The Younger Members Convention

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The Younger Members Convention
abcd

• 2-3 December 2002
• The De Vere Daresbury Park Hotel, Warrington,
  Cheshire

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Underwriting Awareness for ActuariesorPricing
is just one small part of the fun!
abcd

• Debbie Akers
• Chief Underwriter , Friends Provident

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Why Underwrite?

• Choice
• Social Insurance
• Commercial Insurance
• Adverse Selection
• Ability to price
• Protection of profit

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Importance of Underwriting

• The underwriter is in a pivotal position in
  maintaining company profitability
• Maybe 90 of cases are accepted at Ordinary Rates
  but behind the OR decisions can lie hours of
  intensive and expert analysis
• Proposals need to be accepted on terms which are
  equitable and which mirror the actuarial
  assumptions made when setting the pricing.

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Agenda

• The insured risks
• Gathering information
• Constraints and Threats
• Control Cycle
• Reinsurance
• New Issues

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Agenda

• The insured risks - theres a product under there
  somewhere
• Gathering information - protecting the experience
• Constraints and Threats - the interesting
  challenges
• Control Cycle - actuaries and underwriters really
  get together
• Reinsurance - more actuaries and underwriters get
  together !
• New Issues - incl the G-word

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What is the risk we are insuring?

• Death Terminal Illness
• Critical Illness
• Disability - TPD, WOP, IP

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Who are the lives we are insuring?

• Target market
• Sales process

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Exactly what will trigger a claim ?

• Disability Definition Occupation based
• Own / Any / Suited
• Disability Definition Activity -based
• ADL / ADW / FAT / IAT
• Critical Illness - very detailed definitions!
  and of course
• Death or Terminal Illness

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Some things which wont - contractual exclusions

• Suicide / self-harm
• HIV / AIDS
• War / Terrorism
• Drug Abuse
• ?

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How thorough is the Underwriting ?

• Extent of questions - not number but content
• Threshold for obtaining further evidence
• What we do with the information

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Gathering Information

• Application form
• Personal details
• Age / Height Weight / Smoking / Alcohol /
  Occupation
• Pastimes
• Medical/ Mental and Outline Family History
• Financial factors
• Residence/Travel

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Gathering Information

• Application form
• Questionnaires
• Expert Underwriting Systems at point of sale
• GP Report
• Hospital Letters
• Nurse Screening
• Medical Examination
• Tests eg blood profiles

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Information gathering

• Triggers for further evidence
• Type of cover
• Size of benefit
• Age
• Expiry age
• Disclosures

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Medical evidenceBalancing the costs and
benefits

• Costs
• Admin of requesting / chasing evidence
• Fee for evidence
• Underwriter time
• Risk of NTU in the meantime
• Annoying the Adviser
• Benefits
• Managing premiums and liabilities ie
• Avoiding the very high risk claims
• Receiving a fair premium for the moderate extra
  risk

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Assessing the evidence

• Reassurer Manuals
• Companys own manuals
• Reference sources
• Accumulated underwriter knowledge
• Chief Medical Officer
• Reassurer - underwriter/CMO

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Extra Risk

• extra mortality/morbidity - eg high BP
• per mille extra - eg scaffolder, cancer
• exclusion - CI - Exclude MS if history of optic
  neuritis IP - Exclude claim from upper back
  pain
• Restrict Term
• Remove options
• Postpone
• Decline

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Distribution of Decisions

• Old days
• 95 OR
• 4 Rated
• 1 Decline
• Now
• Life - 92 / 6 / 2
• CI - 88 / 9 / 3
• IP - 74 /18/ 8

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Regulatory Constraints on the Freedom to
Underwrite

• Disability Discrimination Act
• Data Protection Act
• Access to Medical Reports Act
• Sex Discrimination Act
• Race Relations Act
• ABI Code of Conduct on Genetics and
  Confidentiality
• ABI Statement of Practice on Underwriting
  HIV/AIDS
• Ombudsman

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Threats

• Adverse Selection
• Non-disclosure
• Moral hazard

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Plugging the Gaps

• Range of questions
• Precise wording
• Continuing duty of disclosure
• Underwriters nose - picturing the whole case

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Ombudsman

• Reasonableness not legality
• Simple view - ordinary person
• Non-disclosure -
• related / unrelated
• innocent / negligent / fraudulent
• Opportunity forgone
• Small print / catch-all questions
• Financial Adviser influence

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Control Cycle

• Pricing
• Underwriting
• Claims

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Control CycleProduct Development

• Teamwork
• documentation - policy conditions / KFD /
  application form
• pricing - mortality / morbidity expenses
• launch training - sales etc

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Control CycleFollow -through

• Controls on underwriting
• FSA Delegated Authority - Approved Person
• training
• authority
• audit
• Management of Claims
• Verifying and monitoring claims
• Identifying non-disclosure
• Identifying weakness in underwriting or
  documentation
• Experience Analysis

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Reinsurance

• Quota share treaties align interests closely
• Reinsurance terms depend on their view of
• mortality/morbidity experience
• underwriting skills and controls
• claims handling
• Underwriting today impacts profit -
• today - direct immediate impact on Value of New
  Business
• and tomorrow - future reinsurance terms
• later - eventual Embedded Value

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Genetics

• Issues for Insurance Underwriting
• History
• Differing views - discrimination, fairness,

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Professional interest

• Genetics and Insurance Research Centre
• Herriot-Watt
• Institute/Faculty Genetics Group
• Sessional Paper on Social Policy Issues
• Feb/April 2003

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Genetics

• Issues for Insurance Underwriting
• History
• Differing views - discrimination, fairness,
• Current Moratorium
• Future

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Evidence - based underwriting

• Sources of data
• Actuarial models
• Resource availability!
• Reassurers
• Direct Writers

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Review

• The insured risks - theres a product under there
  somewhere
• Gathering information - protecting the experience
• Constraints and Threats - the interesting
  challenges
• Control Cycle - actuaries and underwriters really
  get together
• Reinsurance - more actuaries and underwriters get
  together !
• New Issues - incl the G-word

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Summary

• A U SPB
• Actuaries Underwriters Sound Protection
  Business
• AUCM SPB - and Claims Managers too!

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