The Younger Members Convention

1. abcd The Younger Members Convention 2-3 December 2002 The De Vere Daresbury Park Hotel, Warrington, Cheshire

2. abcd Underwriting Awareness for ActuariesorPricing is just one small part of the fun! Debbie Akers Chief Underwriter , Friends Provident

3. Choice Social Insurance Commercial Insurance Adverse Selection Ability to price Protection of profit Why Underwrite?

4. The underwriter is in a pivotal position in maintaining company profitability Maybe 90% of cases are accepted at Ordinary Rates but behind the OR decisions can lie hours of intensive and expert analysis Proposals need to be accepted on terms which are equitable and which mirror the actuarial assumptions made when setting the pricing. Importance of Underwriting

5. The insured risks Gathering information Constraints and Threats Control Cycle Reinsurance New Issues Agenda

6. The insured risks - there’s a product under theresomewhere Gathering information - protecting the experience Constraints and Threats - the ‘interesting challenges’ Control Cycle - actuaries and underwriters really get together Reinsurance - more actuaries and underwriters get together ! New Issues - incl the G-word Agenda

7. Death& Terminal Illness Critical Illness Disability - TPD, WOP, IP What is the risk we are insuring?

8. Target market Sales process Who are the lives we are insuring?

9. Disability Definition : Occupation based Own / Any / Suited Disability Definition : Activity -based ADL / ADW / FAT / IAT Critical Illness - very detailed definitions! and of course Death or Terminal Illness Exactly what will trigger a claim ?

10. Suicide / self-harm HIV / AIDS War / Terrorism Drug Abuse ……? Some things which won’t - contractual exclusions

11. Extent of questions - not number but content Threshold for obtaining further evidence What we do with the information How thorough is the Underwriting ?

12. Application form Personal details Age / Height & Weight / Smoking / Alcohol / Occupation Pastimes Medical/ Mental and Outline Family History Financial factors Residence/Travel Gathering Information

13. Application form Questionnaires Expert Underwriting Systems at point of sale GP Report Hospital Letters Nurse Screening Medical Examination Tests eg blood profiles Gathering Information

14. Triggers for further evidence: Type of cover Size of benefit Age Expiry age Disclosures Information gathering

15. Costs Admin of requesting / chasing evidence Fee for evidence Underwriter time Risk of NTU in the meantime Annoying the Adviser Benefits Managing premiums and liabilities ie Avoiding the very high risk claims Receiving a fair premium for the moderate extra risk Medical evidence:Balancing the costs and benefits

16. Reassurer Manuals Company’s own manuals Reference sources Accumulated underwriter knowledge Chief Medical Officer Reassurer - underwriter/CMO Assessing the evidence

17. % extra mortality/morbidity - eg high BP per mille extra - eg scaffolder, cancer exclusion - CI - Exclude MS if history of optic neuritis IP - Exclude claim from upper back pain Restrict Term Remove options Postpone Decline Extra Risk

18. Old days 95% OR 4% Rated 1% Decline Now Life - 92 / 6 / 2 CI - 88 / 9 / 3 IP - 74 /18/ 8 Distribution of Decisions

19. Disability Discrimination Act Data Protection Act Access to Medical Reports Act Sex Discrimination Act Race Relations Act ABI Code of Conduct on Genetics and Confidentiality ABI Statement of Practice on Underwriting HIV/AIDS Ombudsman Regulatory Constraints on the Freedom to Underwrite

20. Adverse Selection Non-disclosure Moral hazard Threats

21. Range of questions Precise wording Continuing duty of disclosure Underwriter’s ‘nose’ - picturing the whole case Plugging the Gaps

22. Reasonableness not legality Simple view - ordinary person Non-disclosure - related / unrelated innocent / negligent / fraudulent Opportunity forgone Small print / catch-all questions Financial Adviser influence Ombudsman

23. Pricing Underwriting Claims Control Cycle

24. Teamwork documentation - policy conditions / KFD / application form pricing - mortality / morbidity; expenses launch training - sales etc Control CycleProduct Development

25. Controls on underwriting FSA Delegated Authority - Approved Person training authority audit Management of Claims Verifying and monitoring claims Identifying non-disclosure Identifying weakness in underwriting or documentation Experience Analysis Control CycleFollow -through

26. Quota share treaties align interests closely Reinsurance terms depend on their view of mortality/morbidity experience underwriting skills and controls claims handling Underwriting today impacts profit - today - direct immediate impact on Value of New Business and tomorrow - future reinsurance terms later - eventual Embedded Value Reinsurance

27. Issues for Insurance Underwriting History Differing views - discrimination, fairness, Genetics

28. Genetics and Insurance Research Centre Herriot-Watt Institute/Faculty Genetics Group Sessional Paper on Social Policy Issues Feb/April 2003 Professional interest

29. Issues for Insurance Underwriting History Differing views - discrimination, fairness, Current Moratorium Future Genetics

30. Sources of data Actuarial models Resource availability! Reassurers Direct Writers Evidence - based underwriting

31. The insured risks - there’s a product under theresomewhere Gathering information - protecting the experience Constraints and Threats - the ‘interesting challenges’ Control Cycle - actuaries and underwriters really get together Reinsurance - more actuaries and underwriters get together ! New Issues - incl the G-word Review

32. A + U = SPB Actuaries + Underwriters = Sound Protection Business A+U+CM = SPB - and Claims Managers too! Summary