Understanding underwriters

Risk

The impact of smoking is well understood, but that of alcohol less so. Use of cocaine and cannabis seems to be endemic in some parts of society and the prevalence of HIV is rising sharply.

Underwriting managers need to know how they are spending their money and on what. Understanding the cost-effectiveness of each component of the underwriting process is essential. They need to spot trends in the business and the way it is handled and be able to relate insured experience to underwriting action.

This means far more detailed management information than is currently available. Ironically, life and health insurers know very little about the risks they insure.

And it is time to know more. While mortality overall might be improving now, will it always be so? One scenario involves mortality improvements for those able to minimise risk factors, matched by a flattening or even an increase in mortality in those who adopt unfavourable lifestyles – which, arguably, many of us do these days.

With more variable mortality in prospect, life assurers need a better understanding of what they are accepting and to monitor the emerging experience, while ultra-thin margins mean it is important that risks are priced accurately.

So, underwriting and risk pricing need to get smarter. That sounds like tightening things up – and it is. But good underwriting works in the interests of clients and advisers, as well as of insurers. As we have seen, the future should be brighter for the first two groups. But it could be brighter still.

Currently, the life company is underwriting’s sole direct beneficiary. Giving it an overhaul offers scope for turning underwriting into a virtue.

Knowledge gained during the underwriting process could be put to further use, either in the context of the clients life and lifestyle through added – maybe non-insurance – benefits, or to give a range of insurability options.

Who knows, one day applying for life or disability cover could even be an experience the customer is happy to undergo.

Peter Maynard is founder and director of Two-Twenty Marketing