Understanding the underwriter

The number of underwriters employed and the level of their experience influences how quickly and efficiently applications are underwritten and policy documents issued. This impacts the payment of commission.

The Harvest Partners risk product market evaluation revealed that companies employ between two and 41 underwriters, with the average being somewhere in the vicinity of 16. The number of underwriters employed correlates to the size of the company involved.

However, the Harvest report revealed that in terms of efficiency and effectiveness, experience perhaps plays a more significant role in underwriter performance — and the average experience of an underwriter, according to the report, is around 11 years.

This year, product managers rated the quality and experience of underwriters more favourably than actuaries, claims and underwriting managers.

But the survey argued that having experienced personnel and properly managing and using them is only one of the contributing factors towards maximising results. “An equal emphasis needs to be placed on workload expectations,” the survey said.

“Generally speaking, the average number of disability and term, TPD and trauma files an underwriter is responsible for underwriting in a month has significantly reduced over the four year period.”

But there were some worrying discrepancies in disability income, in terms of perceptions of workload and actual workload.

Harvest Partners argued that this result “indicates that either respondents are over-estimating the number of new applications, or that companies that write larger amounts of business do not have access to actual data”.

The number of cases in suspense also impacts on efficiency, according to Harvest Partners. “One way of measuring the extent of this problem is to take a sample at a point in time of how many cases are in suspense as a proportion of applications received.” The benchmarking component of the market evaluation revealed this figure to be 36 per cent.

Another important factor is the quality of underwriting management information systems. As they have in previous years, respondents rated this aspect of operations relatively poorly — the average score was 4.58 out of seven (with one being the highest score and seven the lowest). This, argued Harvest Partners, “points to a real opportunity to improve, so that a more targeted strategy can be created to address underwriting effectiveness”.

Some occupations presented greater underwriting challenges than others, particularly in relation to disability income and TPD business. According to Harvest Partners: “Farmers were rated highest with a 75 per cent nomination rate. Self-employed professionals and the entertainment industry were the others to feature with 58 and 50 per cent respectively.”

The most difficult medical conditions to assess were psychiatric/mental/anxiety disorders, which Harvest Partners said “has maintained its rating as the most difficult condition to underwrite”.

Hepatitis has trended down and chronic fatigue has trended slightly up over the three-year period.

Also contributing to the speed and efficiency of underwriting are the number of cases that do not proceed.

According to Harvest Partners, 20 per cent of disability income cases do not proceed, while 14 per cent of lump sum business suffers a similar fate. The evaluation also measured the number of policies cancelled from inception or lapsed within one year of inception during 2002, as a percentage of both new business (written in 2002) and of in-force business.

The figures for disability income came in at 9 per cent for new business and 14 per cent for in-force business. The figures for lump sum were 5 per cent on new business and 13 per cent on in-force business.

Harvest Partners maintained that these figures “are relatively high and represent a considerable strain on expenses that could perhaps be addressed through better training of distribution, service initiatives or specific retention campaigns or incentives”.

The evaluation also took into account the assessment tools employed by underwriters. In relation to disability, there has been an increased tendency to request a medical attendance report (MAR) over a three-year period. Paramedical usage has doubled over the last year, and the use of medical examinations and blood tests has also trended up over the last three years.

Similar results were found for lump sum business. The survey found that MAR results have remained fairly constant over recent years, and the proportion of files requiring a para-medical examination has trended up. Medical usage has similarly doubled over the last year and blood test usage also saw an increase.

“These results demonstrate a more cautious attitude to assessment and indicate that companies are responding to the warning signals that have been evident in the evaluation over the last few years.”

The efficiency of underwriters, according to Harvest Partners, can also be affected by the need to reassess files or perform other administrative actions subsequent to initial assessment.

On average, respondents said that around 71 per cent of files required further assessment after initial underwriting.

“This continues an upward trend and creates a significant impact on underwriting time usage,” Harvest Partners said.

“Approximately one-third of secondary assessment is based on requests for additional medical, occupational, financial or vocational information, unanswered or incomplete questions or unsigned declarations.

“The other two-thirds of the cases requiring further action relates to adviser or client error, including short payment of premium, incomplete PDC, name or address details, incomplete or no Customer Advice Record.”

This also could be addressed through better training of distribution. This issue has been identified as impacting on underwriting activity and costs. Recent developments in the market indicate a solution may be at hand,” said Harvest Partners’ Steven Davidson.