Underwriting – A Timeless Art Or A Vital Science
London Coffee Shop To Designer Babies – What Does It Mean For Advisers ?
In February 1688, Edward Lloyd’s Coffee House in Tower Street was referred to for the very first time in the London Gazette. The article declared a reward for a stolen horse and encouraged anyone with information to contact Lloyd at his shop in the City. The lost ten-year-old chestnut mare was described as having a white stripe down the nose and white hind feet. She was believed to have been taken by a rather insalubrious gent with ‘black curled hair, Pockholes in his Face, Wearing an Old Brown Riding Coat, and a black Bever Hat’.
It was an early sign of insurance, or at least reward. Nevertheless, what Lloyd’s coffee house specialised in, was information about shipping. At this time, there were more than 80 coffee houses within the City of London’s walls; each one was a centre for entrepreneurs and merchants, and each had a specialist interest to offer. A driven man, Lloyd made sure he provided intelligence second to none.
It seems something of a far cry from today’s sophisticated underwriting but nevertheless the principles remain very much the same as they did in the 17th century. If we look at definitions of an underwriter we are told that they decide if applications for insurance cover (risks) should be accepted and, if so, what the terms of that acceptance are. They assess risk according to the likelihood of a claim being made by weighing up a number of factors and asking for detailed information from prospective clients (policyholders). The aim is to minimise losses for their company and help to make a profit.
It sounds pretty straightforward but in today’s life market with the demand for competitive premiums by brokers and aggregators alike, getting the risk right between setting the correct premium rates and trying to keep claims at a manageable level is far from easy. Even with the wealth of information underwriters and actuaries have at their disposal getting the balance right is no mean feat. Add in to that mix the desire for profitability from the insurers based on their own return requirements and we start to see the reasons why there is such a variance in premium rates from insurer to insurer.
Looking at the advances in medical science, we know that people are living longer but that same desire to know about the inner working of our bodies has also brought about the phenomenon of genetic testing. A genetic test is a medical test that identifies the content of an individual’s DNA. The results of a genetic test can confirm or rule out a suspected genetic conditions, or help determine your chance of getting or passing on a genetic condition. Genetic test results, like other test results, can help insurers to assess your risk and set the level of cover and the cost of the premium you will have to pay.
This technology could also encourage the yielding of a “perfect child” or “designer baby”. Genetic screening can be done on embryos or foetuses in order to determine how susceptible the child is to genetic disorders such as down syndrome or cystic fibrosis, and there is a serious ethical issue as to whether a parent should be allowed to abort their child if they test positive for one of the “undesirable disorders”, because isn’t this itself a form of selective breeding?. If we bring all this back to the Life Assurance industry there is a danger that knowing the results of a genetic test could have issues around selection and blow the principles of insurance clean away.
For now, the ABI state "The Concordat and Moratorium on the use of predictive genetic test results works well for consumers. It means people can insure themselves and their families, even if they have had an adverse result from a predictive genetic test. The moratorium has proved effective since its introduction in 2001 and has now been extended to 2017."
The moratorium means the results of a predictive genetic test will not affect a consumer's ability to take out any type of insurance other than life insurance over £500,000. Above this amount, insurers will not use adverse predictive genetic test results unless the test has been specifically approved by the Government. Only around 3% of all policies sold are above these limits. The only test that is approved is for Huntington's Disease.
We will wait to see what comes of this in the future…
For today we know that Insurers use as much information as possible to determine loadings and premiums and they use the most sophisticated information available to them to assess risk.
Insurers like Ageas strive to ensure their online systems and underwriting make it easy to submit, track, manage and complete new business. They provide real-time status updates, automatic chasers and details can be changed online, even after cover starts. Their online approach is supported by a bespoke service providing flexible expert underwriting and timely administrative support to IFA firms.
All these sophisticated systems mean that underwriting turnaround times from them are amongst the best in the industry:-
- 63% of all applications get an immediate decision;
- 81% get a decision within two working days;
- 93.5% get a decision without us contacting the GP.
Because more of the work gets done by the systems more effort can be put in to service leading to impressive service turnaround times:-
- 95% of referrals to manual underwriting are dealt with within 4 hours
- 98% of additional evidence is assessed within 2 days
- 96% admin correspondence is dealt with within 2 days
Zurich take a real “common sense” approach to underwriting. As one of the champions of the underwriting cause in the UK Life Market, they have taken the step in abolishing a 25% loading in to their underwriting process and therefore minor ailments that may receive ratings elsewhere are normally disregarded and ordinary terms are the norm most of the time – indeed 80% of all Zurich cases are offered at standard terms.
This is something advisers should think about when looking at pricing on their quotation systems especially when pricing is a few percent out of the “cheapest” rate when they can see from applications that clients do have potential issues.
They have a number of pocket guides that are available to support field based advisers at point of sale which give indications of how such ailments as high BMI levels are likely to be dealt with from an underwriting perspective. These are available here.
They have also taken an innovative approach to looking at certain medical conditions that previously would have resulted in loadings or total declines.
They have offered clients with Type 2 Diabetes ordinary rates as long as other health issues aren’t too serious and are proud of the fact that only 3% of all applications are declined.
Bright Grey have also been working hard to improve their service levels, in order to provide IFAs with a more personal service. You might have seen that they were awarded 5 stars in the Financial Adviser Service Awards 2014.
They now give you a dedicated case manager and underwriter who’ll look after all your cases from start to finish when you submit an application to them. This allows them to build a relationship with you and understand what’s important to your business. Likewise you can get to know them and can rely on them to help when needed – indeed, you can speak to an underwriter at any stage and they’ll also explain their decision to your clients if you want them to. Paradigm firms have also found it useful that any pre-sale underwriting queries - for example for clients with more complicated medical histories – will be dealt with by the same underwriter.
Because their underwriters and case managers work together closely, everyone is kept better informed on the progress of applications which is particularly important to ensuring a positive outcome for your client. They strive to keep you updated on the progress of applications every step of the way meaning that you can pass on regular updates to your clients as well.
Bright Grey also understand that if your client needs to make a claim, it will be because something devastating has happened, therefore, they’ll make sure that your client only needs to explain what’s happened once. Don’t forget, if you’ve sold Bright Grey’s menu or relevant life plans to your clients, they can access a wealth of information and support whenever they need it from Helping Hand; your clients and their immediate families can use it any time, for as long as they need it. Even if they don’t make a claim or even if they do and the claim is declined.Find out more here so that you can help to show the value of your advice; you'll be giving your clients quality cover and exceeding their expectations with this additional support service.
Access to all main Provider sites with a wealth of sales support on underwriting is available via www.paradigmprotect.co.uk and all Paradigm Protect staff are available to support underwriting queries
If anyone has any positive or negative experience of Provider underwriting please let us know and we can pass that on
All it remains for me is to say have a Happy Christmas and a HEALTHY and Prosperous New Year from all of the Paradigm Protect team.