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From Resource,
February 2007
Copyright by LOMA
Where
are our Future Underwriters?
An
underwriter says the industry faces a shortage of underwriters and must develop
new talent.
By
Joseph Dahl,FLMI, FALU, CLU
Vice President, Underwriting
Sun Life Financial
I have been in this business for
quite a few decades and one increasing concern I have is the apparent increasing
reduction in the flow of new underwriters into our profession.
When I was asked, as the
current chair of the International Underwriting Congress, to write an article
for Resource magazine, I must admit, I was somewhat
intimidated. On those rare occasions I do write, the topic is usually on
something pertaining to an underwriting impairment or process. In this instance,
it was to be more applicable to underwriting management.
When you combine this with
having to follow the most adept writer I know and my predecessor as chair of the
International Underwriting Congress, Hank George, I was justifiably concerned.
So don’t expect a Hank George quality piece.
I thought long and hard about what I should write and settled on a topic that
has been a long-standing concern of mine: the development of underwriting
professionals. I have been fortunate to have the opportunity to work in a number
of different countries, including
Canada
, the
United States
, the
Philippines
,
Indonesia
, Hong Kong, the Peoples’ Republic of China, and
India
. The last two, of course, are the largest countries in the world and have the
largest potential life insurance market, along with many other commodities.
When I
began my underwriting career long ago—and it was long ago—one of the first
and most important pieces of advice from my seniors was that I should begin my
studies. My suggested course work was the LOMA FLMI program and, as I was in
underwriting, the FALU program offered by the Joint Educational Committee, which
later became the Academy of Life Underwriting (ALU) educational committee.
It is
the best advice I ever received. If one is to reach one’s full potential as an
underwriter, one has to develop one’s skills to the highest possible level and
not totally rely upon one’s employer to provide all such training. In my
experience, the more knowledge one acquires, the better the decisions are, the
faster such decisions are made, the more economically such decision are made.
Without a doubt, the work becomes more interesting and, consequently, results in
a more rewarding career for the individual.
Over
these past decades, there has been a continual reduction in North American
students both for the LOMA and the ALU educational programs, accompanied by a
corresponding increase in the participants from other areas. Why so, one should
ask.
The North American industry has
gone through a couple of decades of demutualizations, mergers and acquisitions.
When such an event occurs, a company must be able to affect a variety of cost
savings in order to make the transaction economically viable. These savings
always involve the reduction of staff numbers; during those decades, then, it
was obviously not the No. 1 priority to develop new staff, underwriting or
otherwise.
If one
needed a particular skill, the old process was to develop from within. Now it
became to recruit the necessary skills from the marketplace. This may work for
investment pros, accountants, and other financial services professionals, but
only the insurance industry employs underwriters and the only source for
underwriters is within the insurance industry. It is also vitally important for
any insurance company to have an adequate complement of trained underwriters to
ensure adequate mortality and morbidity results, both in the short and long
term.
Big
Gap
All this has resulted in a
substantial gap between the number of underwriters in the Baby Boomer group, who
have begun to retire, and the number of new trainees entering the profession.
A
number of factors have contributed to this situation, not just the changing
overall financial services environment resulting from these changes in company
structures. The industry, say 20 years ago, had a ready made source of
underwriter graduates to staff their operations. The larger mutual companies
generally had an excellent initiation and training program and produced a steady
supply of often excellent underwriting talent, many of whom are still active
within the industry. With the industry changes, this supply, for the most part,
has been exhausted.
With
the advent of integrated computer processes, risk selection became a function in
the continuous new business workflow. Previously each department operated
relatively independently. Marketing produced the business, underwriting approved
the file and passed it along to the issue function to print and mail the policy.
In those days, underwriting was a group of medical doctors, actuaries, and lay
underwriters, all of whom appreciated the need for good mortality and morbidity
results. More importantly, they appreciated what it would take to achieve these
results.
It
takes a lot of time and effort to develop a competent underwriter. In my
experience it takes at least five years of work to accomplish this. A company
has a substantial investment in this group of individuals and must recognize the
value they have created as an excellent return on the investment.
With
the change in the process, the management person responsible for the
underwriting process, although a competent skilled manager, often will have come
from another discipline and will have no way of valuing the human capital the
company may well employ. The amount of resources available for the training and
development of underwriters has suffered from cost and time constraints as is
well evident in the number of underwriters attending a variety of programs or
registering for self study programs.
Another
factor, layered on the above, was the idea that in a short time the underwriting
decisions would be made by the computer and expert systems. Much effort has been
expended. Ignoring the data entry problem, what we have today is a somewhat
sophisticated screening ability that is quite capable of automatically
processing about 65 percent of the non-medical business as well as some of the
paramedical and lab business.
This
is very effective; however, as in physics, for every action there is an equal
and opposite reaction. You remember that from high school. The reaction here is
the automated process has eliminated the block of business we previously
utilized to train the new underwriters. Unfortunately, as an industry we have
not yet developed an adequate initial training program for new entrants into the
underwriting profession.
There
also has been a dramatic shift in the average underwriter profile. Many have
families at home and the time available for self study is limited. To foster the
development of this new younger group of underwriters some study time allowance
should be made. Yes, this has a cost but as I said, an investment in human
capital is needed and it will repay with a large return.
We
used to rely on our reinsurers for a great deal of training and development.
Over the past couple of decades, reinsurance has become a commodity with
resulting price and cost constraints. This has resulted in a substantial
reduction of available seminars and the like. The same comments would also apply
to other vendors such as labs and paramedical companies. As they say, there are
only 100 cents in a dollar.
Where
does that leave us? We as an industry and as individuals within the industry
must reevaluate our efforts to develop new underwriting talent. We must
encourage the development. When I introduced the LOMA and ALU programs in Asia,
including
India
, the bright knew. Without a great amount of encouragement, they quickly became
active students in these programs. They
not only enjoyed the programs but found the material excellent and helpful in
their day-to-day work.
It has
always been my belief that a well-trained underwriter not only works more
effectively with fewer requirements and costs, but also obtains better results.
I also believe, without a doubt, that the more you know and understand about
your role in a company, the more interesting and rewarding the role becomes. So
education and training are investments every company must make if it hopes to be
financially successful both today and tomorrow.
What I
have outlined is primarily related to what I know, which is underwriting and new
business. The same principle, however, applies to any operation in the company.
It is so very important during these days of intense competition to be equipped
to service our clients with efficiency and accuracy. Everyone has had
experience, be it on the phone or face to face, when the service person is
really unable to resolve your problem. Generally, it is due to lack of
knowledge. We must do all we can to avoid this happening in our own companies.
So
what can we do? I suspect most of you who read Resource
are in some level of management. It is your responsibility to put into place a
development and career program for all members in your work group. It may take
some effort to develop a suitable program and don’t forget to do a bit of work
on the cost benefits. Look at the cost benefit of a percentage improvement in
efficiency; it will not take a great deal of improvement to offset the cost. In
underwriting, there are the so-called soft benefits of better and quicker
decisions. In other areas, you get improved client relations.
We
must take action now before those Baby Boomers are history and we are faced with
a large gap in talent that cannot be filled.
About
the Author:
Joseph
Dahl, FLMI, FALU, CLU, has been underwriting for almost 45 years for both North
American and offshore business. Since retiring as chief underwriter of Sun Life
Financial’s worldwide operation, he has been consulting for the company,
concentrating on its
Bermuda
offshore and Indian businesses. He also is chair of the upcoming LOMA
International Underwriting Congress, which will be held March 18-21, 2007 in
Shanghai
,
China
. Dahl has served as chair of the Canadian underwriting organization, HOLUA, and
the educational committee of the
Academy
of
Life Underwriting
as well as managing editor of On the Risk. He was a recipient of the Emmet
Russell award for contributions to the industry. More recently, he was a member
of the board of directors of LOMA and chair of the LOMA educational council.
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