If only this savvy perspective were more widely held amongst both chief underwriters and senior management!
One of my personal business “mantras” was carved into marble at the home office of my first insurance employer, Northwestern Mutual:
“He who stops getting better, ceases being good.”
The validity of this statement knows no bounds.
In order to get better at risk assessment, we have to keep learning and expanding our skills.
There is no “option B.”
Why is underwriting education at risk in difficult economic times?
Because it is “low hanging fruit!”
When CFOs are charged with slashing spending, it is always the “low hanging fruit” which go first!
Why is this approach a textbook example of “penny-wise, pound-foolish” management?
Because most insurers are faced with heady competition to solicit, place and retain high quality business.
In the past, a good share of profitability came from investment gains. Today, the driver of most insurers’ bottom lines is mortality/morbidity gains. In order to realize such gains, you need consistently excellent risk selection…
…and consistently excellent risk selection requires much more than a current and reasonably complete underwriting manual.
80%+ of insurers use manuals provided by their reinsurers. The odds are high that your competitor is using quite similar – if, indeed, not identical – guidelines.
Therefore, the difference lies in the knowledge, skills and judgment the underwriter brings to bear when applying those guidelines…the ability to see each case in its fullest context.
No two cases are alike.
And no manual can possibly account for more than a small portion of the contextual circumstances that come together to optimally determine insurability on any given case.
The difference between “rote” underwriting and “intelligent” underwriting comes down to the length and breadth of the underwriter’s knowledge.
Given the foregoing realities, how can insurance executives ultimately accountable for profitability countenance cutting out education and training to save – relatively speaking – a mere pittance?
Can in-house resources satisfy the education and training needs of underwriters?
In a perfect world, that is.
In the real world, however, the very people with the greatest aptitude for education and training are the same individuals who bring the most to bear in production.
Whenever chief underwriters consider tending to their education needs solely with in-house resources, they are obliged to balance the REAL costs of doing so against other potential uses of the assets they would need to use to make quality education happen.
The majority of continuing education for underwriters is, by necessity, medical.
On an in-house basis, medical continuing education is likely to be provided largely by medical directors.
Most medical directors I have known – and I have known a lot of them over 35 years – have excellent expertise in most or all domains of clinical medicine and can effectively translate that expertise into viable continuing education for underwriters.
This said, the question must be asked: is this the best use of their time, relative to their other contributions to the company?
The most important contribution most medical directors make comes when they give advice and counsel on cases.
In addition, they are accountable for maintaining medical underwriting standards, giving input on changes in requirements, dealing with questions and challenges from clinicians who respond to decisions made on their patients’ insurability, interpreting at least exercise (if not most or all) ECGs, playing a key role in broad policy-setting, and on and on.
Perhaps an example will illustrate the disadvantage inherent in diverting medical directors from these pressing tasks in order that they might manufacture and present continuing education.
My 2010 CE course on underwriting malignant melanoma is based on over 300 articles, reports and studies published in the worldwide medical literature. It took me over 50 hours to find, review and select content from these sources; then, to write and edit this course.
Assuming a salary/benefit package of $200,000 per year, it would cost the company approximately $5200 for a medical director to do the equivalent preparation.
That’s not all.
That medical director would be “out of production” as regards all of his other accountabilities and his contributions would have to be taken up by others. Conservatively speaking, this would drive the total cost over $8000.
The cost of this course as part of our CE program is $278…which is 1/28th of the cost of preparing it in-house!
That’s still not all.
To prepare an 18-course program akin to my CE would cost over $140,000 in direct labor charges…as compared to $5000 by enrolling in my program.
Just imagine asking a medical director to spend 900 hours per year cloistered in his office preparing 18 medical underwriting training courses. How long before he, quite literally, fled for a less onerous position?
What external resources are out there to provide underwriting education?
The “big picture” answer is: not nearly as many as in the past.
Veteran underwriters in North America can remember a time when reinsurers lavished educational resources upon their clients. They did it because profit margins were robust and they had far less staffing pressure than they do today.
Some service firms also offered a great deal more back then in the way of educational perks for higher-volume clients…but most of this has drifted into the mists of history.
The ALU education program, considering it is based solely on the unrelenting efforts of devoted volunteers, is far more than merely adequate as a platform for attaining the AALU and FALU designations. It is not, however, a continuing education program for a number of fairly obvious reasons.
There are a number of publications with excellent educational content such as On the Risk, Risk-e-Business, some reinsurer publications, Hot Notes, etc. Underwriters learn from reading what is in these periodicals…but this also should not be mistaken for continuing education.
Most underwriting conferences include technical sessions. Some are excellent; others frankly tedious.
Those which are adequately prepared and well articulated invariably succeed in passing along quality content, a portion of which has some prospects for being retained for a period of time.
The bottom line, however, is that these lectures are not the same as well-executed continuing education. Rather, they are best seen as updates from which motivated underwriters – assuming they are permitted to be present – will acquire some knowledge.
For continuing education to accomplish its mission, 4 elements must be present:
- A sufficient database to assure accurate and complete coverage of the topic
- An expert educator adept at selecting the most pertinent content without enmeshing the participant in irrelevant detail of little or no value in their work
- A format conducive to easy learning and high retention
- An efficient way for participants to gauge whether they learned, understood and retained key content
These elements are by and large absent from all of the aforementioned external educational offerings.
Cobbling together diverse content from these sources to serve as the sum and substance of continuing education is certainly far better than ignoring education altogether.
On the other hand, it is little more than a “last resort,” worthy of consideration only when onerous budgetary restraints make superior solutions untenable.
What can a chief underwriter who believes in the importance of continuing education do to meet his needs in these difficult times?
The answer is deceptively simple.
Make a case for investing in continuing education such that neither his boss nor others in senior management will push back against an affordable strategy that meets the company’s continuing education needs.
Like everything else these days, it all comes down to ROI.
Characterizing ROI from education is challenging due to inherent subjectivity.
Someone who does not understanding underwriting and cannot apprehend its contribution to the bottom line may dismiss arguments – however well framed – which cannot be reduced to objective cost vs. benefit.
One unerring example of ROI from continuing education derives from its impact in two domains: identifying bad risks which would otherwise have been approved and identifying good risks which would otherwise have been rejected.
Here is a classic example of the first impact.
We have yet to see one underwriting manual that correctly identifies the disturbing adverse risk associated with extensive/complete regression in a certain prevalent subset of skin melanomas: “thin” level III and IV lesions.
Because they are “thin” – based on measured thickness – they are underwritten favorably in the absence of ulceration or lymph node metastases. Their level of invasion is discounted on the premise that thickness trumps level of invasion.
However, the extensively/completely regressed level III or IV melanoma does not behave like other “thin” lesions. It has a high prevalence of silent lymph node metastases, and both cutaneous and systemic recurrences.
Any underwriter who took our course on melanoma would spot these cases and postpone them for an appropriate interval.
As a result, incipient death claims would be avoided.
There are hundreds of other examples like this, where having access to the latest and most comprehensive medical knowledge gives underwriters a huge competitive advantage…
…a competitive edge which goes right to the company’s bottom line.
We can state unequivocally: any company whose underwriters participate in our CE program should expect to save 50- to 100-times the cost of enrollment just in terms of the present value of bad risks they would otherwise not have identified.
Now that is formidable ROI, the equal of that attributable to most commonly-used underwriting screening tools.
Will underwriting education and training make a “come back” in the years ahead?
Yes…because these things inexorably run in cycles.
With the increasingly proliferation of “underwriting engines” which are capable of facilitating straight-through processing of the majority of most companies’ new business, underwriters will have more time to hone in on cases which cannot be resolved on this basis.
As more and more of underwriters’ time is focused on the most difficult cases, the urgency of continuing education will become more and more apparent.
Another factor which will propel the embrace of continuing education – for now in North America and eventually worldwide – is the growing sophistication of the brokerage market.
Some of our finest underwriters have been recruited by brokerage agencies to act as advocates for the business they manage. To do so, these ex-home office underwriters must deal one-on-one with their peers working for insurers.
In order to minimize the risk of costly mistakes, home office underwriters will need to be as knowledgeable as their “adversaries” working for advisors.
In a recent survey, chief underwriters were asked to identify what they consider to be the leading source of antiselection.
Twenty years ago it would have been applicants.
Now, the substantial majority say it is producers (our word for brokers, advisors and agents).
In order to sustain mortality gains, insurers will need to make sure that their underwriters are as knowledgeable as possible about developments in medicine which impact insurability, not to mention as fluent in RED FLAGS and WORST CASE factors which transform what appear to be very good risks…
…into a very bad ones!
In summary, things are certain to lighten up sooner or later where budgeting for continuing education is concerned.
In the meantime, chief underwriters need to be aware of all potential solutions to their continuing education needs and make the best choices.