Underwriting – the personal approach
When does personalisation go a step too far? We live in an era of mass customisation or mass personalisation, which is essentially a good thing – except, maybe, when your favourite baristas offer 30-odd permutations of coffee and you agonise over which to choose.
In the world of insurance, personalisation must be right to the fore at claim time. The process must be about understanding the individual circumstances and the claimant’s needs, and addressing them accordingly. Maturities excepted, claims involve problems, and the aim of the insurer should be to minimise their impact as much as it can; if it can solve them, so much the better. And this is consistent with the modern way of thinking, that claim management is a service to the customer, and not merely the paying out of sums of money.
But what about underwriting? Don’t applicants deserve the personal touch too? Of course they do, and there are two angles to this.
One is that underwriting departments are under pressure to turn cases round quickly and keep costs down. That requires underwriters (and underwriting engines) to make quick decisions based on a minimum of evidence. Is that a personal approach? Hopefully most of the time but possibly sometimes not if further information would help better risk stratification and reaching a more equitable underwriting decision. In some markets the potential for quick case processing at the expense of thoughtful and fair underwriting is coming under increasing scrutiny. Insurers need to get the balance right or feel the hand of regulation even more heavily on their shoulders.
The other angle concerns underwriter psychology, and we were reminded of it when attending a meeting of underwriters the other day. Some (admittedly difficult) mental illness case studies were being discussed, and we were struck by some of the opinions aired that were merely based on speculation about the backgrounds to the case histories (for example psychosocial issues, external stimuli, insight, ability to cope) and what had led the life proposed to his or her current situation and state of health. This speculation informed a view of prognosis and, ultimately, the level of risk.
This is no way to reach underwriting decisions! It is creating fiction. It is underwriting by fantasy. The information before the underwriter is the sole basis for decision-making. To do otherwise introduces subjectivity and inconsistency – and we humans are inconsistent enough without going out of our way to introduce more.
Risk assessment needs to be dispassionate and as objective as possible. If there is insufficient information on which to reach a fair decision, additional evidence is required.
Ultimately, the question to ask is, if you accept a thousand (or more) cases with these features, would you experience excess mortality? And if so, how much? And if you really don’t know, or you can’t place the risk within reasonably narrow bounds on the spectrum that spans from standard to decline, then you are obliged to seek more information in order to reach a sound – and fair – decision.
That is what personalisation as applied to the underwriting process is all about.