Insurance Underwriting

Hi everyone, we are at the start of season 4 of the podcast and we are taking a deep dive into underwriting manuals.

In the first episode I have Peter Maynard with me from Select X, talking about his career in underwriting. We chat about what an underwriting manual looks like, the types of risk that they include, how underwriters use them and the role of automated underwriting.

The key takeaways:

  1. Automated systems are good, but you can’t beat a human underwriter!
  2. Underwriting manuals are technical guides of how to assess risk, but there should be some wiggle room in decisions.
  3. The more you know about a person’s ‘risk’, the more likely you are to get a realistic indication of insurance terms.

Next time, Roy McLoughlin is back with me for his first outing of season 4.

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors Octo Members.

If you want to know more about how to arrange protection insurance, take a look at my Protection Insurance in Practice course here.

Kathryn:       Hi everyone, this is episode one of season four and today we are kicking things off with guest Peter Maynard from Select X.  Hi Peter.

Peter:          Hi Kathryn.

Kathryn:       Today we are talking about how underwriting manuals are developed, how these are used by insurers and the role of manual and automatic underwriting.  This is the Practical Protection Podcast.  So Peter, how are you doing today?

Peter:          All well, thank you.

Kathryn:       Good.  I think – I don’t know about you but the weather seems a little bit – I think we’ve had our British summer up here in the North.  I think we’ve had a good three days of sunshine and that’s probably us, we should count ourselves lucky, really, maybe.

Peter:          Well, I think we’ve had our three days down in the South as well.  So I’ve resigned myself to autumn now.

Kathryn:       Yes, I think that’s probably a good idea.  Very, very good idea.  It sounds terrible, but I’m hoping my eldest son’s football match is not on today, I don’t fancy standing out in this at the moment.  So to start everything off then Peter, if you can please just start off by telling me a bit about yourself and your background with underwriting please.

Peter:          Okay.  My background goes back more years than I care to admit to.  My career before Select X was really in reinsurance and I ended up as Head of Research for SwissRe.  But I got there via a lot of underwriting, plus some product development, some marketing, some marketing research and corporate planning.  Importantly, from the point of view of our conversation today, I wrote and was involved in creating and revising a number of underwriting manuals.  And given that I worked for M&GRe which was taken over eventually by SwissRe, which was the biggest reinsurer at the time and I’m really talking about the late 1980’s, sorry the late 1970’s and 80’s, you could say that together with Dr. Brackenridge, who is one of the best-known consulting Medical Officers ever and not just in the UK, but he had worldwide reputation.  Together with him, we influenced the underwriting policy for the – for much of the UK market.

And really, those days I should think were quite exciting in terms of underwriting because we were then pushing the boundaries of insurability and consolidating life  writing as a science, rather than a combination of art and taking a bit of a chance on risks which weren’t normal.  You know, prior to that, insurers had been quite wary of risks like diabetes and high blood pressure and coronary heart disease – risks which, for the most part, we take not exactly as routine and run of the mill, but you know, they aren’t regarded as that exceptional and that much of a problem.

Kathryn:       I think – obviously thank you, you know, it’s really interesting to hear how that sort of like all comes together in many ways.  As an advisor, I kind of – I know what an underwriting manual is, but I also don’t really have a clue.  I think a big thing for me is I’m quite a visual person, so I kind of also want to know ‘what does it look like?’  I kind of imagine, I know you mentioned Dr. Brackenridge then, I have one of his books from I think it’s about 1975, Steve Casey recommended I get it and it’s fascinating to look at it and I’ve got my team sort of reading some of the chapters just to see how much knowledge and understanding has developed and how things were approached in a different way.  Very much so you can see it in the chapter that covers HIV.

The things that would be asked back in the 1970’s, compared to what they’re asked now and the types of ratings that would happen, obviously far, far different, but I imagine that also comes down to us having a good, well 40 years’ worth of data to hand.  I think in my mind, I kind of see – I automatically picture underwriting manuals as either a great big tome or as like a spreadsheet with numbers and if and or statements in them.  I imagine that’s probably – I’m probably sort of like not in the right area at all, but what do they look like?

Peter:          Well you mentioned Brack’s book and Brack’s book used to be known as the ‘Underwriters Bible’ if you like and that’s how an underwriting manual is to some degree.  It’s more of a tome than a load of spreadsheets but they are online these days and they’re not paper.  There are probably more words than figures in the sense that the underwriting manual is a comprehensive compilation of risk factors – so, medical, occupational, sports, travel, that sort of thing.  There’s a description of the risk which might vary in extent.  There’s reference to the risk’s significance, which is why underwriters should be interested in it and what the prognosis is.  The sort of risk information which is required to enable an underwriter to reach an underwriting decision and then there are the rating guidelines for a variety of benefits, so typically, life insurance, income protection, critical illness and a range of additional benefits like accidental death – we’ve a premium –total permanent disability, that sort of thing.

So the idea is that primarily it’s a set of realistic practical guidelines for underwriters.  It’s also used as a training resource as well, so if you’re an underwriter starting out on your journey, almost the more information the better.  So it’s a good way of learning about those risks which you’re unfamiliar with.

Kathryn:       It’s quite interesting because say like for me when I – so I train my team and they have to be trained in – obviously I’m in the advisor space, but they have to be trained in medical information.  Probably very similarly I think to underwriters and to some extent the knowledge when it comes to medical conditions.  I do think underwriters in some areas are going to have much more in depth knowledge and you know, possibly some of our team would have more knowledge in some other areas as well.  But it’s interesting, because what I would do, say if we take the diabetes example, you know, I train all of my team, you know, it would be things like, when was the diagnosis, what type of diabetes, what’s the HBa1c, is there high blood pressure?  If so, what’s the reading, when was that taken, the same for cholesterol – reading, when was it taken, what medications are they on, if any?  You know, are they – do they have any retinopathy and then going into that side of things and then do they have any neuropathy going into that side of things?

So we will come with this big bundle of information for an underwriter and I suppose it’s quite interesting to sort of like think – say in my mind I imagine a kind of like a – maybe just like a Word document or something, but with, like some kind of ‘if statement’ so say like the person has diabetes, “Right, so if the HBa1c is less than five, this is what happens.  If it’s over five, this is what happens.  If they have retinopathy, we’re going to go down to some other kind of aspect of the table and that’s going to add extra things into it and extra considerations.”  So I suppose my query is if I were to bring that to you, so what happens?  How is that kind of all put into play by an underwriter?

Peter:          That’s pretty close to reality actually.  The classic rating table for diabetes will have a series of basic ratings which are really based on the type of diabetes – is it Type I, is it Type II, the age of the applicant and the duration that they have had the condition.  And then there are a load of adjustment factors for the additional factors.  So if there is retinopathy, that would call for a modification, so an additional rating and likewise for high blood pressure and abnormal lipids.  There might also be an additional rating on top of those to take account of the interdependence of those various risk factors.  There might be some credit factors given as well.  For example, if control is exceptionally good, that would be regarded as a credit feature and eligible for a reduction in the basic rating.  Similarly if control were poor, then that would be worth a debit.  And actually, diabetes is a good example of where something like a calculator would be useful and underwriting manuals increasingly have calculators these days which is one of the advantages of having the manual online and not in book form.

So whereas back in the day, you know, the underwriter would look up a rating table for BMI or blood pressure, now it’s done by a calculator and typically those two risk factors are part of a cardiovascular disease risk factor.  So the cardiovascular risk factor will cover build, blood pressure, lipids, smoking, glucose metabolism including diabetes and if the diabetic risk is particularly complex then that might be better addressed in a separate calculator.  But another interesting area for calculators is breast cancer and certain other cancers as well where a lot of factors go into making up the overall rating rather than mess around with a basic rating and debits and credits, far better to do that via a calculator.  And it makes the underwriter’s job easier but importantly it helps avoid the underwriter making mistakes and also it guides the underwriter as well, because it’s saying to the underwriter, “Look, these are the things which you need to plug into this calculator – have you got that information?” Or, you know, “Make sure you go and find it in the information that you’ve got.”  So you get more consistent underwriting as well and it’s really the way things are going and I think it’s by and large a good thing.

Kathryn:       Yeah it’s interesting what you were saying there about the consistent underwriting as well, because it is quite unusual as an advisor because, you know, there are times that I’ve maybe, you know, seen something where we’d had an indication in from an insurer and I’ve thought, “That’s a bit harsh,” or it could be a case of I’ve thought, “That sounds really good for this situation based upon my experience.”  And sometimes, you know, I imagine obviously those calculators are brilliant but then sometimes you still just need that little bit of an interpretation sometimes.  And I sometimes do get things just over checked by maybe somebody sort of sometimes a bit senior, just to make sure that things are absolutely as expected, because yeah, sometimes these interpretations – it can be really positive and sometimes you can be kind of like, “No, I think we could maybe be a bit better on that one, maybe.”  I’m not saying for everybody to just go round challenging all the insurers everywhere – here, there and everywhere now but it’s just sometimes from your experience, if you’re experiencing something quite a bit and you end up seeing something that just doesn’t feel like it’s gelling compared to what you’ve experienced before, it’s always worth, I think, an extra chat with somebody, just to sort of like, clarifying and maybe even use past examples and say, “Well last time we had this, so what’s different now?” Because that’s not only – it could be that there’s been maybe a slightly different interpretation by an underwriter but it could also be as well that as for yourself, that you’re missing a kind of – a piece of the puzzle, you’re just not seeing it and then you suddenly learn something extra about the medical condition or the risk and then you’re like, “Oh, okay then,” and it suddenly makes a lot more sense for you.  So it’s good learning I think, for everybody.

Peter:          Yes.  What you’ve done is to highlight that underwriters are human.

Kathryn:       Yep.

Peter:          Which is a good and a bad thing, you know, because unfortunately if they are a bit inconsistent, you know, and there’s a risk that the case underwritten on a Monday morning or a Friday afternoon is different from written from one assessor midweek, you know.  But at the same time, I think it’s important not to lose the human touch and the underwriting manual really provides guidance and just that.  And it’s really up to the underwriter at the end of the day to reach the final decision.  It’s interesting maybe here to bring in automated underwriting which obviously avoids that human variation.  But it’s important not to lose the personal touch really because sometimes automated underwriting can be too black and white.

And it’s important to not to lose the human touch of the ability of the underwriter to look at the case and say, “Well I’ve got information here, but I really would like a bit more in order to evaluate this risk fairly.”

Kathryn:       Yep.

Peter:          And I think that insurers – while they owe it to their customers and advisors to reach underwriting decisions quickly, they shouldn’t always be afraid to go back and say, “Well actually, I’d like a bit more information here.”  And that’s not copping out and trying to avoid making a decision, it’s saying, “Well I think if we had a bit more information, we took a bit more time and trouble, we could reach a better outcome for the customer here and it would be worthwhile.”  And I think, you know, so something like mental illness is not a bad example of that, because there are plenty of shades of grey there but it’s important to really understand what’s going on and not just to take a few statements at face value and say, “Well, you know, one plus two plus three equals six and that’s the answer.”

Kathryn:       Oh absolutely and I’m glad you mentioned the mental health side of things there because that’s an area that I really specialise in as well and it’s one of things, you know, whenever I’ve been speaking to insurers and different people and they ask, “So what do you think of this new automation?”  It’s just like – I think the automated side of things can work brilliantly for some people and obviously it can really streamline things and make things efficient in many ways but for a lot of our clients, the automated side of things just doesn’t work.  And, you know, it’s just not something that really comes into play at all.  One thing that stands out – I can’t share much information because obviously the case is too, too distinct for me to make it anonymous in any way whatsoever.  But we did have a situation with somebody a little while ago, where there had been a suicide attempt.  And obviously for most insurers that was, you know, I mean, they’re even better now in terms of like understanding and everything, but at the time, you know, obviously it was something where it was a case of, “Well, we’re not too sure it was quite – not recent recent, but in the insurance world, recent,” and what was interesting about that was that this person had experienced something that was beyond anybody could comprehend kind of happening to them.

It was a situation that was – it was so unique, it was so emotionally traumatic but there was absolutely no feasible way that that trigger event in a sense would happen again.  It was such a unique situation – sorry – it’s really hard because I can’t go into it and explain it, but if I could, everybody would understand, very much so.  But yeah, it was one of those things where they, yeah, there was just no way that they could potentially be in that situation again and it was a case of saying to people, “You need to actually really look at this.  We know it’s quite soon compared to what you would usually consider, or maybe you just don’t consider people in this situation at all.  But, you must look at the story behind this.”  And you know, they did.  And we managed to get the cover and it was extremely well priced and you know, it was something where I was really happy and it sort of – it really – for what we do and for our client base, it sort of like kind of really touched us that there was thing of, you know, the human aspect of the underwriters, that they just turned round and said, “You know what, these systems are not working in this situation and we need to bring ourselves into it,” and it was lovely to be able to have that and to have that confidence as well, that we were bringing the right information to them.

I think I’ve got a little bit side-tracked there.  So I think that something that would be really good is to talk about how underwriting manuals – obviously they help to form the underwriting philosophy that an insurer uses so it’s interesting for me, because I kind of see underwriters and actuaries providing all sort of like the number and the data and I kind of, for me in my mind, I kind of feel like it goes actuaries, then underwriters, then the underwriting philosophies team.  I’ve no idea if that’s right.  It’s quite hard I think sometimes as an advisor to kind of figure out how all the processes come into place.  So you’ve done it, you’ve created a manual, you’ve got all these things in play and let me know if obviously I’ve got them in the like the wrong order or anything like that, but then how is the manual then put into practice within an insurance company?

Peter:          Okay.  Well, the insurer has its own underwriting philosophy which defines what the – what they regard as a standard risk, a normal rates risk and the information that they need in order to identify one of those lives.  And that’s done in conjunction with the reinsurer.  So what the insurer does is to define those basic parameters.  It’s got to be done in conjunction with the reinsurer because the reinsurer’s got to be happy with the risks which come into those boundaries and reinsure them for the agreed price.  Now where the underwriting manual comes in, is partly in defining those standard lives because for basic things like build and blood pressure the underwriting manual sets out, you know, what are the normal ranges.  But the important thing the underwriting manual does is it gives guidelines for those cases which are beyond those boundaries of normality.  So if someone is morbidly obese, they have a BMI of 35 or something well, you know, what’s the underwriting handling of that risk?  If someone has uncontrolled blood pressure of, you know, in the order of 170/100, how should that case be handled?  And if someone has a history of a medical condition, you know, what’s the implications?

And so the life insurer generally has an underwriting manual from one of the big reinsurers and they agree with that insurer and any other reinsurer that they deal with that that is the basis of their substandard underwriting philosophy.  The research is into sources of data particularly for medical data because it’s medical risk which forms the bulk of the underwriter’s work.  So the underwriter and his or her medical advisor will trawl databases for information, journal articles, research papers, epidemiological studies and then they will review that and that information and draw some overall conclusions about how significant a medical condition is.

And the difficult bit of the work then is to interpret that information.   Say, “Well okay, that’s what the world of medicine – of clinical medicine is telling us.  What does it mean for the world of life insurance?”  And they will seek the actuaries’ advice there and then between them that group will reach some overall conclusions.  Another tricky bit is to say, “Well okay, they’ve told us about the significance of diabetes and perhaps at various ages but what about diabetes that has been present for 10 years, 15 years, 20 years?  What about the impact of neuropathy and retinopathy?”  And often the data isn’t that clear on that, so the underwriter and the actuary and the medical officer needs to make a judgement call in order to formulate the detailed guidelines in the underwriting manual.  So the research and the evidence base for that research is just part of the journey really.  So it’s a complex process, it’s based on evidence and rightly so, but a lot of judgement’s called for.

Kathryn:       Absolutely.  I think sort of like when you were saying, you know, like, the judgements and everything, with these manuals it comes down to essentially where the underwriters, the actuaries, everybody, the chief medical officers all feel there is a high risk of a claim to the insurer.  So, I know we’ve mentioned quite a bit about the health side of things but in an underwriting manual what are the main areas or, you know, sort of like what’s being covered in them?  What are we talking about?  What are the risks that an insurer will be really looking out for?

Peter:          Well primarily medical risks but the underwriting manuals – a good underwriting manual is really comprehensive.  So the rule of risk for the life and disability underwriter is medical obviously, but it’s also occupational underwriting, sports and pastimes, foreign travel but also financial risks as well.  So and, you know, financial underwriting might not be that prominent but it’s an essential part of the underwriting of every case in fact.  So, you know, the underwriting manual needs to have comprehensive guidelines for a wide range of occupations and of course all the risky sports and pastimes as well.  The underwriting manual also needs to have a view on every country in the world basically, you know, from Azerbaijan to Zambia.  And a few places in between.

Kathryn:       Absolutely.  I think it always stands out to me like the sports and the pastimes as well, because it’s things that, you know, as you’re learning as an advisor, sometimes when you’re asking people things, if you’re trying to do some research beforehand, you know, you can sometimes, if you know that there’s a specific risk that you need to speak to somebody about, then you can kind of get almost lost within that risk and then, you know, you kind of get so focussed in that that you forget about other things.  So other things that I always try to do now, so we ask, you know, about the health, but we ask about all these other areas as well, about the sports, the travel and everything.  And it’s quite hard, what I always try and do is say to people, like especially on the sports and pastimes thing, I was like, “You know, are you doing anything like –”  I turn it into something like, “Are you doing anything like super-crazy on a weekend, like jumping out of aeroplanes, riding a motorbike, horse-riding?”

And I always put those two in at the end, because it’s surprised me how you can get caught out as an advisor and doing your research, by motorbike riding and the horse-riding.  The horse-riding always tickles me.  And I know that obviously generally, certain amounts of horse-riding are fine, but you know, people don’t necessarily think of that.  When you’re asking somebody, you know, “Are you doing anything dangerous?” they often don’t think about being on a motorbike or being on a horse.  That’s just not to them something that’s dangerous and obviously it can change things so significantly in terms of what you can do, which insurer you should choose and yeah, they always tickle me.  So yeah, that’s a bit of a tip for advisors that are listening – try and make sure you ask all those little bits as well because it really, really does make a difference.

Peter:          Actually, it’s interesting, because jumping out of aeroplanes is generally speaking very safe and not an issue at all.  But –

Kathryn:       The safety measures are intense aren’t they?  We often find that we do –

Peter:          Well this is it –

Kathryn:       We do quite a bit of support for people who are offshore workers and, you know, depending upon the role and everything, obviously things again have developed quite a lot, you know, since we originally started with advising.  But it’s quite interesting, because you’ll be saying to people, “Actually, this is a really good option.”  I was supporting somebody once to get insurance and they were a wildlife videographer for one of the key shows that does things like that.  And it was really interesting because it was a case of, “Right, where do you travel on holiday?’  And they had to stand in front of a map and tell me where they’d been in the last five years and then it was a case of, “Where are you going in the next three years?”  And they were like, “I haven’t got a clue, but I’ll be in every continent.”  And it was like, “Okay.”

And then when it came to the pastimes, every single pastime you can think of.  I was having to go, “Yes,” I was having to get all the information for.  And it was one of those things I think as an advisor, you’re looking at it and thinking, “Oh wow,” you know, “This is going to be tricky.”  And I think when we spoke to quite a few of the underwriters, they were like, “Wow!”  But what was interesting about that is being able to say to them, “But the organisation he’s with, the safety measures that have to be in place are so intense.”  Like you were saying about the sky diving and also similarly, you know, for quite a few other things, they can be so intense that actually, again, it comes down to that little bit of the human side of things.  It’s sort of like being able to sit there with an underwriter and just say, “Right, well actually, I know this is all looking a little bit, you know, from first thing, I can understand that black and white – however – let’s just have a little bit of a chat about it.  Lets see what’s going on.  You know, I think there’s maybe – I’m not saying that there’s no risk, but maybe there’s steps in place that can make this a little bit more favourable.”  Sometimes I think – sometimes the more information you get the better.

Peter:          Absolutely.  And I think that that’s a great illustration of why underwriters really need to think about risks and not just look something up in an underwriting manual.  You know, because particularly in big organisations, if they’re sending people abroad somewhere, even if they’re doing kind of odd things, you know, they put safety measures in place but they have safety nets, you know, they want to look after their people, they’ve got to.

Kathryn:       Absolutely.

Peter:          And so, you know, just because someone’s going into a remote part of the world, it doesn’t mean it’s unsafe, you know?

Kathryn:       Absolutely.

Peter:          And also, even in places which are politically unstable, the risk isn’t necessarily that great.  The big problem occupations are those that go looking for political trouble.  And I’m thinking particularly about journalists, here, you know, the BBC journalists, or whatever.  You know, most people would run a mile from terrorist risk and war but journalists on the other hand go looking for it.  You’ve got to take every case on its merits.

Kathryn:       Yeah, absolutely.  No, completely.  I think with – obviously going back to sort of your background and everything, I suppose an interesting thing for me, I’d say is trying to picture these underwriting manuals.  I’m sort of wondering how are they kind of built?  So if I were to say to you, “Right, Peter, can you build me an underwriting manual?” Kind of, where would you even start with something like that?

Peter:          Well, the first thing you need to do is to build a platform for it, actually, you know, because if it’s going to be a decent online thing.  And the functionality is important, particularly in today’s world of technology.  For a start, people expect technology and the other thing is that you can make technology work for you.  I’m thinking in particular about the calculators that we spoke about.  And looking to the future, the gap between automated underwriting and underwriting manuals is going to narrow.  And also, you know, we foresee things like artificial intelligence coming in which is going to shape the way that underwriting manuals work, shape the relationship with automated underwriting systems and the way that underwriting decisions are reached.  But otherwise, the creation of an underwriting manual is all about the research, it’s about creating the background information and it’s about creating the underwriting guidelines.

And just developing that point which we were discussing before about interpretation, a lot of the underwriting manual and the guidelines is about an evidence base, but as I said before, that evidence base isn’t that extensive and it doesn’t extend to the sort of detail that underwriters require for creating a detailed rating, so the rating guidelines for various severities.  And realistically, you know, while good information is available for the big common risk factors, for the less common ones, which nevertheless people expect there to be an underwriting guideline for, very often it’s a case of educated guesswork. And, you know, there will be evidence to suggest that this is either a normal risk or it’s an increased risk, but just how much of an increased risk is difficult to prove, although it’s obvious that it is one.  And I think here that really, you know, the customers and advisors need to trust the underwriter.  And it’s important for the underwriter and the manual compiler to do a good job for the advisor and his or her customer.

You know, it’s important that they have faith in what the underwriter’s done and what the underwriting manual says.  And I think that, you know, well as I say, it comes down to educated guesswork and doing that good job is something which we – which the underwriting community owes to customers and advisors.  And it would be wrong for underwriters to say, “Well, we haven’t got a clue what this risk is, we will charge, you know, plus 50, or X per thousand, X per mille.  If you don’t like it, go away.”  You know, it needs to be a good, educated guess.  But equally, it would be unreasonable for anyone to turn around and say, “Well, you haven’t got evidence to back up that risk in great detail.  You’re not doing your job properly.”  And sometimes it’s just not possible to do the job as well as the underwriter would like and it’s important for insurers to be able to say, “Well, we’ve looked at this, we think it’s a fair price, but you’re quite at liberty to get a quote from somewhere else to see if they can do better.”

Kathryn:       Yeah.  I think a big thing that came from that for me as well is, you know, when you’re saying that is the need to obviously be open and talking as well so, you know, like for – to have time, you know, for the underwriters to be able to speak to the advisor to sort of like explain, you know, “This is sort of like what we’re looking at because we’ve got this situation, there isn’t any guidance on it, because it’s so unusual.” Probably the advisor at this point knows that it’s such an unusual situation and probably can appreciate to some extent that there isn’t going to necessarily be a specific section written about this.  And it is almost a little bit of guesswork, but I mean, that’s obviously it has to be the way it is sometimes.  But I think as well, it’s that nice balance of underwriters having the time and maybe the willing to sort of like educate advisors a bit more on some of the conditions, but I think on the other side of that, very much so, is advisors not assuming that underwriters are just there to put barriers up everywhere and to actually think of the underwriters as a really valuable resource for them to actually be trained and educated by the underwriter.

And it’s kind of a mix, isn’t it, because I know we all talk about efficiency, I know we’ve talked a little bit about the automation and everything, but it comes down to we need to have time to actually speak because underwriters, they don’t really know in full what advisors do and advisors definitely don’t know in full what an underwriter does.  And, you know, being involved – I’m involved in quite a few different groups and it’s amazing when you actually sit down and get the people together from all these different areas, how they suddenly look at each other and go, “I didn’t know it worked like that.”  And it’s just like, “Yeah, it really does work like that”.  And we all just go round saying that to each other and the amount of development and change that actually seems to happen from those conversations is brilliant.

And it’s definitely something I would say for advisors is, you know, when you’re speaking to an underwriter, if things aren’t seeming to make sense, you know, just ask them to go back a step and just say, you know, “Okay, look, I’m getting a little bit lost here.  Can you just explain to me, so why is this happening this way, so what information am I missing?  This was slightly different with that case I spoke to you about the other week, why is it different now?  Am I missing something?”  And to try and think of both sides of things as a bit of a resource and obviously there’s going to be some underwriters who are incredibly busy and may not have time to be able to do that and there’s going to be advisors who are also incredibly busy and probably some advisors who – maybe going in depth into the risks isn’t necessarily something that they particularly want to do.  And you know, maybe they need to think of a slightly different approach when it comes to their clients.  So, collaboration.  I’m all for collaboration.

Peter:          Yes, I think the good advisors and good underwriters have a lot of shared interests actually.

Kathryn:       Yes.  I think so.

Peter:          And I think that really the advisors and insurers have to work out what game they’re in really.  Are they in the business of – and insurers in particular – are they in the business of just processing straightforward cases as quickly as possibly and making it easy and simple?  Or are they in the business of dealing with customers truly as individuals and providing a personal tailored service and that includes, you know, the risk assessment as well.  I’m not sure it’s possible to be in both camps.  Ideally they should be, you know?  But perhaps in future, you know, the proposition will very much shape the choice of the advisor and the insurer.  You know, in these days of – it’s increasingly possible to do mass customisation but some cases really do need that individual treatment to get the best deal.  And, you know, I think, if that means paying a little bit more for it, you know, ultimately the customer’s the winner.

Kathryn:       Yeah.

Peter:          And that’s the important thing.

Kathryn:       Absolutely.  We’re coming towards the end of the podcast now, so I was just wondering if you could let us know a little bit more about Select X if that’s okay, your company?

Peter:          Yeah, sure.  Select X has been around since the early 2000’s.  I co-founded it.  We are a niche consultancy specialising in life and disability underwriting.  So we advise anyone – insurers, reinsurers distributors sometimes, software houses, anyone who has an interest in the underwriting business, really.  And we have two specialisms really; one is automated underwriting systems.  So we help – we provide the intelligence inside automated systems and we advise on the implementation and customisation of automated systems so they work optimally for all stakeholders.  And the other specialism is underwriting manuals, which is partly, I guess, why you’re talking to me today.  And we have our own independent underwriting manual and it’s as comprehensive and has the functionality that you would expect from one of the big manuals from – or one of the well-known manuals from one of the big Reinsurers.  And we created it because in the past we had done a number of one-off projects creating underwriting manuals from scratch.

So that’s all the medical risks, you know, the occupations, the sports and pastimes, the travel, all the rest of it.  We thought, “Well this is reinventing the wheel every time.  Why don’t we have a basic manual which is readily available there and if someone wants an underwriting manual, they can have it tomorrow, almost?  All they’ve got to do is log in.  If they want it customised, we can do that.  If they want it to have their corporate branding, we can do that.”  And we will make it available as software as a service and part of the deal is that we keep it up to date because risks are changing all the time.  When you mentioned HIV, Kathryn, earlier in our discussion, that wasn’t around in the 1970’s but it came to be and be recognised in the 1990’s.  More recently of course we’ve had Covid-19. That’s in the underwriting manuals and went in during 2020.  So risks are changing all the time.  So we created our own underwriting manual called Risk Apps and we have something like a dozen clients using it in all parts of the world apart from Antarctica.

Kathryn:       Okay [laughs].

Peter:          We have clients on every continent.

Kathryn:       Fantastic.

Peter:          Yep, so that’s Risk Apps.  And by the way, who would want an underwriting manual?  Well, if you were a small regional reinsurer that felt you needed a manual to be able to serve your clients properly, well there’s Risk Apps.  If you’re a smallish insurer that doesn’t have a reinsurer relationship which will entitle you to their underwriting manual, you can have Risk Apps.  Or maybe if you are a large international insurer that feels it’s bigger than one of the reinsurers and you – and wants to be independent of its reinsurers, it can have its own underwriting manual via Risk Apps.

Kathryn:       That’s fantastic.

Peter:          So that’s a brief summary.

Kathryn:       Brilliant, fantastic, thank you so much.  It’s been really, really lovely chatting to you, Peter.

Peter:          Likewise.

Kathryn:       I’m going to be back soon with Roy McLoughlin for his first outing of season four.  And if you’d like a reminder of the next episode, please drop me a message on social media or visit the website practical-protection.co.uk.  And don’t forget, if you’ve listened to this as part of your work, you can claim a CPD certificate on the website too thanks to our sponsors, Octo Members.  So thank you Peter, bye.

Peter:          Thank you.  Bye bye.

Insurance Underwriting

Hi everyone, we are at the start of season 4 of the podcast and we are taking a deep dive into underwriting manuals.

In the first episode I have Peter Maynard with me from Select X, talking about his career in underwriting. We chat about what an underwriting manual looks like, the types of risk that they include, how underwriters use them and the role of automated underwriting.

The key takeaways:

  1. Automated systems are good, but you can’t beat a human underwriter!
  2. Underwriting manuals are technical guides of how to assess risk, but there should be some wiggle room in decisions.
  3. The more you know about a person’s ‘risk’, the more likely you are to get a realistic indication of insurance terms.

Next time, Roy McLoughlin is back with me for his first outing of season 4.

Remember, if you are listening to this as part of your work, you can claim a CPD certificate on our website, thanks to our sponsors Octo Members.

If you want to know more about how to arrange protection insurance, take a look at my Protection Insurance in Practice course here.

Kathryn:       Hi everyone, this is episode one of season four and today we are kicking things off with guest Peter Maynard from Select X.  Hi Peter.

Peter:          Hi Kathryn.

Kathryn:       Today we are talking about how underwriting manuals are developed, how these are used by insurers and the role of manual and automatic underwriting.  This is the Practical Protection Podcast.  So Peter, how are you doing today?

Peter:          All well, thank you.

Kathryn:       Good.  I think – I don’t know about you but the weather seems a little bit – I think we’ve had our British summer up here in the North.  I think we’ve had a good three days of sunshine and that’s probably us, we should count ourselves lucky, really, maybe.

Peter:          Well, I think we’ve had our three days down in the South as well.  So I’ve resigned myself to autumn now.

Kathryn:       Yes, I think that’s probably a good idea.  Very, very good idea.  It sounds terrible, but I’m hoping my eldest son’s football match is not on today, I don’t fancy standing out in this at the moment.  So to start everything off then Peter, if you can please just start off by telling me a bit about yourself and your background with underwriting please.

Peter:          Okay.  My background goes back more years than I care to admit to.  My career before Select X was really in reinsurance and I ended up as Head of Research for SwissRe.  But I got there via a lot of underwriting, plus some product development, some marketing, some marketing research and corporate planning.  Importantly, from the point of view of our conversation today, I wrote and was involved in creating and revising a number of underwriting manuals.  And given that I worked for M&GRe which was taken over eventually by SwissRe, which was the biggest reinsurer at the time and I’m really talking about the late 1980’s, sorry the late 1970’s and 80’s, you could say that together with Dr. Brackenridge, who is one of the best-known consulting Medical Officers ever and not just in the UK, but he had worldwide reputation.  Together with him, we influenced the underwriting policy for the – for much of the UK market.

And really, those days I should think were quite exciting in terms of underwriting because we were then pushing the boundaries of insurability and consolidating life  writing as a science, rather than a combination of art and taking a bit of a chance on risks which weren’t normal.  You know, prior to that, insurers had been quite wary of risks like diabetes and high blood pressure and coronary heart disease – risks which, for the most part, we take not exactly as routine and run of the mill, but you know, they aren’t regarded as that exceptional and that much of a problem.

Kathryn:       I think – obviously thank you, you know, it’s really interesting to hear how that sort of like all comes together in many ways.  As an advisor, I kind of – I know what an underwriting manual is, but I also don’t really have a clue.  I think a big thing for me is I’m quite a visual person, so I kind of also want to know ‘what does it look like?’  I kind of imagine, I know you mentioned Dr. Brackenridge then, I have one of his books from I think it’s about 1975, Steve Casey recommended I get it and it’s fascinating to look at it and I’ve got my team sort of reading some of the chapters just to see how much knowledge and understanding has developed and how things were approached in a different way.  Very much so you can see it in the chapter that covers HIV.

The things that would be asked back in the 1970’s, compared to what they’re asked now and the types of ratings that would happen, obviously far, far different, but I imagine that also comes down to us having a good, well 40 years’ worth of data to hand.  I think in my mind, I kind of see – I automatically picture underwriting manuals as either a great big tome or as like a spreadsheet with numbers and if and or statements in them.  I imagine that’s probably – I’m probably sort of like not in the right area at all, but what do they look like?

Peter:          Well you mentioned Brack’s book and Brack’s book used to be known as the ‘Underwriters Bible’ if you like and that’s how an underwriting manual is to some degree.  It’s more of a tome than a load of spreadsheets but they are online these days and they’re not paper.  There are probably more words than figures in the sense that the underwriting manual is a comprehensive compilation of risk factors – so, medical, occupational, sports, travel, that sort of thing.  There’s a description of the risk which might vary in extent.  There’s reference to the risk’s significance, which is why underwriters should be interested in it and what the prognosis is.  The sort of risk information which is required to enable an underwriter to reach an underwriting decision and then there are the rating guidelines for a variety of benefits, so typically, life insurance, income protection, critical illness and a range of additional benefits like accidental death – we’ve a premium –total permanent disability, that sort of thing.

So the idea is that primarily it’s a set of realistic practical guidelines for underwriters.  It’s also used as a training resource as well, so if you’re an underwriter starting out on your journey, almost the more information the better.  So it’s a good way of learning about those risks which you’re unfamiliar with.

Kathryn:       It’s quite interesting because say like for me when I – so I train my team and they have to be trained in – obviously I’m in the advisor space, but they have to be trained in medical information.  Probably very similarly I think to underwriters and to some extent the knowledge when it comes to medical conditions.  I do think underwriters in some areas are going to have much more in depth knowledge and you know, possibly some of our team would have more knowledge in some other areas as well.  But it’s interesting, because what I would do, say if we take the diabetes example, you know, I train all of my team, you know, it would be things like, when was the diagnosis, what type of diabetes, what’s the HBa1c, is there high blood pressure?  If so, what’s the reading, when was that taken, the same for cholesterol – reading, when was it taken, what medications are they on, if any?  You know, are they – do they have any retinopathy and then going into that side of things and then do they have any neuropathy going into that side of things?

So we will come with this big bundle of information for an underwriter and I suppose it’s quite interesting to sort of like think – say in my mind I imagine a kind of like a – maybe just like a Word document or something, but with, like some kind of ‘if statement’ so say like the person has diabetes, “Right, so if the HBa1c is less than five, this is what happens.  If it’s over five, this is what happens.  If they have retinopathy, we’re going to go down to some other kind of aspect of the table and that’s going to add extra things into it and extra considerations.”  So I suppose my query is if I were to bring that to you, so what happens?  How is that kind of all put into play by an underwriter?

Peter:          That’s pretty close to reality actually.  The classic rating table for diabetes will have a series of basic ratings which are really based on the type of diabetes – is it Type I, is it Type II, the age of the applicant and the duration that they have had the condition.  And then there are a load of adjustment factors for the additional factors.  So if there is retinopathy, that would call for a modification, so an additional rating and likewise for high blood pressure and abnormal lipids.  There might also be an additional rating on top of those to take account of the interdependence of those various risk factors.  There might be some credit factors given as well.  For example, if control is exceptionally good, that would be regarded as a credit feature and eligible for a reduction in the basic rating.  Similarly if control were poor, then that would be worth a debit.  And actually, diabetes is a good example of where something like a calculator would be useful and underwriting manuals increasingly have calculators these days which is one of the advantages of having the manual online and not in book form.

So whereas back in the day, you know, the underwriter would look up a rating table for BMI or blood pressure, now it’s done by a calculator and typically those two risk factors are part of a cardiovascular disease risk factor.  So the cardiovascular risk factor will cover build, blood pressure, lipids, smoking, glucose metabolism including diabetes and if the diabetic risk is particularly complex then that might be better addressed in a separate calculator.  But another interesting area for calculators is breast cancer and certain other cancers as well where a lot of factors go into making up the overall rating rather than mess around with a basic rating and debits and credits, far better to do that via a calculator.  And it makes the underwriter’s job easier but importantly it helps avoid the underwriter making mistakes and also it guides the underwriter as well, because it’s saying to the underwriter, “Look, these are the things which you need to plug into this calculator – have you got that information?” Or, you know, “Make sure you go and find it in the information that you’ve got.”  So you get more consistent underwriting as well and it’s really the way things are going and I think it’s by and large a good thing.

Kathryn:       Yeah it’s interesting what you were saying there about the consistent underwriting as well, because it is quite unusual as an advisor because, you know, there are times that I’ve maybe, you know, seen something where we’d had an indication in from an insurer and I’ve thought, “That’s a bit harsh,” or it could be a case of I’ve thought, “That sounds really good for this situation based upon my experience.”  And sometimes, you know, I imagine obviously those calculators are brilliant but then sometimes you still just need that little bit of an interpretation sometimes.  And I sometimes do get things just over checked by maybe somebody sort of sometimes a bit senior, just to make sure that things are absolutely as expected, because yeah, sometimes these interpretations – it can be really positive and sometimes you can be kind of like, “No, I think we could maybe be a bit better on that one, maybe.”  I’m not saying for everybody to just go round challenging all the insurers everywhere – here, there and everywhere now but it’s just sometimes from your experience, if you’re experiencing something quite a bit and you end up seeing something that just doesn’t feel like it’s gelling compared to what you’ve experienced before, it’s always worth, I think, an extra chat with somebody, just to sort of like, clarifying and maybe even use past examples and say, “Well last time we had this, so what’s different now?” Because that’s not only – it could be that there’s been maybe a slightly different interpretation by an underwriter but it could also be as well that as for yourself, that you’re missing a kind of – a piece of the puzzle, you’re just not seeing it and then you suddenly learn something extra about the medical condition or the risk and then you’re like, “Oh, okay then,” and it suddenly makes a lot more sense for you.  So it’s good learning I think, for everybody.

Peter:          Yes.  What you’ve done is to highlight that underwriters are human.

Kathryn:       Yep.

Peter:          Which is a good and a bad thing, you know, because unfortunately if they are a bit inconsistent, you know, and there’s a risk that the case underwritten on a Monday morning or a Friday afternoon is different from written from one assessor midweek, you know.  But at the same time, I think it’s important not to lose the human touch and the underwriting manual really provides guidance and just that.  And it’s really up to the underwriter at the end of the day to reach the final decision.  It’s interesting maybe here to bring in automated underwriting which obviously avoids that human variation.  But it’s important not to lose the personal touch really because sometimes automated underwriting can be too black and white.

And it’s important to not to lose the human touch of the ability of the underwriter to look at the case and say, “Well I’ve got information here, but I really would like a bit more in order to evaluate this risk fairly.”

Kathryn:       Yep.

Peter:          And I think that insurers – while they owe it to their customers and advisors to reach underwriting decisions quickly, they shouldn’t always be afraid to go back and say, “Well actually, I’d like a bit more information here.”  And that’s not copping out and trying to avoid making a decision, it’s saying, “Well I think if we had a bit more information, we took a bit more time and trouble, we could reach a better outcome for the customer here and it would be worthwhile.”  And I think, you know, so something like mental illness is not a bad example of that, because there are plenty of shades of grey there but it’s important to really understand what’s going on and not just to take a few statements at face value and say, “Well, you know, one plus two plus three equals six and that’s the answer.”

Kathryn:       Oh absolutely and I’m glad you mentioned the mental health side of things there because that’s an area that I really specialise in as well and it’s one of things, you know, whenever I’ve been speaking to insurers and different people and they ask, “So what do you think of this new automation?”  It’s just like – I think the automated side of things can work brilliantly for some people and obviously it can really streamline things and make things efficient in many ways but for a lot of our clients, the automated side of things just doesn’t work.  And, you know, it’s just not something that really comes into play at all.  One thing that stands out – I can’t share much information because obviously the case is too, too distinct for me to make it anonymous in any way whatsoever.  But we did have a situation with somebody a little while ago, where there had been a suicide attempt.  And obviously for most insurers that was, you know, I mean, they’re even better now in terms of like understanding and everything, but at the time, you know, obviously it was something where it was a case of, “Well, we’re not too sure it was quite – not recent recent, but in the insurance world, recent,” and what was interesting about that was that this person had experienced something that was beyond anybody could comprehend kind of happening to them.

It was a situation that was – it was so unique, it was so emotionally traumatic but there was absolutely no feasible way that that trigger event in a sense would happen again.  It was such a unique situation – sorry – it’s really hard because I can’t go into it and explain it, but if I could, everybody would understand, very much so.  But yeah, it was one of those things where they, yeah, there was just no way that they could potentially be in that situation again and it was a case of saying to people, “You need to actually really look at this.  We know it’s quite soon compared to what you would usually consider, or maybe you just don’t consider people in this situation at all.  But, you must look at the story behind this.”  And you know, they did.  And we managed to get the cover and it was extremely well priced and you know, it was something where I was really happy and it sort of – it really – for what we do and for our client base, it sort of like kind of really touched us that there was thing of, you know, the human aspect of the underwriters, that they just turned round and said, “You know what, these systems are not working in this situation and we need to bring ourselves into it,” and it was lovely to be able to have that and to have that confidence as well, that we were bringing the right information to them.

I think I’ve got a little bit side-tracked there.  So I think that something that would be really good is to talk about how underwriting manuals – obviously they help to form the underwriting philosophy that an insurer uses so it’s interesting for me, because I kind of see underwriters and actuaries providing all sort of like the number and the data and I kind of, for me in my mind, I kind of feel like it goes actuaries, then underwriters, then the underwriting philosophies team.  I’ve no idea if that’s right.  It’s quite hard I think sometimes as an advisor to kind of figure out how all the processes come into place.  So you’ve done it, you’ve created a manual, you’ve got all these things in play and let me know if obviously I’ve got them in the like the wrong order or anything like that, but then how is the manual then put into practice within an insurance company?

Peter:          Okay.  Well, the insurer has its own underwriting philosophy which defines what the – what they regard as a standard risk, a normal rates risk and the information that they need in order to identify one of those lives.  And that’s done in conjunction with the reinsurer.  So what the insurer does is to define those basic parameters.  It’s got to be done in conjunction with the reinsurer because the reinsurer’s got to be happy with the risks which come into those boundaries and reinsure them for the agreed price.  Now where the underwriting manual comes in, is partly in defining those standard lives because for basic things like build and blood pressure the underwriting manual sets out, you know, what are the normal ranges.  But the important thing the underwriting manual does is it gives guidelines for those cases which are beyond those boundaries of normality.  So if someone is morbidly obese, they have a BMI of 35 or something well, you know, what’s the underwriting handling of that risk?  If someone has uncontrolled blood pressure of, you know, in the order of 170/100, how should that case be handled?  And if someone has a history of a medical condition, you know, what’s the implications?

And so the life insurer generally has an underwriting manual from one of the big reinsurers and they agree with that insurer and any other reinsurer that they deal with that that is the basis of their substandard underwriting philosophy.  The research is into sources of data particularly for medical data because it’s medical risk which forms the bulk of the underwriter’s work.  So the underwriter and his or her medical advisor will trawl databases for information, journal articles, research papers, epidemiological studies and then they will review that and that information and draw some overall conclusions about how significant a medical condition is.

And the difficult bit of the work then is to interpret that information.   Say, “Well okay, that’s what the world of medicine – of clinical medicine is telling us.  What does it mean for the world of life insurance?”  And they will seek the actuaries’ advice there and then between them that group will reach some overall conclusions.  Another tricky bit is to say, “Well okay, they’ve told us about the significance of diabetes and perhaps at various ages but what about diabetes that has been present for 10 years, 15 years, 20 years?  What about the impact of neuropathy and retinopathy?”  And often the data isn’t that clear on that, so the underwriter and the actuary and the medical officer needs to make a judgement call in order to formulate the detailed guidelines in the underwriting manual.  So the research and the evidence base for that research is just part of the journey really.  So it’s a complex process, it’s based on evidence and rightly so, but a lot of judgement’s called for.

Kathryn:       Absolutely.  I think sort of like when you were saying, you know, like, the judgements and everything, with these manuals it comes down to essentially where the underwriters, the actuaries, everybody, the chief medical officers all feel there is a high risk of a claim to the insurer.  So, I know we’ve mentioned quite a bit about the health side of things but in an underwriting manual what are the main areas or, you know, sort of like what’s being covered in them?  What are we talking about?  What are the risks that an insurer will be really looking out for?

Peter:          Well primarily medical risks but the underwriting manuals – a good underwriting manual is really comprehensive.  So the rule of risk for the life and disability underwriter is medical obviously, but it’s also occupational underwriting, sports and pastimes, foreign travel but also financial risks as well.  So and, you know, financial underwriting might not be that prominent but it’s an essential part of the underwriting of every case in fact.  So, you know, the underwriting manual needs to have comprehensive guidelines for a wide range of occupations and of course all the risky sports and pastimes as well.  The underwriting manual also needs to have a view on every country in the world basically, you know, from Azerbaijan to Zambia.  And a few places in between.

Kathryn:       Absolutely.  I think it always stands out to me like the sports and the pastimes as well, because it’s things that, you know, as you’re learning as an advisor, sometimes when you’re asking people things, if you’re trying to do some research beforehand, you know, you can sometimes, if you know that there’s a specific risk that you need to speak to somebody about, then you can kind of get almost lost within that risk and then, you know, you kind of get so focussed in that that you forget about other things.  So other things that I always try to do now, so we ask, you know, about the health, but we ask about all these other areas as well, about the sports, the travel and everything.  And it’s quite hard, what I always try and do is say to people, like especially on the sports and pastimes thing, I was like, “You know, are you doing anything like –”  I turn it into something like, “Are you doing anything like super-crazy on a weekend, like jumping out of aeroplanes, riding a motorbike, horse-riding?”

And I always put those two in at the end, because it’s surprised me how you can get caught out as an advisor and doing your research, by motorbike riding and the horse-riding.  The horse-riding always tickles me.  And I know that obviously generally, certain amounts of horse-riding are fine, but you know, people don’t necessarily think of that.  When you’re asking somebody, you know, “Are you doing anything dangerous?” they often don’t think about being on a motorbike or being on a horse.  That’s just not to them something that’s dangerous and obviously it can change things so significantly in terms of what you can do, which insurer you should choose and yeah, they always tickle me.  So yeah, that’s a bit of a tip for advisors that are listening – try and make sure you ask all those little bits as well because it really, really does make a difference.

Peter:          Actually, it’s interesting, because jumping out of aeroplanes is generally speaking very safe and not an issue at all.  But –

Kathryn:       The safety measures are intense aren’t they?  We often find that we do –

Peter:          Well this is it –

Kathryn:       We do quite a bit of support for people who are offshore workers and, you know, depending upon the role and everything, obviously things again have developed quite a lot, you know, since we originally started with advising.  But it’s quite interesting, because you’ll be saying to people, “Actually, this is a really good option.”  I was supporting somebody once to get insurance and they were a wildlife videographer for one of the key shows that does things like that.  And it was really interesting because it was a case of, “Right, where do you travel on holiday?’  And they had to stand in front of a map and tell me where they’d been in the last five years and then it was a case of, “Where are you going in the next three years?”  And they were like, “I haven’t got a clue, but I’ll be in every continent.”  And it was like, “Okay.”

And then when it came to the pastimes, every single pastime you can think of.  I was having to go, “Yes,” I was having to get all the information for.  And it was one of those things I think as an advisor, you’re looking at it and thinking, “Oh wow,” you know, “This is going to be tricky.”  And I think when we spoke to quite a few of the underwriters, they were like, “Wow!”  But what was interesting about that is being able to say to them, “But the organisation he’s with, the safety measures that have to be in place are so intense.”  Like you were saying about the sky diving and also similarly, you know, for quite a few other things, they can be so intense that actually, again, it comes down to that little bit of the human side of things.  It’s sort of like being able to sit there with an underwriter and just say, “Right, well actually, I know this is all looking a little bit, you know, from first thing, I can understand that black and white – however – let’s just have a little bit of a chat about it.  Lets see what’s going on.  You know, I think there’s maybe – I’m not saying that there’s no risk, but maybe there’s steps in place that can make this a little bit more favourable.”  Sometimes I think – sometimes the more information you get the better.

Peter:          Absolutely.  And I think that that’s a great illustration of why underwriters really need to think about risks and not just look something up in an underwriting manual.  You know, because particularly in big organisations, if they’re sending people abroad somewhere, even if they’re doing kind of odd things, you know, they put safety measures in place but they have safety nets, you know, they want to look after their people, they’ve got to.

Kathryn:       Absolutely.

Peter:          And so, you know, just because someone’s going into a remote part of the world, it doesn’t mean it’s unsafe, you know?

Kathryn:       Absolutely.

Peter:          And also, even in places which are politically unstable, the risk isn’t necessarily that great.  The big problem occupations are those that go looking for political trouble.  And I’m thinking particularly about journalists, here, you know, the BBC journalists, or whatever.  You know, most people would run a mile from terrorist risk and war but journalists on the other hand go looking for it.  You’ve got to take every case on its merits.

Kathryn:       Yeah, absolutely.  No, completely.  I think with – obviously going back to sort of your background and everything, I suppose an interesting thing for me, I’d say is trying to picture these underwriting manuals.  I’m sort of wondering how are they kind of built?  So if I were to say to you, “Right, Peter, can you build me an underwriting manual?” Kind of, where would you even start with something like that?

Peter:          Well, the first thing you need to do is to build a platform for it, actually, you know, because if it’s going to be a decent online thing.  And the functionality is important, particularly in today’s world of technology.  For a start, people expect technology and the other thing is that you can make technology work for you.  I’m thinking in particular about the calculators that we spoke about.  And looking to the future, the gap between automated underwriting and underwriting manuals is going to narrow.  And also, you know, we foresee things like artificial intelligence coming in which is going to shape the way that underwriting manuals work, shape the relationship with automated underwriting systems and the way that underwriting decisions are reached.  But otherwise, the creation of an underwriting manual is all about the research, it’s about creating the background information and it’s about creating the underwriting guidelines.

And just developing that point which we were discussing before about interpretation, a lot of the underwriting manual and the guidelines is about an evidence base, but as I said before, that evidence base isn’t that extensive and it doesn’t extend to the sort of detail that underwriters require for creating a detailed rating, so the rating guidelines for various severities.  And realistically, you know, while good information is available for the big common risk factors, for the less common ones, which nevertheless people expect there to be an underwriting guideline for, very often it’s a case of educated guesswork. And, you know, there will be evidence to suggest that this is either a normal risk or it’s an increased risk, but just how much of an increased risk is difficult to prove, although it’s obvious that it is one.  And I think here that really, you know, the customers and advisors need to trust the underwriter.  And it’s important for the underwriter and the manual compiler to do a good job for the advisor and his or her customer.

You know, it’s important that they have faith in what the underwriter’s done and what the underwriting manual says.  And I think that, you know, well as I say, it comes down to educated guesswork and doing that good job is something which we – which the underwriting community owes to customers and advisors.  And it would be wrong for underwriters to say, “Well, we haven’t got a clue what this risk is, we will charge, you know, plus 50, or X per thousand, X per mille.  If you don’t like it, go away.”  You know, it needs to be a good, educated guess.  But equally, it would be unreasonable for anyone to turn around and say, “Well, you haven’t got evidence to back up that risk in great detail.  You’re not doing your job properly.”  And sometimes it’s just not possible to do the job as well as the underwriter would like and it’s important for insurers to be able to say, “Well, we’ve looked at this, we think it’s a fair price, but you’re quite at liberty to get a quote from somewhere else to see if they can do better.”

Kathryn:       Yeah.  I think a big thing that came from that for me as well is, you know, when you’re saying that is the need to obviously be open and talking as well so, you know, like for – to have time, you know, for the underwriters to be able to speak to the advisor to sort of like explain, you know, “This is sort of like what we’re looking at because we’ve got this situation, there isn’t any guidance on it, because it’s so unusual.” Probably the advisor at this point knows that it’s such an unusual situation and probably can appreciate to some extent that there isn’t going to necessarily be a specific section written about this.  And it is almost a little bit of guesswork, but I mean, that’s obviously it has to be the way it is sometimes.  But I think as well, it’s that nice balance of underwriters having the time and maybe the willing to sort of like educate advisors a bit more on some of the conditions, but I think on the other side of that, very much so, is advisors not assuming that underwriters are just there to put barriers up everywhere and to actually think of the underwriters as a really valuable resource for them to actually be trained and educated by the underwriter.

And it’s kind of a mix, isn’t it, because I know we all talk about efficiency, I know we’ve talked a little bit about the automation and everything, but it comes down to we need to have time to actually speak because underwriters, they don’t really know in full what advisors do and advisors definitely don’t know in full what an underwriter does.  And, you know, being involved – I’m involved in quite a few different groups and it’s amazing when you actually sit down and get the people together from all these different areas, how they suddenly look at each other and go, “I didn’t know it worked like that.”  And it’s just like, “Yeah, it really does work like that”.  And we all just go round saying that to each other and the amount of development and change that actually seems to happen from those conversations is brilliant.

And it’s definitely something I would say for advisors is, you know, when you’re speaking to an underwriter, if things aren’t seeming to make sense, you know, just ask them to go back a step and just say, you know, “Okay, look, I’m getting a little bit lost here.  Can you just explain to me, so why is this happening this way, so what information am I missing?  This was slightly different with that case I spoke to you about the other week, why is it different now?  Am I missing something?”  And to try and think of both sides of things as a bit of a resource and obviously there’s going to be some underwriters who are incredibly busy and may not have time to be able to do that and there’s going to be advisors who are also incredibly busy and probably some advisors who – maybe going in depth into the risks isn’t necessarily something that they particularly want to do.  And you know, maybe they need to think of a slightly different approach when it comes to their clients.  So, collaboration.  I’m all for collaboration.

Peter:          Yes, I think the good advisors and good underwriters have a lot of shared interests actually.

Kathryn:       Yes.  I think so.

Peter:          And I think that really the advisors and insurers have to work out what game they’re in really.  Are they in the business of – and insurers in particular – are they in the business of just processing straightforward cases as quickly as possibly and making it easy and simple?  Or are they in the business of dealing with customers truly as individuals and providing a personal tailored service and that includes, you know, the risk assessment as well.  I’m not sure it’s possible to be in both camps.  Ideally they should be, you know?  But perhaps in future, you know, the proposition will very much shape the choice of the advisor and the insurer.  You know, in these days of – it’s increasingly possible to do mass customisation but some cases really do need that individual treatment to get the best deal.  And, you know, I think, if that means paying a little bit more for it, you know, ultimately the customer’s the winner.

Kathryn:       Yeah.

Peter:          And that’s the important thing.

Kathryn:       Absolutely.  We’re coming towards the end of the podcast now, so I was just wondering if you could let us know a little bit more about Select X if that’s okay, your company?

Peter:          Yeah, sure.  Select X has been around since the early 2000’s.  I co-founded it.  We are a niche consultancy specialising in life and disability underwriting.  So we advise anyone – insurers, reinsurers distributors sometimes, software houses, anyone who has an interest in the underwriting business, really.  And we have two specialisms really; one is automated underwriting systems.  So we help – we provide the intelligence inside automated systems and we advise on the implementation and customisation of automated systems so they work optimally for all stakeholders.  And the other specialism is underwriting manuals, which is partly, I guess, why you’re talking to me today.  And we have our own independent underwriting manual and it’s as comprehensive and has the functionality that you would expect from one of the big manuals from – or one of the well-known manuals from one of the big Reinsurers.  And we created it because in the past we had done a number of one-off projects creating underwriting manuals from scratch.

So that’s all the medical risks, you know, the occupations, the sports and pastimes, the travel, all the rest of it.  We thought, “Well this is reinventing the wheel every time.  Why don’t we have a basic manual which is readily available there and if someone wants an underwriting manual, they can have it tomorrow, almost?  All they’ve got to do is log in.  If they want it customised, we can do that.  If they want it to have their corporate branding, we can do that.”  And we will make it available as software as a service and part of the deal is that we keep it up to date because risks are changing all the time.  When you mentioned HIV, Kathryn, earlier in our discussion, that wasn’t around in the 1970’s but it came to be and be recognised in the 1990’s.  More recently of course we’ve had Covid-19. That’s in the underwriting manuals and went in during 2020.  So risks are changing all the time.  So we created our own underwriting manual called Risk Apps and we have something like a dozen clients using it in all parts of the world apart from Antarctica.

Kathryn:       Okay [laughs].

Peter:          We have clients on every continent.

Kathryn:       Fantastic.

Peter:          Yep, so that’s Risk Apps.  And by the way, who would want an underwriting manual?  Well, if you were a small regional reinsurer that felt you needed a manual to be able to serve your clients properly, well there’s Risk Apps.  If you’re a smallish insurer that doesn’t have a reinsurer relationship which will entitle you to their underwriting manual, you can have Risk Apps.  Or maybe if you are a large international insurer that feels it’s bigger than one of the reinsurers and you – and wants to be independent of its reinsurers, it can have its own underwriting manual via Risk Apps.

Kathryn:       That’s fantastic.

Peter:          So that’s a brief summary.

Kathryn:       Brilliant, fantastic, thank you so much.  It’s been really, really lovely chatting to you, Peter.

Peter:          Likewise.

Kathryn:       I’m going to be back soon with Roy McLoughlin for his first outing of season four.  And if you’d like a reminder of the next episode, please drop me a message on social media or visit the website practical-protection.co.uk.  And don’t forget, if you’ve listened to this as part of your work, you can claim a CPD certificate on the website too thanks to our sponsors, Octo Members.  So thank you Peter, bye.

Peter:          Thank you.  Bye bye.

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