THE FUTURE OF THE UNDERWRITING PROFESSION by Hank George

Caution: what you are about to read has been shown to induce panic attacks in head office underwriters!

What does the future hold for our profession?

This question is quite distinct from the future of underwriting as a practice engaged in by insurers. Clearly, many believe risk selection can be done adequately without humans…if not today, at some time in the relatively near future.

On May 4 I was given an opportunity to make a presentation on this subject in a venue I never thought possible: the main stage of the 2016 AHOU conference.

If the views of prominent North American underwriters were cast in political jargon, I would most certainly be situated at the far Left of that spectrum, as a radical advocate of acknowledging and confronting threats to our profession.

Thanks to the courage of a few fellow progressives in the AHOU’s executive group, I was provided with this unique forum to speak my mind on these sensitive and controversial issues.

This essay addresses those issues, which affect, to a greater or lesser degree, underwriters in all developed life and morbidity insurance markets.

Threats to Our Profession

 The number one threat to us is a phenomenon for which I coined a fitting term: clericalization

This insidious and slowly evolving process chips away at our status as a profession until we come to be regarded as little more than white-collar clerks.

Unless we recognize this and then act in our own best interests, we are destined to experience these predictable consequences of creeping clericalization:

  • Move down the corporate status chain
  • Endure lower salary ranges with less compensation and no bonuses
  • Work on a virtual production line
  • Receive few or no dollars for career development, including for participating in our associations and other learning/networking experiences

 We have already experienced two developments consistent with this process:

  • Higher paid underwriting managers made “redundant” through faux position elimination, followed by hiring or promoting someone paid less money to handle essentially the same accountabilities
  • Underwriters forced to reapply for their jobs to realize similar outcomes

 There are a number of key factors paving the road to clericalization.

When I surveyed over 90 North American underwriters, including those most actively involved in our national association’s activities, the consensus number one driver of clericalization was the growing perception that underwriters’ productivity is more important than the quality of their work.

With advent of innumerable metrics (including those derived from denigrating use of stopwatches to micro-measure each task), it is now possible to “slice and dice” every aspect of underwriter productivity. This has empowered those obsessed with grinding out business without regard to potentially unfavorable intermediate- and long-term mortality and morbidity.

The occupational “life expectancy” of insurer C-class executives, in particular CEO and COO, has shortened greatly from past decades. This, along with generous “golden parachutes,” allows them to focus largely on generating revenue – with its attendant positive impact on stock prices and executive compensation – because they are insulated against later adverse downstream consequences.

The notion of making the best decision possible through meticulous consideration of all risk-related information at hand, consistent with being a professional, has given way to making the fastest decision possible even if it means cutting corners in our assessments.

In other words, the underwriter who churns out, say, 20 cases a day is held in higher regard than the underwriter who does a lesser number but with higher quality decisions as reflected in the results of internal and reinsurer audits.

We are seeing a growing number of what we call “underwriting sweat shops,” where this mindset has resulted in factory-esque work environments.

To make matters worse, I hear repeatedly from peers countrywide that underwriters in unabashed sweatshops as well as other insurers are now expected to work 50 if not even more hours each week, on a sustained basis.

And the punch line here is that most who do so are not paid for these extra hours.

This is because employers have managed to expand the range of employees they can designate as “exempt” (from overtime, that is), notwithstanding the fact that “exempt” status was meant to apply solely to persons with managerial – not solely case production – accountabilities!

New business executives, with solid background in technical underwriting, are disposed to push back against the productivity-first mentality. That is, save for those who have thrown in the proverbial towel and are merely trying to tread water in order to survive until retirement.

Conversely, those who are bereft of risk assessment savvy and make light of the notion that underwriting is both a science and an art, readily embrace the productivity-based approach.

The Consistency Myth and “Dumbing Down” Underwriting

 One of the arguments fueling clericalization is exaggerating the importance of “underwriting consistency.”

Every veteran underwriter would likely concur that if two risks are essentially identical, the final decision regard insurability status should be same for both.

This said, we also know that, save for the least complicated and typically uni-dimensional cases, two risks are rarely if ever identical in all parameters.

Take for example two cases of cutaneous melanoma in 50 year-old males.

Both tumors shared the following identical features

  • Located on the trunk
  • Superficial-spreading type
  • Clark level III
  • Breslow thickness 0.85 mm
  • No reported abnormal mitotic activity
  • No reported ulceration
  • No reported metastases

Should the underwriting outcome be the same because age, gender and 7 shared risk criteria are all identical?

Before you answer, consider these additional factors:

  • One applicant saw his doctor because his melanoma itched and bled briefly; the other tumor was asymptomatic and incidentally noted by the physician during lung auscultation.
  • One applicant has a family history of melanoma in a parent and a sibling; the other had no family history of melanoma.
  • One pathology report noted the ulceration was absent and no mitoses were seen; the other did not comment on either factor.
  • One report cited nearly complete regression of the tumor; the other did not comment on regression.
  • One report noted a steeply vertical pattern of dermal invasion arising from one portion of the tumor; the other noted a more diffuse tumor without this prominent vertical growth phase feature.
  • One pathology report noted a robust lymphocyte response to the tumor; the other made no mention of this.
  • One applicant had a negative sentinel lymph node biopsy; the other did not have a SNL biopsy done.
  • One applicant had a prior melanoma in situ on his anterior scalp; the other had no prior melanoma.
  • One pathologist got a second opinion from a dermatopathologist specializing in pigmented neoplasia and the original diagnosis was affirmed; the other pathologist did not pursue a second opinion.
  • One applicant was previously treated with ultraviolet therapy for en plaque psoriasis; the other was not.
  • One applicant previously indulged in indoor tanning for 10 years; the other did not.
  • One applicant dutifully returned for advised follow-up visits with his physician over the ensuing 2 years; the other was too busy to keep appointments for this purpose.
  • One applicant used a smartphone app to send his physician pictures of the tumor site at intervals over the next 2 years; the other did not.

Would any of these additional considerations influence your decision…even if it raised the specter of “inconsistency” based on the risk parameters addressed within your guidelines?

For your sake, dear reader, I hope your answer is “yes.”

Does overemphasis of consistency equate to “dumbing down” the underwriting process?

Yes.

What about those so-called calculators that have become quite fashionable recently? Do they inadvertently (or otherwise) lead to the same end?

Yes.

Anything that serves to “dumb down” underwriting supports clericalization because it suggests that one does not need the skills and judgment of a professional to appraise risks adequately.

BIG DATA (Predictive Analytics)

 One cannot go to an industry gathering these days without being bombarded with information, often lathered with hyperbole, about the wonders of BIG DATA and how they will transform, among other things, the underwriting process.

In many cases, one of the arguments advanced by those who would profit handsomely from the embrace of their predictive analytics model is that it reduces or eliminates altogether the need for traditional underwriting…and, by inference, the need for underwriters in equal measure.

Aside from the fact that one can easily debunk many of these so-called “resources,” what matters is that top management has become outspokenly enamored of many BIG DATA schemes.

And in most cases, these executives know little or nothing about risk appraisal, which increases their gullibility exponentially.

We have made a commitment that our underwriting practices will give a wide berth to factors we have deemed off-limits in the risk assessment process. These include matters related to relative socioeconomic status, marital status, race/ethnicity, religion and sexual orientation. Because we use the same premium rates for males and females, one might add “gender” to this list as well.

Upon closer inspection, many BIG DATA schemes compromise this commitment, often to an egregious extent.

There are many credible uses of predictive analytics in risk appraisal that genuinely enhance the underwriter’s capacity to appropriately appraise risks. These are legitimate assets and they do not threaten us.

However, there are others – most notably, here in America, use of personal purchase records – that do have ominous implications for our profession as well as how our industry is perceived in the marketplace.

Sadly, there have been many instances when chief underwriters have failed to challenge the “merits” of even the most obviously inappropriate analytics, undoubtedly because they feared for their jobs. I believe it is an appropriate accountability of our professional associations to take a stand on some of these flawed offerings.

Unconsciously Undermining Our Own Interests

 Several years ago, I was asked to consult with a medium-size life company that was in the process of developing a new life product.

At the first gathering of the project team, I was taken aback by the absence of persons from the carrier’s underwriting department. I asked the team leader why none of the folks from underwriting were present.

After a bit of hemming and hawing, this individual, who happened to be an actuary, said that they decided to proceed without input from the underwriters because “every time we have tried to work with them in the past, all they did was push back against each new approach on the table for discussion.”

“Impossible!”  “Can’t be done!” “Won’t work”

And so on.

If we want to retain our status as professionals, the last thing we should do is adopt this approach when asked for our input on new ideas.

Yes, many of the concepts aired out will not have merit when further vetted.

However, listening carefully, discussing matters amongst ourselves and then responding in a way that reflects favorably on our judgment will do a great deal more for other status as professionals than being perceived as spontaneous and intransigent naysayers.

One excellent example of this phenomenon is what is currently happening here with electrocardiograms as screening tools.

Until quite recently, all insurers had age/amount (sum insured) thresholds where ECGs were routinely required. We rely heavily on paramedicals and ECGs can be done in conjunction with these exams.

Now, with our expanding emphasis on making the customer journey, if you will, as “painless” as possible, most insurers have cut back substantially on ECG use.

There are some underwriting executives and medical officers who have bucked this trend, insisting that we must not stop using ECGs, despite the fact that we have a faster, cheaper and better alternative with the blood test NT-proBNP.

NT-proBNP has more comprehensive documentation of risk appraisal value than any medical underwriting asset in history. Therefore, it is simply (and in part accurately) assumed by others that this passionate defense of the ECG is based in the notion that the ability to interpret ECGs somehow embellishes our professional status!

When we cast ourselves in this unflattering light, we undermine our future prospects.

What Can We Do to Stem the Tide of Clericalization?

 I addressed this question in my May presentation from a North American perspective. Some of my admonitions are less important elsewhere for a variety of reasons.

For example, I urged AHOU to be 100% transparent as regards what it shares with its members. Suffice to say this has not been the case literally throughout our history and the situation has, if anything, deteriorated since AHOU was created out of the merger of its two predecessor organizations.

As a member of ALUCA, I intuit that this is not a significant issue on your side of the Pacific!

I believe the primary thrust of our organizational activity must be to promote the interests of our profession at every opportunity and with substantial energy and resource dedication.

We must do everything within our power to assure that everyone of influence in the industry knows what we do and why our profession is important to the success (or perhaps, to better get attract their rapt attention, the “profitability”) of the life insurance industry.

When we see what the US actuaries have achieved in this regard via the robust activities of their national associations, it is obvious why they do not need to trouble themselves with clericalization angst.

There is far too much apathy in our ranks.

It is most evident in our several dozen state and local underwriting associations. Most have poor turnouts for their events, operate on a “shoe string” budget and suffer for lack of members stepping up to assume positions on their executive committees.

There are a number of plausible explanations for this profound malaise and little is gained from dissecting them. What does matter is taking every option at our disposal to get underwriters’ attention and make them understand why their lassitude is unwittingly undermining their own best interests.

Another largely ignored opportunity is to forge international connectivity among underwriters. This is best accomplished at the organizational level and the good news is that most countries or at least regions with robust life insurance industries have underwriting associations.

The International Underwriting Congress (despite a string of highly successful events on three continents) and “lifeunderwriting.com” (founded by an Australia visionary) both crashed and burned, each for their own reasons.

Meanwhile, medical officers have ICLAM and actuaries have several global associations facilitating networking and, to a greater or lesser extent, the exchange of ideas and maintenance of connectivity between conferences.

ALUCA is the first national association to reach out meaningfully beyond its borders to create a larger professional community. As groundbreaking as it is, this huge achievement is nevertheless just the tip of the iceberg of what is needed.

I have offered my services to AHOU and its sister organization called ALU (Academy of Life Underwriting) to put together – pro bono – what would likely be the first comprehensive list of underwriting associations worldwide. It would include contact information for its leaders and other essential organizational details, thus enabling further steps to be taken to establish connectivity on a sustainable basis.

My offer was declined with the assurance that this would be done by one or both of these organizations.

Three years later, nothing has been done.

Frustrated by the utter lack of any dialogue between AHOU and our medical officers’ association (AAIM), I organized the Medical Director/Underwriter Discussion Group. Within a month, there were 20 committed members and we met for the first time last June.

Our purpose was to discussion issues perceived by members as either threats or opportunities for both professions.

As a direct result of that meeting, AHOU and AAIM executives met in September 2015 to create ways in which they could work together. It boggles the mind to think that despite coexisting in the same space – risk management – for God knows how many decades, neither these groups nor their predecessors had ever held such a meeting!

Our discussion group is meeting again the second week in June to continue its exploration of issues impacting both professions. Hopefully, this second meeting will catalyze further initiatives.

In the UK, the quite successful LUCID conferences were also the result of joint efforts between medical officers and underwriters.

Our problem is that while many in our midst could spearhead such initiatives, hardly any are willing to do so. While this unfortunate reality is by no means unique to our profession, we can ill-afford for this to persist, lest our few activists pass on with no one to take up the fight.

What is the Bottom Line?

 I did not do any prognosticating in my AHOU presentation. That was neither the time nor the place to comment on this question, which is whether we have already passed the tipping point.

Is clericalization now inevitable?

Will our profession go the way of the chimney sweep?

If you put a pistol to my head (which is far more likely to happen over here given our misguided affection for weaponry!) and forced me to answer to save my life…

…I would say, yes, it probably is too late, that is, absent a substantial and determined effort on the part of more than one or two true believers to turn the tide.

Those who step forward – assuming anyone does – would would need high energy, thick skins and sufficient job security.

Indeed, working for an insurer could be an absolute contraindication to this level of activism for reasons that need not be spelled out.

We have one true believer and he confesses to not as yet hearing the hoof beats of the fabled Four Horsemen.

Do we have others able to work on a global level?

If not, then at the very least, we must have individuals willing to work relentlessly within their respective organizations locally, nationally or regionally to affect essentials changes on what is clearly a time-sensitive basis.

Because, my fellow professional underwriters, if we continue with the status quo, we are [inappropriate language deleted]

Hank-George

Hank George FALU

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