubcaps could fly so far.

It was 2:05 PM on a Saturday outside of Wilton Australia where all we had to turn to for help was a church (to late to pray) and a variety store turned movie rental shop. No there was no service station near by to fix the two tires. No there was no near by rental agency and all rental shops close at noon. To make a long story shorter Glenn put the spare tire on and basked in the 35-degree temperatures. When help was impossible we agreed to chance the drive back to Sydney on the spare plus the other tire whose rim was distorted but tire held air. I drove.

It was a slow drive back as every kilometer was full of the expectation our other tire would explode. Silence ruled after all the “Didn’t you see the curb Glenn?” statements by Carol and I. It was an adventure not to be forgotten. For the rest of the period in Australia Glenn was banned by all from driving, sitting in the drivers seat even for practice, or talking about the curb that attacked him in the Hunter Valley. The rental agency was glad to see us back and they immediately revoked Glenn’s

preferred status and took sufficient cash to pay for two rims, two tires and a major front-end alignment.

Epilogue

Glenn remains a friend but I will not ever lend him my car. Glenn still has my appreciation for his claims leadership but I do not want to be in a car in Winnipeg when he is on the road. Glenn contributed greatly to the review and benchmarking of the major financial institution but I will never refer to his driving as being the benchmark for anyone to achieve. Glenn is fortunate to have an understanding wife for mine would have clobbered me for such a harrowing experience.

In the end I have another story for my book. Without the fun and excitement created by Glenn it would have been a ho hum day. The remaining question is “Does Glenn vote left as well?”

I started when I was 20, 30, 40 or some other age.

I was educated in business, nursing, philosophy, abstract mathematics or every thing else imaginable.

I am not an actuary, accountant, or agent and I do not want to be.

I am an underwriter, but honestly, I do not know how I ended up in this occupation.

I use the best judgement to insure I differentiate risk in a fair and equitable fashion.

Underwriters do not get their “jollies” by declining risk, but rather by saying yes to policy issue.

My tools are not witchcraft, chicanery or obstinacy.

My tools are the best available sources of information from medicine, actuarial science, legal and regulatory.

My task is to wear Joseph’s multi coloured coat of experience and extrapolation to make a decision.

I know the answer is a mix of science and common sense, with art only in the delivery.

I know the science must be current and accurate.

The art must be more of the pot I blend the information in than any main ingredient.

Underwriters are neither “fish nor fowl” and have struggled with their identity for decades.

I know the great commercial underwriters worry little about their moniker and lots about the quality of their decision.

I live with the reality that every life I underwrite will eventually get sick, have an accident, have a critical illness, need long term care and then die.

I just do not know when each will occur and never pretend I do.

I read the saddest of medical files and take their secrets to my grave or at least my dementia.

I am not a mind reader, clairvoyant, prognosticator, or perfect predictor of anything beyond the averages.

I have empathy with many and sympathy for most.

I am computer literate but lack modern software or processes to maximize my talents.

I know the age of expert systems is here and is the way of the future, but no one said the future is always for tomorrow.

I am fearful for the jobs of my peers but positive enough to know I and the other best of breed will more than survive.

I and others will succeed; no, excel, in the new regimes ahead.

Now and in the future I can acknowledge the work I do is “professional” and rewarding.

Underwriters now and ever more play a significant role in risk management.

I am an underwriter, plain and simple yet complex and ever morphing.

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

2005-06-3

When I was a mere child of almost 5 and living the country life in rural Ontario I learned that a minor indiscretion compounded by an oversight in delivering the whole story to a superior (Mom) could earn painful discipline. My indiscretion (in those days my vocabulary would have labeled it a mistake) was to play a very realistic game of “cowboys and Indians”. Today it is more likely aliens and earthlings given the difficulty in playing any politically incorrect game. But I digress from the games of the early fifties.

I, always one to like to play the oppressed, was the “Indian” and my neighborhood friend played the cowboy who unfortunately was my captive. I stepped over the line of make believe when I tied my friend to a tree and started the smallest of fires under my captive. It always worked out in the stories I was told so how was I to comprehend this was likely to be painful in reality. Another neighbor saw my activity and at the first sign of smoke decided the game had gone too far. Fire out. Scolding from kindly neighbor. Friend running home for the comfort of his mother’s apron (virtually all mothers worked only in the home in this postwar era). Me left to contemplate reaction of parents to my indiscretion.

My sanctity of my bedroom at home was the place to be for some quite reflection on the events. Passing Mom in the hall and responding to her “What’s happening?” inquiry I nonchalantly said I needed some rest and nap after playing with my friend. Mom knew immediately something was not quite right. Ross never took unforced naps! Within minutes of my respite Mom had found out from the grapevine in the neighborhood (the same one that was reengineered into the insurance business) of my deviant behavior. Two sins were committed in my parents’ mind. First the trick with the matches and second the failure to be forthright in my description of the mornings’ events.

Business brings many a similar lesson. Compounding a first mistake with a failure to communicate the complete story, well before the inquisition, is not unheard of in our insurance business. In fact I have seen that being very proactive with one’s own “spin” on a story can actually make the perpetrator of an error or oversight look like the hero and thus put immense distance between themselves and the problem. Some would refer to this as a failure to take responsibility for their actions but it seems most of those most adroit at this skill reap large personal gains, who am I to say it is wrong?

In the early 70’s there was a very interesting case on a purported oil and land baron in Oklahoma. The gentleman was applying for a very big policy (in today’s inflated times it would equate to an application for $100,000,000). On the first go round the general decision was to decline the case because of overinsurance. To make a long story medium in length the persistence of the lead company underwriter convinced the principle reinsurer to accept a part of the case as a favor to what was a very good automatic account. Using the leverage of this one acceptance the large case finally found all the needed facilities and it was issued. The issuance was wrong as there was no real justification for the amount and the underwriters failed to completely seek all necessary evidence.

As the claim unraveled we learned the insured was all but bankrupt, dubious debts to various and sundry entities (both legit and suspect) and medical evidence that was if my memory serves me right was done on someone(s) other than the insured. As an industry we jumped in with the theory of suicide to try and lay the groundwork for not having to pay a claim on a big case that occurred in the 11th month after issue. The suicide theory died, as it became clear to senior insurance personnel that two (2) bullets in the head from the back were not common in suicide by self inflicted gunshots! I was young at the time and yes one of the underwriters who saw the case, which meant I was bewildered at our industries floundering to get off the hook. We made a big mistake and were compounding it by hastily hiding our own oversights. Every senior officer in our business should read “The Mullendore Murder Mystery” to see how we are an industry of trust but also an industry that loves to skirt our responsibility at times of trouble. I say skirt because we generally pay up much to our glory but at times we do it only after ill conceived excuses.

All the famous or infamous cases like Mullendore, Johnson, Smith and Demeter involved insurable interest and overinsurance. All made it through our checks and balances because we are not perfect as an industry. Each though cost often more in litigation than the face amount! We won but we lost! In each there was immediate denial that perhaps our process for risk selection had failed which lead to some skillful spin doctoring as time progressed.

Not only did the individual case scurry through our process but hundreds and thousands have made it abusively through at times. Decades ago but within my time we had the story of a wonder company, a hero of the unsung, a model of sales prowess and a marketing genius. “Equity Funding” was the darling of the North American industry. It out sold projections. It could do no wrong. Reinsurers, those cagey paragons of virtue knew good when they saw it (see it in some current situations but that is a story to hot to print prior to age 55).

Reinsurers through very lucrative coinsurance allowance that bordered on the insane (tell me again how you can give me $1 and I can give you back $2.50 and I am the one who will get rich?) . My youthful recollection was that every reinsurer of note was lined up to feed the selling machine and be part of the gold rush (an historical BreX). Again to make a long story short (read the book) when the farce was exposed every gullible reinsurer pleaded every conceivable excuse in the books except the correct reason. Reinsurance greed like all of man’s greed made decision making foggy at best. Equity Funding was out of character for its time but the story was one of reinsurers’ greed and the media wanted to believe. Tens of millions of dollars were lost and one would like to think a lesson well learned.

The Equity Funding story gets repeated almost yearly as a new crop of industry marketing leaders blindly close their eyes to the latest pitchman who is selling far more than normal and becomes an overnight top producer/broker/agency. The two bit player may not use the phone books as profusely as Equity Funding but the scheme to defraud us is the same. Find a gullible company with one or two greedy decision-makers well placed and the commission system heaped and overflowing, will reward you for a short period.

Again the rule is if it has been done before it will be done again. Different players not steeped in personal exposure to the game will play the role of “sucker” in it and spin a story of how their situation was different. Why not admit you were duped like the earlier victims and quit the spin city rhetoric. Just like the fire and the subsequent deletion from my mornings activity became a double penalty, the hiding or minimization of our industry errors just makes us look stupid in addition to gullible. I am even told that there are numerous examples of producers doing wrong but in reference checks the producer was merely one who left the company.

When I recently heard some inside information about a recent episode of marketing skullduggery which was labeled I believe “Project bad Apple” I remarked that we were now working on fruits for code names since we have used up all the animal names. The scams the same just the victims are new. When Project Banana hits the industry it will have a slightly different bend to it but it will be the same old rotten fruit. Sometimes man is committed to making the same mistakes repeatedly just to keep the story fresh.

So much trust from consumer to board of directors I often wonder how there are any companies left to merge or be bought by banks. When we do get mistreated by the rare abuse of trust we will of course be able to spin a story and promotion that exonerates us as individuals while pointing the proverbial finger at others who are not as quick with the story telling. My first response back when Mullendore was killed and I was asked if as a bright young risk selector I accepted the case on behalf of that long gone reinsurer M&G was what you could expect. I many a time said I declined the case on Mullendore refusing to take one penny for M&G Canada. Wow my peers in North America were very impressed. Unfortunately even if they didn’t ask I would volunteer the whole story. That was for fear of Mom! The fact was the head office of M&G in London had already committed the full retention and thus I, sitting in Canada, could not accept any part of Mullendore. The abridged version of my action is the one that today lacks the forthrightness of the full story.

Every time I listen to a “spin doctor” weave a tale it reminds me of my minor tale that lacked credibility and how only a mother could see through it. My time as fire starter was short lived. Red seat from “the strap” left the right impression but today we believe in sparing the rod and thus at times ruining the industry.

Ross’ Hard Earned Rules

1. Big and early claims will test the best of underwriters and management regardless of how well you select risks.

2. Be proactive in analysis, questioning and agent training as to your needs.

3. Does it all make sense?

4. How good are the sources of your information. Third party information gatherers can be worse than agent or better than accountant.

5. Does the agent know the owner, insured and beneficiary? How long and well?

6. Did the applicant owner approach the agent or has it been a long “sales process” by the agent?

7. Get the agent to sign a synopsis of the financial aspects of the risk and his rationale for the sale.

8. Know; really know the lender of money as beneficiary.

9. Audited statements are excellent if you read the fine print to make sure they are truly audited and represent a complete company profile financially.

10. In partnership insurance who are all the partners and are they all insured equitably?

11. Does the sum assured applied for (and in force) represent the absolute maximum of a companies worth or a reasonable estimate of its worth (per share)?

12. Get your senior officers to agree on your company’s position on estate protection (no brainer), estate equalization (harder to adapt) and/or estate creation (avante garde).

13. Never, never allow a person to be worth more dead than alive to family or business!

14. Multiples of salaries for keyperson or personal insurance are strictly guides and must reflect in summation the true financial loss in terms of the time value of money.

15. Banks make great beneficiaries but they are not necessarily without bias — they always win with or without the insurance.

16. Is the application for insurance complete, current and all information volunteered on the application or in additional notes, memos or letters?

17. Are you guaranteed that the in force to be replaced will indeed be replaced? Do you follow up? Do you have legal remedial solutions?

18. Make use of your own companies accounting and investment experts to see if the finances are right on.

19. Use the Internet as you personal search engine for finding both personal and industry information.

20. Use your reinsurer to build a financial picture even if it means you and/or your reinsurer visiting the applicant for detail and peace of mind.

21. Never reinsure the risk if in your opinion the financial picture is unacceptable and the risk makes no sense since although you can reinsure the mortality you can never reinsure the notoriety from a bad claim.

22. If, with your advice and counsel, the agent cannot make it make sense, decline.

It is said many times in our life and health insurance industry as in most industries or for that matter life that everything is cyclical. Sometimes we alter the cycle and sometimes it just goes away. Or so we think. Insurable interest and financial justification of an amount are subjects that keep coming back like a bad penny. Not sure where that saying comes from so I will have to research its roots.

One of life’s great mysteries has been the struggle to find one’s roots and thus perhaps the meaning of life. Now that is a pretty heavy opening sentence and before you readers scurry off to a more enlightening piece of prose give me a chance to explain.

It’s true very few of us really give a country damn about how certain rules of underwriting and risk selection came to be. Fortunately I am both a pack rat of history and a human of considerable curiosity. I need to know if the first Great Home Office Underwriter, in the modern sense of risk selection, went to the mountain and brought back the tablets (first manual) or did the rules, guidelines and regulations of our very existence just ooze our of the ground like the oil on Jed Clampet’s farm (owned in conjunction with Granny and due justification for a joint first to die).

Although I am curious, I am also quick to be bored and like to know the road I am marching merrily along is going to bear fruit. If doubt sets in, I cut bait and start the motor for home. Many a false starts I have had but nothing has discouraged me from randomly pecking away at the notes, books and memorabilia that clutter my basement. What inspired me recently was finding a speech from years gone by, given to the Home Office Life Underwriters Association by Dr. Edmond Harding. He was, in his time decades ago, referred to as the “Tarheel Humorist”.

This inspiration came from his opening remarks to an audience of underwriters on the subject of being up to date and the redundancy of some of our actions. He said, “I saw a horse fly on the radiator of my tractor the other day. How out of date can we get?” How out of date, indeed! Time for personal digging into one’s roots and to see if underwriting folk were toppling on the edge of obsolescence. In my search I uncovered several stories or anecdotal tales that do not necessarily answer my question nor give me solace the rules are correct. However, at least it was a beginning.

In the Precambrian days of risk selection up to the 1940s, much of the time spent at Holua meetings was on occupations. It was a heavy duty concern as they wrestled with blacksmith, cobbler, bartenders (still do!), and lumberjacks and, of course, military risks (very real in the 1940s). I never knew such in-depth attempts were made at getting occupational extra premiums so accurate. Today it hardly gets a mention as very few occupations get any of a life underwriter’s attention.

An analysis of the minutes of the HOLUA meetings between 1956 and 1967 reveals that reinsurance got one trivial part on the agendas and that just shows how young the preponderance of reinsurance issues is for us young folks. Papers or discussions on heart disease made the programs eight times in the same period. Now guess what? – no jumping and reading ahead – topics near and dear to the agent made the program 25 times! Fifteen times the underwriters listened and subsequently read about speculation and over insurance and ten times the same group listened to agents lecture them on what they needed from risk selectors! Hello, read my lips. That is an unbelievable imbalance!

Comprehending how heart disease works and the intricacies of medicine are quite complex (either that or people spend too much time in medical school before they are allowed to treat hypertension). On twenty-five occasions, hundreds of underwriters listened to agents spell out what they want from the home office underwriter but obviously it never sunk in. Based on the number of times heart disease was addressed, one could surmise that building solid agent/underwriter relations is 300% harder than learning how the old ticker ticks.

The minutes of these meetings also record what is said so that distribution of words of wisdom and counsel can eventually reach even a greater audience. In 1933, the great Alton P. Morton, and employee of Manufactures Life at that moment, (yes, there was another Morton who was much more influence than I in the world of insurance), opened discussion on the subject of financial underwriting. One of the day’s big questions was, “How much insurance is to be allowed when there is no earned income?” This was in reference to people who were very wealthy (survived the depression with money to spare) and yet had not earned income. They were merely managing a large estate or counting coupons. Discussion was inconclusive. However, there was on minutia of detail buried in his part of the agenda that at times still lingers on in underwriting circles, namely, “… the further we depart from an indemnity basis in justifying the life insurance granted, the more pronounced will be the anti-selection.” That little gem of wisdom has been passed on from generation to generation (sometimes quietly).

Should we, the liberated reader of the 1990s, be astonished to learn that part of the 1933 agenda included J. Elliot hall, and agent of renown from Penn Mutual, whose speech was not recorded. It was titled, “How the General Agent and the Agent can Aid in the Selection and Assist the Company in Maintaining a Favourable Mortality.” I can only speculate that either the title used up all available space or the fact that the title mentioned agent twice and underwriter not at all meant it was of little value to future readers. Pity, I would love to read that article. (Hope some one says that about me some day!)

Today I am often asked where the five times rule for “keyman”, or more recently dubbed “keyperson”, came from since it sounds so arbitrary and is indeed used in all too arbitrary fashion. I found the answer buried deep in the moldy copies of old minutes. In 1930, the rule was laid down as a suggestion by one mere mortal in what is often referred to as The Laird Paper of 1930. Mr. Laird explained that the “keyman” (this is pre-enlightenment) should be valued at five times their earned income for insurance purposes. This simple statement became a law that has survived numerous wars, presidents, prime ministers and CLU grads. At least we can now honour or blame a named person! To show you how powerful Mr. Laird’s paper was, it was used as justification in Doug Weir’s (a foremost underwriter of North American Life in Toronto) comments at the 1959 HOLUA meeting. After that, it appears Mr. Laird drifted into obscurity but the ‘five times’ rule lives on.

In 1939 Morton (elder, not pup) was on the HOLUA executive and, as a fan of agent and underwriter getting into the same groove, we can only assume he was a part of bringing the following topic to the fore for underwriters. The title of the HOLUA session was “Establishing and Maintenance of Good Relations By The Underwriting Department and the Field”. Malcolm Adam of Penn Mutual (Penn Mutual must have been a leader in field relations) gave a great paper which could be given to any gathering of underwriters today. He tried to make four major points. I leave you with the brevity of Mr. Adam’s headings which leave little if anything to the imagination of any reader and presumed listener of the day:

1) The agency force has a right to expect that we [underwriters] know how to select risks.

2) There should be absolute fair treatment of all agents

3) There should be consistently prompt treatment.

4) Underwriters should be reasonably educated on the subject of selection of risks.

Postscript: I had the honour of meeting Al Morton in the 1970s and he flattered me by introducing me as his son on several occasions. (I doubled checked with Mom on this to make sure it was just a joke – he left Canada and Manufactures Life in 1947, the year I was born.) He was President of HOLUA 1948 and became a full Vice President of Prudential of America in 1963 after 16 years with them. Al is now gone in body from our midst but remains forever part of our heritage and I was honoured to have encountered him, if ever so briefly.