Author: Ross Morton

I give many lectures and speeches during the year often tailoring the talk to the audience as I go along. Writing the speech out in advance cramps my style and flexibility. Therefore few of my boisterous moments are caught in print format. My PowerPoints are available but they hardly ever attest to what I really said at the spur of the moment in front of an audience. Many ask for copies of what I said afterwards (hopefully not to find a reason to chastise me but rather because I said something worthwhile. My family says to me “Just tape record all your speeches!”

At the annual meeting of the Association of Home Office Underwriters in October Vera Dolan Associate Editor, On The Risk – The Journal of the Academy of Life Underwriting was in the audience and took copious notes on what all speakers on the main stage said. I was truly amazed at how well she could capture the essence of what I said or tried to say. If only Vera had been with me as I gave almost 6 dozen speeches in 2007 and recorded what I said. I could fill my web site with lots of new material — some boring insurance stuff and some controversial and hopefully thought provoking. None of what came out of my mouth would be considered opprobrious but perhaps once captured by Vera would be considered somewhat profound at times.

I followed on stage the world renown Dr. Phil Smalley who gave his customary insight into the world of medical advances and how wonderful they are and will be thus supporting the actuaries vision of cheap mortality rates for all. I was not as kind to the world of insurance as I tried to steer the minds of the audience to the point of challenging the common believe that all is well when in reality the onus on all risk selectors to be faster, cheaper and easier is contra indicative of reality.

The following is reproduced with the very kind permission of the AHOU, On The Risk magazine and most importantly Vera Dolan who without her trained ear and fast penmanship I would not have this summary of what I said to post on my site.

AHOU brings together the people who are responsible directly and indirectly for the mortality results of the insurance industry. Without the prudent categorization of risk according to, at times, the hazy vision of the marketing actuary, the life insurance industry would not have the great mortality and thus profit results it has experienced for decades. At times like any organization AHOU can lose sight of its need to be controversial and an instigator of stability but overall it works and is leading many more individuals to a truly professional approach to the risk selection domain. I am always proud to be asked to present at their meetings and a big supporter of their mandate.

Once again thanks Vera, On The Risk and AHOU for allowing me to post the transcript.

Every insurance market in the world has witnessed periods when scrutiny of the financial integrity of application forms has been found wanting. Unlike medical underwriting, financial underwriting is not dependent on sound medical experience and reams of statistics. The fact that several companies in South Africa are expressing a concern about financial underwriting when there is increasing pressure to get applications converted to insurance contracts, is just one of the examples of the underwriting cycle for things like insurable interest, over-insurance and anti-selection by dubious consumers.

Have there been early deaths that spur one to talk about financial underwriting at this juncture? No, not that we have heard about, but there is a mounting concern, because if one looks outside SA’s borders there is evidence of mortality skewed by early claims, where at death the wisdom of the underwriter’s financial judgement or lack thereof is called into question. Underwriters in SA need to ensure they are seen to be more proactive and in control of change.

Poor financial underwriting has had many recurrences in the ultra- competitive North American market. The late 1960’s and early 1970’s saw a few early claims that made underwriters look rather foolish and gullible. Subsequent rounds of papers and articles emerged following poor results with what became known as ‘jumbo cases’ in the mid 1980’s and again in the late 1980’s. When all the rhetoric is stripped away, the basic message to underwriters was ‘make sure the case makes sense’.

Underwriting standards lowered

When I review old claims I see a pattern emerging of underwriting standards being lowered under pressure from producers or zealous marketing departments. Even though the financial justification, insurable interest and/or dubious nature of the business is in question, it is easier to say ‘yes’ and move on, than stick to the premise that the producer has not made it ‘make sense’, so you are going to continue to decline until justified.

The pressure then pushes underwriters to turn to those bastions of aggressive risk taking, the reinsurers. The ‘willing reinsurer’ rationale is quite often based on doing a favour to win a friend over and hopefully get some good business. I have seen so many large early claims where only one reinsurer took the case and this is a sad reflection on the professionalism of reinsurers world wide. When insureds die early the insurer takes some solace in the fact the reinsurer took all the mortality risk, and then takes action against its own underwriter for getting it publicity on the front page along the lines of ‘Company X supplies motive for murder through unjustified amount of life insurance.’ If the case is not justified in the eyes of the insurers’ own underwriting experts, why, when one of ‘x’ reinsurers’ underwriters says they will take it on the same evidence (really lack of evidence), does he or she approve issuance?

Every company has their rules of underwriting and I am the first to concede they should be challenged when justified. Let us take the magical keyman rule. That rule states that a key person can have five times income and the beneficiary is his or her employer. It was not born of mounds of research nor statistical analysis of the key people’s worth to their company. It was meant as an educated guess as to a multiple to start from. I believe there are some people running operations who are key only to perhaps a multiple of one times remuneration. At other times the multiple need climb as high as twenty times to reflect the very unique key contribution of some talent. Each has to make sense for the circumstances and thus the rule goes by the wayside.

Medical underwriting

Underwriters the world over are so extremely proficient at medical underwriting they are like machines at directing applicants into their risk classification slot. They are aware of the intricacies of the most obscure medical impairment thanks to the teachings of mentors, manuals and group meetings, and are able to assess the most complex details of the applicant’s medical past and present. If a reinsurer takes the case so rightly in need of a rating, they are the first to challenge the sanity of the reinsurer. We have medical underwriting pegged so well it is almost boring.

Financial underwriting and the ‘common sense’ approach to the subject preached in the past decades needs to resurface and become part of today’s curriculum. All the medical testing and lab works makes for a great industry. Teaching and mentoring how to ask the simple ‘does it make sense?’ question just seems to lack pizzazz. It sometimes takes, as history all over the underwriting world has shown, a few bad claims of a magnitude to raise the eyebrows of executives, to reinstate the rallying call of prudent financial underwriting once again.

The rules of financial underwriting as I see them, can be summarized in the following fashion:

1. Large and early claims will test the best of underwriters and

management regardless of how well you select risks.

2. Does it all make sense?

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

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

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

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

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

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

9. Use the Internet as your personal search engine for finding both personal and industry information.

10. You can never reinsure the notoriety from a bad claim.

11. If, with your advice and counsel, the agent cannot make it make

sense, decline.

These are not the only rules and I would encourage senior officials to support the study of financial underwriting and its offspring — underwriting for persistency. Support means they too have to ask and make the point to the pressure of distribution: ‘does it make sense?’

This year I have traveled for business to a few countries — South Africa, India, Malaysia, Singapore, Thailand, Hong Kong, Taiwan, China, Germany, Tobago and the United Kingdom. Many an underwriter would say just a few months ago that I was rateable for some of that travel. Today I finally escape the dreaded rated or decline category. What has changed? Is the world a safer place? Have I avoided the mythical “hot spots”? Do I travel with protection (two legged kind that carry a weapon and not the one in a hermetically sealed envelop)? Was the whole travel issue, so bewildering to advisor and underwriter, some cockamamie, self inflicted punishment for nothing?

Nothing. No. No. No. Yes. The answers to the above mini quiz.

Years ago the industry had a standard travel question buried amongst many questions we ask the applicant for life or living benefit insurance. The question was close in words or implication to the following: “Do you plan on traveling outside of Canada or USA?” The rare modern types in legal preferred “North America” to “Canada or USA” but many countered that we then would accept Mexico as a legitimate destination free of extra risk. It was probably a function of which legal counsel had experienced Montezuma’s revenge. There was also the broader question “Have you or do you plan to travel outside of Canada or USA?”

For my first three decades in the life insurance business neither choice of question presented itself as an issue. That does not mean there was an absence of arguments over travel since occasionally the insurer and the reinsurer were asked to quote on unusual travel. As a reinsurer you would experience maybe two to five such travel issues in a year. Rarely did the issue of the moment escalate into a frustrated diatribe of a long-lasting feud.

In those long forgotten days we had three main categories of travel concerns:

1. The “missionary” going to some far off land the underwriter could not spell or find on a map. The broker/agent was always just as cognizant of country facts as they always said the country or city therein was safe, clean and completely modern in all its facilities. Everything the underwriter read led them to believe running water was the river or the local well, sanitation was a trench you dug upon arrival and friendly environs meant no one had been lost that year. We risk takers really did not like odds of the person having normal mortality or morbidity, being able to investigate a claim or in some instances retrieving a body. The easy answer and most common was to just say no and no meant no. Amounts were small, premium trivial and commissions measly thus no real confrontation between agent/broker and underwriter.
2. The “cheap travel insurance” purchaser always came in with the note attached from broker/agent that read “Proposed insured leaving in three days for Bogata and company mine site in the Andes so please rush standard decision.” Underwriters preferred to just postpone these cases until the return (if they returned) since the anecdotal experience was most lapsed upon return since it was indeed cheap travel coverage. Agent/broker always argued that the three days before trip was not a factor as they had been working for months trying to make the sale. I do not recall any of these escalating to upper management where the plea would be the risk selector’s decision was unfair or stupid. Amounts were middle of the road, premium reasonable and commission after charge back for lapse would be small but if no factoring of lapse into it the commission would be large. Confrontation minimal and short lived.
3. The rare person of substance (wealth not girth although often they go together) who was going home, being transferred or was to be temporarily stationed abroad for a variety of legal reasons of which Canadian taxation played no role. These were always the difficult cases to ascertain how to best charge a premium tht reflected the additional risk if any existed. Rough residency tables, often years out of date, were referred to for guidance. The agent/broker was probably just as ignorant as the underwriter as to the real additional risk so in the end there was little debate over the underwriter’s decision. The underwriter was always worried about the same things — Could I validate the claim? Was there truly extra mortality? Would the premiums be paid? Amounts were larger than normal. Premiums generally high as proposed insured “loaded up” on cheap insurance. Commission great because of the latter two statements. Confrontation large but short lived.

To say underwriter and advisor lived in blissful peace would be an exaggeration. It was, by my recollection, three decades of rare and short lived skirmishes over who are travelling where and why and the ensuing trauma of finding out that certain global locations presented an extra risk be it medical, occupational or criminal. Were there facts to back up all the decisions? No. Did we make money on foreign travel and residency? I honestly do not know as I have never seen any meaningful insurance statistics (remember an insured population mortality is different than that of the general population). The numbers that any one insurer or reinsurer would amass were so trivial it would be near impossible to develop any meaningful statistical data. Anecdotes too were in scarce supply although every underwriter could relate a story of the unexplained death of an insured in a far off land where the body was quickly buried, burned or otherwise disposed of. Where there were more witnesses to the death than normally seen and the claims cheque was to be sent to the twin brother or sister we knew nothing about.

Then it all changed almost without any one event triggering the minute focus on travel. Yes the war on terrorism moved front and centre. Yes the incidents of foreign discontent seemed to grow. Yes certain countries became synonymous with extra risk, real or perceived. Yes reinsurers tightened up as they too faced tighter rules from their retrocessionaires. But in the end it was a fear of the unknown that led risk takers to take a broader and far more cautious approach to foreign travel and/or residency. Premium rates are 80% cheaper than three decades ago (if you are the super healthy non-smoking applicant). Margins are long gone in both the mortality component and expense component of the products. The target is a much smaller one and the tools to hit the target are much reduced. Compounding that is the fact that on preferred business the advisor may not even know the final price until the underwriting process is complete.

It has to be stated right from the outset that the following comments about why people are rated/declined or additional information is sought because of foreign travel has no relation to:

1. ratio of consonants to vowels in name.
2. race, creed or colour
3. ethnicity of advisor
4. where parents were born
5. where underwriter was born
6. reinsurance quota system
7. location of insurer’s home office

I have heard or read an amazing array of reasons why advisors think they were “picked on” and their proposed insured singled out for special attention and scrutiny. Most of it was pure unadulterated balderdash generally stemming from the advisors own ignorance of what the real risk was and their own lack of understanding the true risk. At the very same time the insurer and reinsurer was trying to be extra cautious while they tried to create the right answer. The industry has always taken a safe route until it finds the most prudent solution which may indeed in many cases be a relaxation of stringent temporary measures. It is why smart insurers have not gone out of business and careless ones have opted to sell while the selling is possible. On the medical impairment side we forget that 30 years ago we rated all myocardial infarctions, 12 months post episode, at +200% and $35.00 per thousand extra whereas today the rating can be +150% in best case scenarios (the rare ones).

We were too cautious on reflection but only on reflection. As we dug into what is the right thing to do there was little or no cooperation between sales and risk selection. I heard of no advisor or advisor’s group stepping forward to work with underwriters to find the equitable solution so that those truly presenting an extra risk (similar to the obese coronary artery patient/applicant) would be charged accordingly. Underwriters or pricing actuarial types never approached the major advisor associations to find a common ground of constructive risk selection. We just screamed at each other and looked absolutely reactive and unprofessional.

What seemed like three years of mass hysteria ended with little notoriety and almost as limp as a wet noodle. As 2005 ended the industry found itself accepting a new question which read along the lines of the following: “In the upcoming 24 months, do you intend to travel for holiday or vacation to a location outside of Canada or United States for more than 2 months or 8 weeks whichever is less?” If yes the details were added. If no the truck driver taking a holiday in Iraq is home free if I understand the question correctly. The variations on the question were significant but not earth shattering. The eight weeks may have been reduced to four weeks in two years. Canada and USA may have been extended to Europe Union. If anything the variables made the question broader in terms of who could now answer no. Gone in a flash were holidays or business trips to China, Israel, Indonesia, etc. Gone was any need to furnish where in Israel or Indonesia you would be staying or visiting. Gone was the need to know which the good countries are and which the bad are. Generally speaking the industry was saying that if the travel was of short term nature for vacation, and in some questions business, you are a standard risk and need tell us no details.

What a remarkable turn around as most scrambled to get with the new definition of worrisome travel or really the reverse; what was bad travel. I am still in awe of how generous the new question is and wonder how rare it will be to see a positive answer and wonder what the details will look like. Will I ever see a positive answer?

Was it all a “tempest in a tea pot?” Perhaps but the industry needed to look at facts and fiction and then judge what is the right answer to be equitable to all applicants and at the same time prudent for owners.

I am still close to a decline or a decline depending on the mood of the underwriter and company I try and buy from the day before getting on a plane. I cannot answer truthfully that my travels will be less than twenty weeks let alone four. I am also a klutz and seem to attract war, insurrection, epidemics and poor restaurant staff hygiene. That reminds me to refill my extra strength Imodium container.

By 1991 the distributors’ questions about reinsurance and how it worked were front and centre. One mystery was the method of paying the reinsurer for taking the risk. How were premiums transferred? What did it cost? Was it done case by case or en masse? Marketing Options editor gave me the push and the space to try and answer as best I could in terms easily understood by a mass audience (Steve’s MO was probably the most sought after life insurance publication of it’s time and its worshippers still abound and mourn its demise).

There are many mysteries attached to the term reinsurance. Most mysteries are exaggerated to keep the allure of the marriage between insurer and reinsurer attractive to all concerned. Whether your favorite insurer is practicing polygamy (the use or abuse of many reinsurers) or monogamy (exclusive hanging in there with one familiar face), the methods of reinsurance and terms are rather tried and true.

The terms involved are mundane compared to the awesome terminology with which you’re familiar. One popular reinsurance term is ‘treaty’ which simply refers to the formal and, in this day and age, usually written arrangement between insurer and reinsurer. Working with a reinsurer, and insurer can either make use of a yearly renewable term (YRT) treaty or coinsurance (CO) treaty but in exotic lands the modified coinsurance (MODCO) agreement is still a practice that has maintained a role in insurance just like the rhythm method in society. The treaty can accommodate the insurer by accepting the ‘risk’ on an automatic basis (99.99% safe), a facultative basis (99.97%) safe, or the more adventurous facultative/obligatory (99.96% safe). Each could be value rated at 100% if the chance of human error is nil but as you and I know in a head office environment that is as likely as 150% first year commission on an annual renewable term plan.

Occasionally agents boasts that their favorite company makes use of only coinsurance and thus their policies are handled faster, better, and with more security that if YRT were used as a method of reinsurance. The agents making this out of character exaggeration are wrong in their perception of the relative merits of this method of reinsurance.

Coinsurance is the ‘co’insuring of the policy in a predetermined proportion that basically shares the costs of issuing the policy, the face amount, the agents commission, and all ancillary benefits attached to the policy. In the end the sharing of the claim or the cash surrender value consummates the agreement. The benevolent reinsurer pays the insurer a yearly commission that should reimburse the insurer for its costs of operation and, in most cases, a shade more- thus rewarding the insurer for having such good agents producing such sterling business. These payments are guaranteed to the insurer as long as the insurer continues to pay the reinsurer its portion of the basic premium, an event that the author recalls never witnessing otherwise.

The simplicity of the insurer and reinsurer being in synch with the premium flow allows for both to be in a profit mode at the same time. Should each of the parties assume different patterns of cash flow, one could be in a loss position while the other is in a profit position. This reflect one of two realities – one wants to have loss carry forwards while the other wants to take profits early or, one of the participants is making a mistake. In the case of the latter, and it has occurred, there is only one thing to do and that is to chalk it up to the experience. Other attractive options include readjusting mortality, expense and profit assumptions or praying that the product doesn’t sell well!

As all of us realize, mortality increases with age except for that anomaly of mortality between age 16 and 25 when brains are lagging far behind fast cars, peer pressure and cash for exotic experiences in life besides those curing acne. The humble yearly renewable term method of reinsurance simply charges the insurer for the expected mortality that should occur in the year currently being lived. The premium here is the rudimentary mortality table, an actuarial work of art that evolves from numerous statistics raised to the nth power where n is very big, plus a tiny amount for expenses and less for profit.

If an actuary were available at this juncture, we would have an elaborate and unfathomable explanation for the premiums but if one looks at an annual renewable term plan one can see at a glance what reinsurance YRT premiums resemble. The logic is the same and there is nothing wrong with the insurer paying for its risk coverage as needed provided the insurer is saving a portion of today’s premium to pay for the increasing cost of reinsurance in the future.

The agent should be safe in making the assumption that the insurer has done its homework and can accommodate all eventualities. After all, haven’t the companies’ auditors spent hours investigating the in the insurer’s and reinsurer’s practices and haven’t the provincial and federal government insurance inspectors made absolutely sure everything is safe for the consumer?

Bottom line! Whether your favorite insurer reinsures on an YRT or CO basis, the impact is, for all significant reasons, negligible to the agent.

Incidentally, MODCO is coinsurance except the reinsurer gives the investment portion of the premium or the reserves back to the insurer to invest on the premise that the insurer is a smarter investor than the reinsurer. This obviously maximizes the chances of the reinsurer’s investment yield matching the insurer’s! Enough said since the employment of MODCO in Canada is a neglected art form that is about as common as a Toronto Maple Leaf winning streak.

Trust between a reinsurer and insurer is truly evident in the automatic treaty. What this form of trust shows is how much the reinsurer is willing to allow the insurer to bind it without the necessity of the reinsurer reviewing (re-underwriting) the complete file of the proposed insured. Quite often the senior underwriting talent in the ceding company, the life company, can accept a case for millions of dollars while retaining (keeping for themselves) only a $100,000 or more. What this says is that the underwriter is acting on behalf of both the insurer and reinsurer.

The automatic treaty guarantees the case in proportion to the risk sharing and both parties have combined to the risk sharing and both parties have combined strengths to support the consumer via the agent. Wise use of the reinsurer through automatic facilities enable the ceding company to complete with other institutions who opt to retain far more of the mortality risk for themselves which is often a function of their size. The basic premise of the automatic treaty is that the insurer must cede a portion of a policy to a reinsurer and the reinsurer must accept said portion. Two musts make fro a marriage of tranquility since there are no options.

Facultative reinsurance involves the physical handling of more paper by the reinsurer since it must review (re-underwrite) all the cases. This by its very nature consumes valuable time which the agent can ill afford thus it is more often than not only employed for problem cases – those vary rare occasions when case warrants and extra premium or financial scrutiny.

An insurer can use more than one reinsurer to obtain the best possible price for the case and this ‘facultative shopping’ for the lowest price frequently involves sending copies of the underwriting evidence to several reinsurers. Once the policy is issued, regardless of ceding company’s retention on this single case, the security of the reinsurer is of the same magnitude as in the automatic treaty. The premise here in facultative land is that the insurer may seek the facilities of a reinsurer and the reinsurer may take the case or part thereof at some price.

Facultative/obligatory, or as it is affectionately called ‘fac/ob’, is simply the opportunity for an insurer to pick a case and ask the reinsurer to take it. The reinsurer is obliged to take the risk. Once again slowly – the insurer may cede the case to a reinsurer and the reinsurer must take the case. Or, as practiced by some, the insurer may cede the case but the reinsurer must take the case if it has not already filled it retention on this life with previous cases. This form of treaty can be potentially written to accommodate the most unusual of situations but in reality its purpose is diminished by the far more attractive automatic treaty.

Courageous insurers make judicious use of all forms of treaties and methods of sharing some of the meager premiums with the innovative reinsurers. The industry has been well served by the combination of talent that permeates through reinsurance treaties. Contract is never used as a term since it lacks the diplomatic and global magnetism of the word treaty which implies great powers coming together to solve the needs of the agent.

If the curious policyholder ever wanted an explanation of the world of must and mays, the industry might have to invoke a 20 day free look. Thank heaven, behind both the musts and mays is, in most instances, a formidable alliance of insurer, reinsurer and retrocessionaire (how could I forget my role?) waiting to assure the best price and best security.

In writing I have leaned to prolixity at times to try to get a message, agreed, often my message, across since I want to convey all the nuances of a particular issue I am addressing. In conversation and in speaking before an audience I have found brevity to be the best course coupled with ample time to elaborate one on one with the questioner from the audience. When reading or listening, I tend to categorize the writer or speaker into which category they best belong. Lately while pondering the many musings of experts on underwriting and technology for the risk selection process I conclude that those who should be brief are far too extravagant in their words. Just as often those who are brief leave the audience short of detail and concrete data.

I am enthralled by the outsider’s view of underwriting as an arcane process that has remained mired in its narrow field house for decades. Why underwrite asks the banker new to risk (risk taking being known as insurance)? Because we will not take the risk otherwise says the mortality outsourcer or reinsurer in yesterdays jargon. Every time I look at the process, I conclude that a large squad of underwriters is doing a small amount of underwriting and a large amount of clerical work says the COO of accounting background. Yes but if you do not have all that senior talent reading all the files you may miss something says the scribe of underwriting fame. Brief answers to complex questions? Who are we kidding? The brevity comes from refusing to spin the sporran around and call it a fanny pack!

We must reinvent the risk selection process. One does not have to write at tedious length to make the point. Our industry cannot continue on with manual underwriting labour being the tour de force in the new business department. For the 80% of cases that are clean and unfettered by medical, avocation, aviation, occupation or financial issues we need the black box to handle the case. Save the underwriters for the 20% of cases that are unique and beg for more attention. Is this revolutionary? No. There are a few selected companies who have made the break from manual tedium but well paying clerical function called underwriting to embrace real risk selection by well paid professionals. Couple the black box (my laptops black otherwise black has no relevance especially after Apple introduced apple, tangerine and plum) with inventive ways of managing the real underwriter and you have a winning company.

Lets start with technology. I wrote on this subject several years ago in MO and said in one of my visionary moments that the world of insurance would be swamped with underwriting technology by now (actually I said 1999!). Instead of it happening we have the debate over which is better, the numerical points system born of the ancient but still practical numerical rating system or the “in/out method”. The latter is not a variation of the rhythm method but rather a poor descriptive of the yes/no method to determine one’s eligibility for a product’s price. Is this debate a mere sham to delay the decision making process to automate the mundane?

The “in/out” method uses the simple decision tree that if any answer is positive you are out of the price assigned to the product class you applied for. This is a good system and accommodates rudimentary risk selection. Because an individual applicant fails one question does that mean they are indeed an inferior risk? If you price it that way then say it is so. It is a no brainer (five years ago I had to explain that two word series) and one can hire the cheapest of talent to “underwrite” all your cases. Fortunately to protect some jobs within our business exceptions were built to add a dimension of thought to the underwriting process. Now if the positive answer is on one of the questions it can be ignored (please arrange for list with actuarial prior to implementation) if all other answers are negative. Now since even that secondary process of gray area underwriting may be automated with a rudimentary rules engine underwriters developed the personal touch. On a given day for a given agent the underwriter can always “give in”, “make a value decision” or just want to feel good by ignoring the positive answer(s). What we do not know as an industry is how often is that happening. Is the twentieth underwriter in the department making far too many exceptions and how would I ever know that since I am all manual.

The points method is closer to the historic risk selection methodology. It assigns points or takes away points depending on the various positive or negative answers. It tries to weigh the total to see if a person falls within a range. Thus unlike the “in/out” system with points it is known in advance that one can have positive results but with strong negative features one can still fit into a price category. Is it better? In my opinion it is simply because it allows far more latitude in assessing the longevity of an individual but it requires far more structure at the outset. It is my favorite but that does not make it the “be all/end all”. Underwriters can still over rule the points total and still give away the shop unless the data is collated and delivered that tells me what all underwriters are doing.

What makes either of the above work well and is fundamental is the workflow manager and reporting tools that deliver regular and concise reports to management on how many exceptions are being made, the degree of those exceptions and the cost of those exceptions. If from a pricing perspective I can tolerate exceptions to the rules, be they points or “in/out”, of say on 1% of cases or amount of insurance I need to know that number. Only automation can do that for you. The system puts the risk in a category approved by underwriting, medical, marketing and actuarial. Now the system points to those who have to select risks for your company who are going too far in their exuberance to say yes. Now you have data to decide “are my rules too harsh?” or “are my underwriters too liberal?”

Give me the consistency that comes from the likes of Cprompt’s AUS software or any of its competitors and I am an ecstatic executive. Load the software with the rules that all agree to and can see, and voila consistent equitable underwriting. I know that the portfolio of risks that I am assuming is well within my tolerance for long term financial rewards and not long term surprises. Tell me regularly where I am intolerant of my rule base. Tell which underwriter needs cajoling or platitudes. Let the underwriting executive meet the glares from the upper most echelons with confidence as they can reel off statistical proof that the company’s risk selectors are earning their meager salaries.

The following is how one progressive life insurer (STEVE I HOPE TO GIVE CREDIT TO ZURICH IF THEY APPROVE IF NOT IT GOES WITHOUT CREDIT) and their underwriting leadership views the technology question and why they are moving to reconstruct their underwriting area to meet the challenges. I thank them for allowing me to share the high level summation of their creative thinking.

“The principal benefits which we want to obtain through the use of an expert underwriting System (Ross’ note: it is not so much an expert system as a system that monitors the work flow, does automatically the cases that are routine and thus standard, assists the underwriter to a decision, monitors underwriting consistency and helps create a portfolio tat fits the pricing mortality assumptions) (now that I think about it maybe that is a smart system that is as expert as the average underwriter) are:

1. More consistent decisions. System-driven assessment processes ensure that all salient features are taken into consideration, and weighted appropriately. This applies to standard and substandard business.

2. Elimination of errors on quantifiable preferred underwriting criteria. The evaluation of preferred cases, with multiple risk factors, creates room for human error. Basic preferred underwriting criteria are based on quantifiable information, such as height and weight or blood pressure. Machine screening eliminates these types of errors.

3. Reduction of inappropriate preferred exceptions. Underwriters may be under considerable pressure to grant exceptions to allow preferred rates on cases, which do not fit within our rules. In some audits of non-system underwritten business, exception rates of up to 20% have been identified, with serious preferred mortality implications. Automated underwriting reduces these situations. Rules for allowable exceptions are built into the system. Other, underwriter based exceptions, are limited, and the system produces reports listing exceptions which can be used for quality control purposes.

4. Strengthened audit control. Expert systems provide a clear audit trail for identifying numbers and types of exceptions, as well as evidence and substandard/decline ordering rates on each underwriter. These enable both insurer and reinsurer enhanced ability to review underwriting activities. This ensures that company and reinsurer underwriting standards are adhered to, and that risk to both is reduced.

A second important objective will be to optimize the use of our tele-underwriting system. We intend to realize the following benefits, which will impact us financially (Aside from soft benefits such as increased agent and customer satisfaction):

1. Better quality underwriting information. By replacing the agent with an objective and trained professional interviewer, and the use of effective drill-down questioning, we believe that there is less undisclosed or understated client information, and that the quality of information obtained is superior to agent collected information. We believe that this will result in more accurate risk assessment and improved long-term mortality experience.

2. Reduction in discretionary underwriting requirements. Due to the more detailed information obtained via our interviewers, we can reduce the percentage of cases with discretionary underwriting evidence, which will reduce our other product costs.

3. Reduced discretionary requirements also reduce administrative costs. Significant administrative costs are incurred whenever we order and have to subsequently follow for requirements. Reduction in ordering results in product cost reductions on the administrative side also.”

If only the software sellers could show a leaning to prolixity in describing the real advantages to their software underwriters may buy in. I know management would. Be briefer with the technology mumbo jumbo and more verbose with the underwriting merits. Right now it appears the other is true, complicated or exaggerated by the underwriters lack of ownership of their IT solutions (a generalization but true with more than 50% of the examples I am called to comment on).

Once we have the software to garner consistency in what has never been too consistent an area, we move on to daring remuneration changes that finally reward the premier risk selectors. I journeyed into a company where the Canadian flag never flew to find one of the most creative remuneration packages for underwriters I had ever witnessed. On one of my shoulders was the pessimist saying this would doom the company. On my other shoulder was the behemoth like optimist that said this is the answer. Like earlier wanderers in the desert I took the message away with me (thank heavens it is no longer in vogue to write these messages on stone tablets).

The company in question rewards underwriters over and above the standard salary package with a true performance bonus. On a monthly basis there is a reward for exceeding the standard number of final decisions made on pending cases (potential revenue sitting in the system). Make a final decision and low and behold revenue is earned. Thus if your expected is 15 decisions a day and the underwriter is hitting 20 cases per day for the month a bonus of $X times the five times the work days in the month equals bonus. Make the underwriter realize they are a lighthouse guiding ships or cases to the shore or in force status not a lighthouse built to protect the shoreline from clumsy ships.

The second tier is even more avant garde. Yes the company in question went even further in enticing underwriters to be more revenue focused and marketing savvy. At the end of the year an underwriter earns a bonus based on a percentage on all premiums that they underwrote that went into force. This bonus makes them just as enticed as brokers at getting cases done. For about a third of the underwriters the bonuses can be very hefty equating to multiples of base salary. For some underwriters nothing has changed since they are of the old school. The company gets far more from fewer people and it wins by pocketing money it would have paid for head count increases in a traditional scheme.

From all sides comes the nay Sayers speaking ruin and integrity issues. Yes it is a stretch I would be the first to admit. With this type of inducement underwriters will accept everything and anybody. The industry would be ruined. The long winded conquer the Spartan words of those who dare to take a chance. Why would an underwriting professional put their company at risk when they are under more scrutiny than currently exists in most companies? Internal audits and regular and frequent audits by the reinsurers who actually take the risks must be within the tolerance of prudent underwriting. Failure to meet the standards means a forfeiture of the bonus and perhaps ones job should the underwriter be deemed wantonly careless. Is it any different than the pricing actuary getting a bonus based on production? Professional decent people will not do you harm. Scoundrels will be found out through scrutiny shared by all the players. The current system has minimalist differentials between the exceedingly brilliant underwriter and the mediocre and marketing challenged dirge.

The company in question is ecstatic about the positive benefits they are witnessing. The producers and marketing people feel the third of the underwriters who now have a vested interest in getting an answer out fast and as fair as possible is a breath of fresh air. The battle between the underwriters as encumbrance versus the totally commissioned producer has slipped into obscurity. I applaud the change that has been thrust upon our industry and hope to see similar revolutionary thinking enter our local market.

My prolixity on such a trivial subject as underwriters and consistency will end when true change arrives. The medical superiority of today’s underwriter now has to metamorphose into a consistent marketing sophisticate, supported by software tools and company tolerance of new reward systems. Brevity on this subject fails to convey the importance to our industry. Getting an application completed over the Internet in 8 minutes is mired in the 100 days to get it issued.

In 1977 I was in my last year at M&G and looking for my next career opportunity while working as hard as ever at M&G. Like always in my life I left a person or a group of people but never the heart and soul of the company. Making the imminent departure was the fact that I thoroughly enjoyed working with a great group of people.

Remember that it was written in a different time. The 1970’s were not the same as 2005. Political correctness was unheard of and travel was fun and novel still. If any of the words offend today I am sorry but I do not want to change it and loose the flavour. My current comments are in italics.

Once upon a time (don’t worry it’s not about Goldilocks) there was a company called the M. & G. (Note that they had yet to brand themselves as M&G) This band of adventurous travelers (N.A. expression) liked to do the unusual and as often as not wondered why the unusual became a habit.

Who else, I ask you, could think of a plan that would involve the “Movement” of hundreds of words (in book form), across thousands of miles of open terrain on the North American Continent. The logistics of the event are beyond comprehension. Not since the Indians (N.A. expression or version) sold Manhattan Island to the Dutch has there been such a momentous occasion in history. The Canadian good guys (appropriately dressed in white) sat for hours trying to think of an imaginative, taxing ordeal that would put an author of such a book as “The Medical Selection of Life Risks” through in such a short period of time.

The “Movement” started in New York and then moved on to Washington, Dallas, Los Angeles, San Francisco – pause – Minneapolis, Des Moines (why here?), Chicago, Toronto (is there a better place?) and Montreal. The Montreal portion of the “movement” has been excluded due to my inability to converse rapidly in the French language – vive le Quebec libre. (Note looking back I have no idea why I added such an end to the sentence)

GWCB and I flew to New York in the wee small hours of Monday, May 16th to be greeted by Brack, EG and RW lazily enjoying lunch. It’s 10:00 a.m. and they are having an early lunch! No, it looks more like breakfast. GWCB and I were glad it was breakfast for, if it had been lunch, we would have missed the opening performance. New York, was an amazing city (probably still is). I was constantly worried that I would run out of money. I spent $90.00 in less than five hours on tips and cab fares. Why are we doing business in this town? Our actuaries would never have allowed for this type of expense margin in our rates.

It was difficult talking to Brack and EG on Monday since they still had not recovered from being inundated with a verbal barrage the day before. One of our clients had given them a very complete running description of city during a whirlwind tour of the city. Who says our clients will not talk to us? I was told the highlight of the tour was Harlem. It’s too bad the U.S. of A. could not obtain war relief to correct the damage caused by the internal wars in Harlem. Maybe the M. & G. and Jimmy C. could work out some catastrophe coverage. (Note how much has changed since the mid 1970’s and most of it for the better)

The Park Plaza was up to the standards expected by the members of the M.M.M. (see title). Elegant surroundings and superb service highlighted the day. Fortunately for the team, the books arrived with only five minutes to spare. A great volume of needless perspiration was spent in anticipation of trying to give away forty books when we didn’t have forty books to give away. All is well that ends well, and on such an original thought we left “The Big Apple” in a limousine which was forty feet long and thirty feet wide. To end the scene one must make a mental image of Brack taking copious feet of movies of the limo ride which are nothing more than road signs, steel girders and bridge abutments. These are of interest to engineers around the world, but heaven help Brack’s family and friends.

Ah….Washington and thank God for RRW who made all the arrangements. Did he really select the hotel and a dining establishment for dinner? Yes, he did! We had charcoal coloured lobster, a steak thin as bologna, wine served in glasses still tasting of a strong antiseptic detergent and a waitress who kept saying “it is not my fault, I’m only a part-time summer student trying to learn a trade.” Back in the hotel we found that our phones did not work. E.G. was without a lock on her door and proceeded to pile the television set, triple dresser, four chairs and her purse against her door to feel secure in her bed.

Fifteen guests were expected at our luncheon, yet the original room scheduled for the lunch would accommodate one thousand guests, a flying circus, a full orchestra and the complete M&G Cheltenham staff if we could have brought them over for the occasion. After a great deal of complaining and sulking in corners we were able to arrange a more appropriately-sized room. The hotel itself got its revenge on RRW by giving him a room which had no towels. When he emerged from the shower his story was that he was forced to roll around in bed to dry himself. At least he said he was rolling around in bed to dry himself, but knowing RRW the imagination could run wild with other possibilities. It would be unfair to mention the name of this hotel so I will just say it starts with the letter “M” and is named after a famous ship in American history.

In Dallas we were met by the ever jovial PHT who proceeded to give us an educational tour of the city of Dallas which is famous for only one thing and that is not reinsurance. (Note, was it the cheerleaders? Being this was a testerone charged trip?) One gets to appreciate the talented drivers that we have in the M. & G. when one of the M. & G. representatives can maneuver down a one-way street, going in the wrong direction, and fail to notice that he is in the wrong. This was an experience and I am sure that all our travelers have tried it at various times and have met with varying degrees of success. Thank God for group insurance.

The luncheon here went well with a large attendance of forty people, all of whom were thought to be invited friends of the M. & G. The books arrived on time and EG was able to welcome the first guests on her own, since the rest of the M. & G. contingent were off touring the city or shopping. At least the rest of us arrived for dessert and handshaking. Yes, it’s Wednesday, so it must be Dallas and we must prepare to move on to the next town. On the way to the airport, once again, was our fearless PHT driving us through the myriad of interstate highways. He made an unusual detour. This was on a country road and we made a “pit stop” at a local cemetery. PHT, being religious as he is, decided not to partake of the cemetery itself but merely walked off behind the bushes to the side of the cemetery and proceeded to let nature rule his body. This has been recorded on film by Dr. Brack and will be shown at the next convention of urologists.

We’re all tired, but we’re all looking forward to Los Angeles – hopefully we’ll be able to see it through the smog and not be distracted by the pornographic material we are sure to encounter. (Note, amazing what one thought in those days of a city and why?)

Ah…..problems started to happen – started to happen is wrong since we had nothing but problems since the start of this trip. GWCB made it to LA but unfortunately, his luggage did not. I had a feeling we should have tipped that red cap. The lack of books presented a problem. RAM and GWCB spent most of the morning digging through the warehouse of Emery Air Freight trying to find a package that contained fifty books. No books – no performance. The show must go on so we left Emery Air Freight with a solemn look on our face and madly tried to write an apology for our guests. Meanwhile back at the hotel EG had set up all the books and had an hour to spare to do some shopping. (Note, EG always found the books first!) It’s a wonder she still had money since she had shopped in every town and had filled her suitcase to the point where it was at least 100 pounds in weight. She must be a pet rock collector!

It’s time to move on but the eternal question crops up. Where’s Brack? Where are his briefcase, pipe, movie camera and extra film? This was the fourth day of keeping track of this individual and by this time our nerves were being frayed and our schedules were being pushed to the limit. It was a continual cry since the time the meeting ended. “I want to see LA”. A quick five minute tour of Beverley Hills was arranged in which time he saw at least one house and fifteen sign posts that pointed to various freeways in the Southern California area. On to the airport with no time to spare and we were quickly whisked on to the plane which would magically convey us to the city of San Francisco. Ah….what luck we met another actress (Note, an actress I liked up until her very rude and arrogant behavior on the plane) but that was a story censored out of this story by MH and SAC.

San Francisco went too smoothly to be believed and the hotel was exquisite.

Thus mentioning the name of the St. Francis should come as a very high recommendation to any one else wanting to venture into the town of San Francisco. The luncheon was a success and handshakes were given to all.

The weekend – a lonely weekend – in the town of San Francisco just Brack, EG and RAM. Saturday was spent touring the Monterey Peninsula and what else? – taking movies of road signs! This should be tremendous movie equal to any Fellini production with a cost only surmounted by that of JAWS. A lazy day Sunday arriving at the airport around noon and flying to that wonderful city of the north, Minneapolis. No, if it was Minneapolis it must have been Monday but I guess we had to get there on Sunday.

Flying into Minneapolis one wondered if there was going to be a runway or a large lake to land on. Lots of green, lots of blue, but few people. Once again everything at the luncheon went well with our nerves getting back to normal and our drinking capacity reducing somewhat since we had nothing to excuse the over-imbibing that had preceded this section of our “movement”. The dinner was cheap here – we had filet mignon for the price of macaroni in Toronto. No wonder we had such a turn out. How often does the client get a free meal of filet in these days of inflation and low salaries?

For seven days now we’ve been asked the question by Brack, “Why are we going to Des Moines? I don’t want to go to Des Moines; there can’t be anything in Des Moines, etc. etc.” But, as Brack learned in Des Moines, the town was founded on the banks of a river where all the wagons heading west to California broke down. Thus needless to say this town is made up of broken down wagons or people who were not able to mend their wagons on the way to the West. Maybe the town should have been named Broken Wagon but of course that name was used by a famous Indian once before but we won’t go into that.

On the wagon again – we swore off drinks before the sun crossed the yardarm. Yet once the yardarm was crossed (we moved the yardarm) our guests arrived. Handshakes galore – no kissing – and sore arms from lugging hundreds of books across this vast continent! A pleasant place Des Moines. WH was in his glory shaking more hands than anyone else and feeling proud that this could only happen in America. Let’s get out of Des Moines before we all stick straw between our teeth and start rocking on the front porch.

Chicago – “that wonderful town, that wonderful town.” What a change after slow moving Des Moines. Well it wasn’t that it was faster since we sat in the cab for almost two hours in 90 degree temperatures on a freeway while everyone looked at an accident where somebody had scratched a bumper. No kidding that’s all the damage! But everybody felt that it was worth stopping to look at. Once again hundreds of feet of film were taken of this event and will be presented to the National Association of Road Accidents.

Have we lost Brack? No! He is merely out shopping again and taking movies of more buildings and roadsides. I think he is going to have difficulty deciding whether Smith Street was in Washington, Minneapolis or Chicago. That’s his problem; the M. & G. Canada staff doesn’t have to edit his film we merely have to endorse it. Chicago was successful – books on time, hot meal and very few “no shows” for a circus performance. RD and his lovely wife were exceptional hosts and did not have to apologize too often for the haggard look on the faces of three M. & G. staff that were now in their eighth-day of the Magical Mystery Movement. It must be Chicago since its Wednesday. Let’s get out of the place.

Ah…..home to Toronto. The town that beats all other towns and where the performance would surely peak – at least it would peak in the English language – one could not speak for the French language edition which was to follow. Toronto was a success with numerous jokes provided by Dr. C who was in rare form and provided jovial entertainment for all those who accompanied the guest. We were very fortunate to call in this guest performer and his addition to the Magical Mystery Movement and/or Traveling Circus was very fortunate. Between Dr. C and Brack it was very hard to get the meeting “on topic” but who cares. I can go home tonight and have a good sleep. Apparently, after this meeting wrapped up, several of the M. & G. bit players and walk on performers joined several of our clients in various bars throughout downtown Toronto and drank the wee hours away.

For those of you who don’t like to read a book before seeing the movie you can be sure that the movie version of this will be provided by Brack & Company. (Note, six months later the team had to sit through countless hours of a movie that had just what one expected — buildings and road signs) Admission will be cheap or at least voluntary. For those of you who think that this was an easy trip I can only quote that famous American author who once said “sit on it”. Thanks Brack!

The bit players on this tour included the following individuals EG, GWCB, RW, RD, WH, PHT, RAM, MAM plus assorted characters who were called in at the last minute for necessary walk-on performances. Of course the star of the show was “Brack”.

Initials have been used for the various characters in this performance so as to protect the innocent yet titillate the imagination enough to let everybody know who was at fault or who was doing wrong during various, performances in the nine cities.

The author of the story would like to thank Brack, for his participation and we are sure that his performance will be remembered at the Academy Award presentations for the best foreign film made in the U.S.A. and Canada. (Note, his film did not win but his book and subsequent re writes are big winners.)

Looking back on this article I realize that not much has changed yet everything has changed. Canada has gone from fierce reinsurance competitors numbering 6 to maybe three and a half (but a very solid half I must say). Facultative support has become the exception rather than the rule. The insurer retains less as a percentage yet is carrying a large burden in the area of risk selection. More audits and finer margins are the rule. The underwriting leader has to be on top of their game more than ever.

93.6% of all cases applied for are issued standard by the life industry. That was a statement that the industry said voluminous statistics provided unwavering over scores of years. It’s probably thru because of the pioneering efforts of the first companies into the field of substandard underwriting made it so, based on scarce information. In those years, all experimental underwriting was relegated almost exclusively to reinsurers soliciting the tough case and applying their sobering expertise to pricing almost any risk. Their familiar daring statement, often heard, was “We can accept with pleasure the risk at only + 37 extra mortality points”. (Similar risk taking can only be witnesses now in the archival film reruns of daredevils going over Niagara Falls in barrels.)

Facultative shopping of a case to numerous reinsurers for the best price, fewest additional requirements (“No, Mr. Reinsurer, a liver biopsy doe not fit into Mr. Applicant’s busy timetable!”), and financial security was hot up until the mid – 80s. It was a spirited exhibition of which reinsurers could survive the longest while trying to portray a sense of professionalism to the eagerly awaiting ceding life company. Such a ceding company would regularly send copies of a facultative file to up to 14 reinsurers. You can bet that one would make a bad call, offer coverage, and three winners emerged – the applicant now insured, the agent now paid, and the ceding company now rid of the risk of poor early mortality. All of this left the reinsurer blind- sided again, albeit with the reinsurer partially to blame.

Finally, reason prevailed. Reinsurers witnessed new claims stacking up on this business that began to shake the foundation of shopped facultative business. One by one, over the last five years the reinsurers assessed, revoked and retooled their own underwriting departments to reflect reality. Reality was that the earlier statistics were flawed and misused. Reality was that the days of ‘fat’ mortality assumptions in the premium rates was gone. Reality was that agents, head office underwriters and actuaries had forgotten to assess the depth of individual antiselection – if one person out of 100 accepted a rating of 300%, how correct was the assessment of that one individual? You could have bet that person was one of the worst of the 100 offers made!

Who loses when the reinsurer no longer provides the aggressive + 37 extra mortality points or even standard issue? Of course, it’s the applicants who will now pay the substantially higher 300%. Meanwhile, the average insured (who belongs in a standard premium category after rigid underwriting) is today’s big winner because with the more rigid definition of standard risk have come lower premiums.

In 1989 and 1990, it became evident that the head office underwriters needed to improve their mastery of the art of underwriting just as the wise agents pursued the mastery of serving their clients. The mastery of facultative underwriting combines the skill sets of agent, head office underwriter and their compatriots from the world of medicine, finance, actuarial science and reinsurance.

It was realized that ceding companies can take either a proactive role in determining the price to the proposed insured or a passive role of reacting to the quotes of the reinsurers. To their credit, more and more ceding companies are now taking a pro-active role. Their underwriters are deciding what substandard risk classifications should be offered and they are going to only a few reinsurers (those whom they know have the appropriate expertise for the substandard affliction in question) for confirmation of that assessment.

This is a radical shift for home office underwriters and, in fact, it can and is being done by only the most competent in the profession. However, the benefits to agents are becoming evident. These agents are realizing many difficult cases are now being dealt with by their own company and dealt with in a more consistent manner than shotgunning reinsurers. For the reinsurer, this new approach to shopped facultative cases eliminates blind-siding, at least until the next major upheaval in underwriting – such as AIDS and non-smoker rates presented in the past or genetic testing may offer in the future.

I was recently asked to do a critique of our industry’s leaders for publication. Even after I said an emphatic no the notion was put forward that I could do it anonymously. I really did not want to do anything anonymously since I take my writing seriously. Well, at least I like what I write and I have never shied away from taking any critique given. It was like taking cod liver oil. Made one cringe all over but it was good for the long cold winters. Trying to write a critique of our leaders would be suicide assisted by stupidity — I would have to go back to dairy farming at which I was utterly ill prepared!

The request, once turned asunder, made me ponder the word leadership. My nurturing parents never gave me a course in leadership and more recently most courses in leadership failed to change my ingrained style of dealing with human emotions and thus leading. Of all our industry leaders, be they good, bad or nondescript, which of these leaders were the product of genetic manipulation and environment versus some business school. If I had but the time and money it would be a fascinating exploration to get into the childhood development of these men and women who control the life insurance fortunes (perhaps fortunes is not a good choice of words given the controversy over demutualization’s benefits) in Canada.

Not aspiring to the label “industry leader”, but merely recounting my own experiences as an ancient in the business, I tried to recollect what events shaped my persona beyond the nurturing of parents and siblings. Since the subject at the front of my memory is leadership, all events must build that cornerstone of my career. I recognize the danger of digging up the past — lawsuit from someone wanting a cut of my meager pay since they put me where I am today, demands from irate friends who feel they were my mentor or frustration from my spouse who wonders who would even care.

While at a Boy Scout composite (everyone was from a different troop in Ontario and thus total strangers) camp I learned that leaders are sometimes blind and the blind are sometimes leaders. Within an hour of arrival at the camp I was picked as patrol leader probably because I had more badges than anyone else (I used to love passing tests and getting a tangible reward!) and I had matches to start a fire. Suffice to say this put an onerous responsibility on me to lead 7 other Scouts through the trials and tribulations of a two-week wilderness experience.

My first few days were full of me being full of me. Orders barked. Demands commanded. The little tyrant at his worst, striving to have the best patrol in Haliburton. The adults running the camp (not much older than my 15 years) gave me lots of rope and liberty to make life hell for 7 other 15 year olds! I was learning nothing about true leadership. Looking back it is probably at this juncture that many of the more ruthless leaders of our industry (wherever they may be; wink, nudge, wink) and other industries never recovered from that overbearing power surge.

I believe my lucky day came when, while on an island and living off the land (well sort of), I suffered an allergic reaction to the smoke of a particular pine tree (true second hand smoke). My eyes were swollen shut and without vision I felt doomed as a leader. I heretofore had used a style that meant pointing the index finger at work undone, giving the evil eye to slaggards and watching every move for fear of my patrol screwing up an assignment. Leading would be an impossible task given I lacked sight. The most important sense I possessed as a leader had been rendered temporarily out of order. I envisioned a relinquishing of power and with it my summer would be a failure.

I had a heart to heart with my adult leader who did not strip me of my responsibility of leader but instead coached me and made every effort to help me. He knew the right approach and was a true mentor on how to be a leader. He said you must trust your team to do the right thing after delegation of the action. Think through the team players and use the individual strengths therein to move forward. Listen to everything and “feel” the emotions to judge whether my direction was correct and was being carried out. Above all else you have to a team player.

Over the next 48 hours my sight returned gradually and so did my confidence at being a leader. I now understood the importance of listening to my “staff” and then delegating work in a meaningful fashion that best utilized their unique talents. My mentor probably went on to be a leader in his own right given he comprehended the role so well and was able to communicate the lesson so well. On the other hand he may be a consultant to any of today’s political or industry leaders needing the unthreatening counsel of a wise and worldly man or woman.

I did not go on to have the winningest patrol but I was part of a team that gave first place a run for their money right to the last inspection. If I could only have stopped “Bugsy” from having a nocturnal piddle behind the tent I am sure I could have won all the ribbons.

I smile when I recollect the lesson learned that summer. I should say lessons since I also learned how leeches can cover one’s body in mere minutes if you don’t take the right precautions. One of our other leaders took pleasure in putting us through a “mud portage” knowing it was full of leeches that would have made even Humphrey Bogart cringe more than in the African Queen! This is akin to the leader’s yearly change in company strategy or tactics

Every time I hear a speech or read an article where our leaders are questioned, quoted or highlighted I wonder where they got their early lessons. Did the pattern of their style emerge in youth or adulthood, home or school, club or gang?

When I ponder the leadership lessons I have assimilated over the years it is the “how not to do it” ones that immediately jump to mind. Is that because I have worked for inferior leaders? Is that because I assume every leader will be a mentor of excellence? Failing those two, then perhaps my expectations were set too high by a young in age but old in sage scout leader some 36 years ago. The following lessons are glaring and I will use the leap of faith that you can decipher the good examples from the bad.

After acquiring the necessary skill to do one job proficiently I asked to do more, regardless of what to fill my day early in my career. My boss responded by telling me to read the paper or pocket novel to “kill the time” since no one should look like they have nothing to do! On going two levels higher with my demand for more work, I was told to stay with the current regime and no one would worry about the extra time spent on superfluous reading materials.

Asking that my boss “go to the wall” for the department and make sure the recipient of certain information at a very senior level understood its importance was met with a blatant show of selfishness. The boss responded that he/she (trying to protect the anonymity) “would not go to the wall for anybody in the department nor the company if it meant in any way he/she may risk his/her job! “I would never go to the wall for you, any of you!” was not too inspiring.

“His usefulness has finished so why worry about him.” “Why should I give him a piece of the action if he is not smart enough to demand it?” The speaker was one and the same. The former sentence was uttered about what I thought was a valuable contributor to the speaker’s success but immediately of no more use. The later was said after a major contract was won and monetary rewards were enormous and the “him” played a most significant role in winning the day.

At a time of critical financial need after a family tragedy the boss steps in, in absolute confidence, to share the burden between the three of us and uses his own personal money to make sure the human tragedy was not exacerbated by monetary issues. Quietly a real personal gesture from a supreme boss for a staff member he/she had always seemed to loath or chastise.

The inability to give a 10-minute dialogue on the industry they worked in to senior officers and in front of all direct reports spoke volumes on the individuals true understanding of what was going on in the world.

1. “Well, this two day meeting about team building and building understanding is over and it is now best we all get back to the real work world where the work has piled up.” A company CEO/President who inspired his/her team with that wrap up speech at a company off site session.

2. “How’s the wife?” “What are you doin’ for holidays this year?” “We have had a good year at xczvbx, right?” The foregoing is a synopsis of my job evaluation and year-end review. The monetary increases always surpassed my expectations but I never really heard words to help me improve?

3. “I have been told your speech was given in a very monotone fashion and you refused to stand for the speech. This type of behavior is unacceptable.” The foregoing was delivered by a very important person in my career but was delivered after receiving a one sided telex (prehistoric and long ago replaced by courier and then e-mail) from a politically proficient peer at the same company. No question asked as to why. Nor even a question as to why I was on crutches. I had given the speech with a broken ankle in a bucket of ice while seated. Moral — as Yoda or David would say “Martyr I was not, eh.” “Stupid if I try, not.”

4. “The Board does not need to hear bad news and therefore we stripped your report of any references to adverse mortality, reserve shortfalls or concentration of risk. Instead we edited it to read that all issues were under control.”

5. An executive vice president once said to me “My job is to help you with your transition and I am available to you at all hours should you need support, an answer or approval. If you do not make a success of this opportunity then we have both failed but I have failed greater because I let you down.” I didn’t ask him if he was ever a Boy Scout Leader in Haliburton!

Take heart all you rookies. There are true leaders in our industry and some of them will cast you a life preserver but some will beat you to the lifeboat. My history in this insurance industry is far from unique and, although each of the above brief anecdotes will be a full chapter someday, I am sure if I solicited for more management examples the bad would outnumber the good. Perhaps that is what Grandma meant when she said I would certainly learn from my mistakes and the mistakes of others in the “big city”.

Curving back to the opening, I cannot write about specific leaders for various reasons:

I would never want at this stage of my life to hurt someone with his or her own leadership/management baggage.

I would have a difficult time on a part time basis truly studying each of our dozens of leaders to insure each was given a fair assessment.

I would like to work for a few more years in the business.

My leadership/management advice is more valuable sold in Asia Pacific and Australia where, since I am this foreigner of large stature (physical bulk), it is in demand. “The grass is always greener.” Never rang truer.

I like my current relationships thank you.

I would have a hard time picking who was number one on the list given all the choices. If I put the Boy Scout leader at top it would be cheating since I do not know if he is or ever did work in our industry.

Sorry to disappoint, but no ranking today but perhaps tomorrow. In the words of Baden-Powell as published in the “Headquarters Gazette, May, 1913”:

“In the Scout Movement the Scoutmasters and Commissioners have won their position in the public estimation by their whole-hearted work in a national cause; every day they are gaining more sympathy and goodwill from parents and pastors, teachers and Statesmen, and thus it is that the boys, in their turn, accord to them a greater confidence and greater readiness to serve and be led.”

Growing up as a young healthy boy in Southern Ontario I had a passion for the finding the best knockers. They were not always easy to find and only the keen well trained eye could spot them either hanging around or lying right there at our feet. It was only as I matured into the late pre teens that I realized size was not the only criteria for winning the battle of the knockers or conkers as many a city folk called them. (Note: Conkers being derived colloquially from the word conk which means to hit on the head)

Why are they doomed? It is not for the lack of chestnut trees but rather the ever spreading morass of rules and regulations meant to keep us and our children safe from harm or these weapons of mass destruction. On a recent trip to the UK my wife’s relatives broke the sad news to me. It was now against the rules and regulations of UK society in most areas to play with knockers or conkers (you pick the word that best describes your nuts). The UK law makers believe it is unwise and thus unsafe to play with conkers for in battle pieces of the chestnut may fly off and puncture the player’s eye. Since it would be impossible to enforce the other option, making safety glasses mandatory for all youths playing with congers, we just banned congers and knockers.

Doomed like so many dangerous escapades of the youth. No longer could a youngster search for the perfect chestnut to be transformed with a simple but minimalist hole through it and a string attached into a weapon of mass destruction. Size did not really matter as the mid size, very firm, and less pulpy chestnut actually ruled over the big soft knocker. Ah, we do want to make this world a safer place. Doomed is the fun of conker versus conker in a battle to the finish. The upside is that there are more for the street chestnut vendors.

Not that I ever put HP Sauce on my chestnuts but I have used a lot of the brown liquid on everything from steaks to sausage rolls. HP Sauce to me was an icon of British taste. Once the Brits had cooked the flavour out of the meat the only thing redeeming was the fact the meat retained the ability to transport ever so effectively the HP Sauce to one’s mouth. It was and still is a great sauce. Many a savoury garnish has come and gone but the HP has never lost its favoured or should that be flavoured status. Now the Birmingham plant that produces the entire HP is closing and the sauce’s blending and bottling are moving to the European continent where Heinz feels the economies of production are better.

Everyone seems to be in a frenzy to change the decisions of learned men and women who see HP as just a food product and not as an icon of Britain. Will this mean the House of Parliament on the label will be replaced by some Dutch icon? Will the waters of Holland have the same chemistry as the waters of Birmingham? Since many see HP as synonymous with House of Parliament will the name change to EU Sauce? From my relatives to the highest ministers in Britain the uproar grows but sadly most deep down one cannot stop the mega corporations from doing their thing. Years from now, should the protests fail to garner Heinz’s reversal of policy, will we have forgotten HP as we pour EU all over our succulent steak?

After the loss of the conkers and knockers what is the mere loss of a sauce? A lot as these are all cumulative actions of the modern human and play havoc with the older generation. I can only hope the taste remains the same and the tears of 125 workers in Birmingham do not taint THE brown sauce passionately labelled HP. Sally and David please put some last bottles of Birmingham’s finest for my next visit.

Makes all the changes in the insurance industry pale in comparison. What could be more important than outlawed knockers and where a sauce is made?

The year was 1992 and it was early in the year. Remember I often wrote the article months and months in advance of publication. The editor and writing mentor in Steve of Marketing Option fame was always one to have the articles ready to go well in advance and sometimes so “well in advance” he could go three without asking for more. Early in 1992 the talk in Canada was of underwriting and trust. Can the producer/agent trust the underwriter? Can the underwriter trust the producer/agent.? Can the reinsurance underwriter trust the insurer’s underwriter? Lots of questions and the permutations were endless.

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Pilfering from the pioneering scribe of all home office underwriters, the title says it all. Or is it still relevant to ask ourselves this question? For those of you born in the fertile fifties, the author in fact is none other than Charlie Will and his words of wisdom from long ago translate from Malay into “Does it make sense?”

Simple words coined to guide the home office underwriter. Charlie was trying to say that if the home office underwriter thought the agent was a goofball and presented poor information, just decline. On the other hand, if the agent was trustworthy and if the idea behind the application sort of made sense, go ahead and accept the risk. The whole premises of North American underwriting seemed to focus then more on the artistry than the cool reasoning behind the decision. (Some critics stated in those early days of yesteryear that head office underwriting was merely a facile excuse to hide the lack of science in the underwriter’s tool kit.)

Unfortunately, the element of trust seems to have vanished without explanation. Other than the rare instances of agent misrepresentation, there is a dirth of explanations for this prevailing attitude. I cannot pinpoint the date it began to invade our industry nor the incident that triggered the defensive mechanisms that took control of the underwriters’ psyche. There is strong evidence that underwriters were taught to trust on one and the list of paper requirements grew larger. But a hidden underwriting element worried that too much paper was feckless in the fight against real agent deviousness.

Consequently, three underwriting rules evolved. Underwriting Rule #1 states that if there were only a few pieces of paper (the underwriting evidence), then something was not being admitted and it was best to ask for more paper or decline. Underwriting Rule #2 proclaimed that if there was close to one inch of paper (2.54 cm. For the purists) to support the application, it must be standard. Then the surprise of all surprises, Underwriting Rule #3 decreed that if the paper pile approached 2 inches (5.08 cm.), it was a decline. So a succinct set of papers, regardless of how well representative of the facts, had to hide some devious plot to over-insure (Rule #1). Excess paper became synonymous with standard issue (Rule #2) but reams of paper which could include the agent’s own poignant words incurred the underwriter’s ire and a wrathful decline (Rule#3).

If one contrasts the North American reality that blatantly hypes mistrust to the European laissez-faire attitude between agent and underwriter, it is remarkable to witness that both are in the same business. Companies in Europe regularly accept large amount cases with half the financial requirements of their Canadian or American counterparts! I have witnesses in my lengthy career the miracle of multi-million dollar applications (in original currencies francs, marks, lira, or kroners) being issued on the simple poignant prose of the hallowed agent plus perhaps an accountant’s or banker’s letter of reference as to the value of the proposed insured. In fact, it is not a rarity to see cases on young adults or old kids being insured for megabucks on the testimony of just the agent! Not only is the unadulterated trust in the agent paramount, nothing has occurred to shake the underlying trust the agent feels for the underwriter.

Quite frequently the North American underwriter is privileged to partake of a cross –the –Atlantic case for reinsurance reasons. The ensuing stretch for the Tylenol bottle is as rapid as a Guzman fastball (for Expo fans, this is Blue Jay simile). The root cause of these rattled nerves and tormenting migraines is the lack of financial justification beyond, at times, nothing more than the well-written and concise letter from the agent reciting the man’s value in life. On occasion there may be two or three testimonials from the likes of a banker, bringing credence of the agent to the 100% level. As oft as not, the North American underwriter collapses over his desk and in that prostrate position exclaims, “What the heck, if the Düsseldorf underwriter believes the sum applied for is okay, then that’s fine by me.”

The foregoing comment on the approach to risk selection is not meant to incriminate anyone or be so bold as to decipher who is correct. I am merely, and with due lack of diplomacy, trying to understand why. Why would a niece or nephew of a rich (make that really rich) person residing in Düsseldorf qualify to be insured for a mega policy simply because “she is the youngest and healthiest member of the family and is charged the lowest mortality rate and thus should be the insured under a humongous policy bought for estate planning purposes of an older uncle, aunt or father”?

If this occurred in North America, the underwriter would not only decline the application but said application would become the talk of the next underwriter’s golf tournament. The underwriter would also have the agent sent for a CAT scan of his most northerly protrusion.

Why in one instance is there so much trust in the appropriateness of the action while in the other there is absolute disbelief in the insurable interest and motives of agent and applicant? How did two similar industries like life insurance in North America and life insurance in Europe develop such differing standards of agent credibility? Have North American companies been bamboozled more frequently? (“Probably!”, come the catcalls from the more cynical.) Can Europeans afford to be paying more in benefits than the North American company?

We, the big we that includes all us in the insurance industry (whether active, inactive or on redundancy leave), probably cannot completely answer any of these questions. On this side of the pond, we sell complex plans that minimize the dollar the customer spends on protection and tax planning. Although not as tax driven, the European too has complex needs covered by unique plans. I would like to think that it is not plans that lead to the North American paranoia around antiselection. Something, somewhere deep in the bowels of our past ahs made the agent’s word almost valueless and that millstone has been passed from neck to neck without appeal of its consequence. Pity. The trust appears to still exist in other jurisdictions that perhaps rightly or wrongly (naively?) have not incurred any financial consequences from that trust.

As I travel between these two venues, I almost become a dithering nincompoop (there are some who say the “almost” could be dropped) over which hat to wear since both logics could fit the circumstances. Or so it seems. When pricing a product in a typical Euro community, the Merlin-like actuary uses assumptions based on a mortality table that is far more conservative and safe than a North American table. To complicate matters we have a propensity in North America to assume significant mortality improvements over an indefinite duration. By using a higher Mortality assumption and ignoring aggressive improvements, Europeans acquired a significant mortality gain, possibly in the magnitude of 10% to 20%. My colleagues in Europe harp in, with remarkable disdain for North American mortality results, that their revered agents are under sever pressure to tell the truth not oversell applicants, thus enhancing their safety factor. Indeed, there are indications that the agent and underwriter over there will not allow themselves to be mortified by early, big and embarrassing claims.

In places like Indonesia (a very representative member of the emerging Asia Pacific market) both North American and European insurance management, especially home office underwriters, are trying to shape underwriting patterns. As larger cases are being written by agents coincident with the economic growth, the average face amount has escalated from the mere thousands of dollars to tens of thousands and hundreds of thousands will soon be common. Enter the outsiders or foreigners who want to sell their advice to this new market. One expects and can actually witness a total frustration with these outsiders’ views. One set of ‘teachers’ from the opposite side of the Atlantic who imply there is a better way to handle agents and large cases.

The role of underwriters and their interaction with agents is so critical in these formative years of jumbo Indonesian cases that we, the outsiders, are probably causing more confusion than order. The remarkable and admirable trait that is visible, however, is the Indonesian ability to cut through our foreign prejudices. There seems to be a very real desire by their underwriters to help the agents get the case through the maze while exercising the skills of a prudent company’s risk selection. It helps to have the field force so in tune with helping the companies succeed – it’s called ‘company loyalty’.

“Apakah itu keputusan yan benar?” For the unilingual audience that loosely means “Will the underwriter learn to ask the correct question first?” The question which he must ask himself first is Charlie Will’s question, “Does it make sense?” When he’s done that he is able to work intelligently with the agent because he can structure his own questions to the agent accordingly. The responsibility is then placed with the agent to truly listen and help expedite the issue of the policy to everybody’s benefit. Perhaps the penchant for underwriters to ask improperly structured questions and agents to impatiently listen to questions, even when they are the right ones, will not infect Asia Pacific.

As larger and larger cases are becoming the norm in places like Indonesia, there is the opportunity to learn from all of the older, but often not wiser, markets how not to make the same mistakes. They are in the enviable position of having all the modern technology and education without the hang-ups of Western ways. The rapport between agent and underwriter and underwriter and agent (just to show I can see the issue from both sides) could forge a common bond in this part of the world that rejects the worst of our own prejudices whose roots are already lost in the archives.

Agent and underwriter working together in Indonesia to fashion sensible guidelines for insurance interest and risk selection for the benefit of the life insured and insurer may be the greatest contribution these two contingents can muster in their life time. Now, that does make sense!