What we think
Some of our opinions below.
Underwriting manuals – strategic dilemmas (part 2)
We continue our discussion of the development and maintenance of underwriting manuals, and finish by considering what will shape the manual of the future.
Keeping the manual up to date
A manual is not a ‘launch and leave’ project and can quickly become out of step with changes in the wider environment such as:
- Legislative changes
- Product changes such as improvements to critical illness definitions; because these usually widen the cover being offered, changes to underwriting philosophy may be necessary – some applicants may even be no longer eligible for cover because they already qualify as a valid claim
- New or different information becoming available, whether as a result of a change in underwriting practice or the availability of new laboratory assays
- Competitor activity.
Technology changes at a very rapid pace. Software is updated almost continually and new versions of familiar packages come thick and fast. One is constantly bombarded by messages to install the latest versions of iTunes or Flash. Most manuals these days are made available to users over the Internet but this can bring problems from time to time as browser technology does not stand still for long.
Older versions of Internet Explorer that are rare on home PCs can still be found on company machines, providing headaches to developers of websites, and of underwriting manuals too. And, of course, Internet Explorer is not the only browser; there is Firefox too and Google Chrome is very much in the ascendancy. So a manual’s technology needs to be compatible with more than one product, and in consequence testing has to be done on various versions of various browsers, adding to the cost of development. These issues can assume greater importance as more users work from home.
Manual providers may come to the point where they find it impossible to support older browser versions or IE alternatives but, unlike software companies dealing with individual consumers, may find it difficult to say they no longer support XYZ browser.
Thus it is so easy for a manual to lag behind the pack and lose credibility with users when updates to the platform are infrequent and/or irregular. And of course content needs to be maintained and updated too. From manual user surveys we have done:
- Insurance companies do carefully monitor the content and the extent of innovation in manuals; what they find does influence their relationship with, and view of, reinsurers.
- A maintenance and development programme for a manual, covering content and functionality, is essential.
- Once a manual becomes out of date it is difficult to catch up. Carriers look to their reinsurers for guidance and if their expectations – influenced by competitors’ offerings – are not met then credibility may be lost.
Worksheets… and calculators again
Underwriters need some sort of worksheet on which to record salient points about a case and how they reached their underwriting decision. Some do this on paper and some use an electronic version which is part of their new business system or workbench. A number of underwriting manuals also provide this technology, often with the ability to ‘post’ ratings to the worksheet in much the same way as you populate an online shopping cart.
Some worksheets have been designed to assist with the submission of facultative cases, either by using the worksheet to summarise the case or as part of the covering information when case details are submitted using a secure file transfer site. Alternatively reinsurers have developed either their rules engine, or have built other systems to facilitate this process.
One area to consider when developing a worksheet is whether it sums the ratings or leaves this to the user. Should there be some sort of algorithm behind the scenes which deals with combination risks? Where rating factors are added together but there is no algorithm, is there a risk that the user thinks there is one and so does not engage his or her brain to think about the potential for combination effect? We believe that this risk already exists where a manual contains a cardiovascular (CV) risk calculator.
Some CV calculators now are no longer calculators that simply reference values in a couple of look-up tables and add those values together. Some now recognise that BMI and blood pressure are continuous variables, allocating ratings accordingly, and also recognise that knowing or not knowing one variable can impact another (for example blood pressure and lipids). Some employ an algorithm that is quite simple and uses simple risk factor scoring, whereas others build more complex mathematical models, often reflecting clinical algorithms derived from epidemiological and other studies.
But does complex mean better, and simple mean worse? Sometimes precision and complexity come at a price which results in there being no underlying tables to which an underwriter can refer to sanity-check the output of a calculator. Exam students often ask themselves which is more important: the result or the working out?
By knowledge management we mean the systematic capture and sharing of knowledge across an organisation so that it can be exploited by employees. Some companies have built their own knowledge management systems to store their knowledge, such as procedural notes, unusual enquiries or their own variations in underwriting philosophy.
Underwriting manuals can be integral to the knowledge management approach and may be used as a means to index and store information. But if an insurer relies on a manual supplied by a reinsurer, what happens if that reinsurer then takes the manual away in the event of termination of the reinsurance agreement?
So what of the future?
The world of insurance has seen enormous change in the last twenty years (or so one likes to think) and this pace of change is constantly accelerating, giving rise to a number of questions, such as:
- Experienced underwriters are increasingly fewer in number. How does a company capture the knowledge of its experienced underwriters for the decision-making process of the future? How does knowledge management fit with an underwriting manual?
- How does the manual fit with the new culture of talent management and continual professional development (CPD)? Is it a training tool in its own right or one piece of a larger jigsaw puzzle embracing on-line learning, knowledge management, CPD and informal learning to deliver a ‘just in time’ approach to knowledge and learning?
- Longer-term what will be the relationship between the underwriting manual and the underwriting engine?
- What will be the impact of predictive modelling to supplement or replace the traditional underwriting process?
- How do blogs, wikis, use of social media, informal networking and other collaborative ways of interaction have a place in the underwriting manual of the future?
With an increasing desire to differentiate, and increasing levels of consolidation in the industry, will more insurers decide to produce their own manual instead of relying on a reinsurer’s offering? And what will the underwriting manual of the future look like? The answer is that it will either be quite different to how it is are now or even unrecognisable, having metamorphosed into a more integrated approach to providing underwriters a wider range of tools needed to enable more efficient and effective risk appraisal.