“Over the last several years, things began to change. Then, within the last 12 months, they became so intolerable that I had to leave”
Senior Life Underwriter Personal Communication October 2016
This veteran senior underwriter approached me, seeking to talk about why she left a promising career in a prominent life insurer.
I emphasize that this was wholly unsolicited.
Being fairly well known within the underwriting community and also because I publish the monthly e-magazine Hot Notes©, it is not unusual for me to be contacted by underwriters. And I put aside whatever I am working on to respond to all questions and concerns raised by my peers.
Further discussion with the underwriter cited above revealed that the driver of this discontent was a bevy of operational and managerial practice adopted in the wake of a dramatically increased focus on underwriters’ productivity.
Broadly speaking, it makes sense that every underwriting shop would strive to balance productivity – getting out the work – with the quality of the worked gotten out.
In recent years, new business executives have been inundated with data addressing all aspects of their operation. These include so-called “productivity metrics,” literally slicing and dicing every aspect of the underwriter’s job.
Many production metrics have been synthesized by stopwatch timing every step of the risk appraisal process. While this process has had adverse morale implications, it has also generated voluminous data.
In at least some companies, these data have led to the imposition of “standards” for APS reading time and other key activities bearing directly on the quality of underwriters’ work.
It would appear that the mindset of those who have become quite literally obsessed with productivity has its pathogenic roots in a concept dubbed “lean management.”
A great deal has been written about “lean management” and methods for bringing it to bear in both blue and white collar occupational domains. Indeed, there are many consultancies thirsting for the opportunity to guide firms in their embrace of “lean management” practices.
To fully elucidate the potential for adverse outcomes engendered by the unchecked embrace of “lean management “ in our context, we need to consider why companies bother to engage in underwriting.
We have long recognized that the underwriter’s primary responsibility is to assess risk in a manner consistent with product pricing. By doing so, their efforts directly impact actual-to-expected mortality and thus contribute mightily to bottom line profitability.
One might argue that the role of underwriting is even more impactful these days because of razor-thin term pricing, flat sales, high term conversion volumes, increasing antiselection, etc.
Indeed, if one sought to literally bring a life insurer to its knees in as little as 3 to 5 years, all one would need to do is pay underwriters solely on the basis of how many cases they approve each day!
There have actually been a few insurers that have done – give or take, more or less – what we just described. None of them are still in business.
Over the Christmas break I spoke with a friend who happens to be a veteran underwriter with 30-some years’ experience.
She told me that her company recently jacked up the % of underwriter performance evaluations that is based solely on case output volume. These evaluations are the main determinant of their compensation.
I asked her how this has impacted her work.
“I’ve made more mistakes in the last 12 months than I did over the past 30 years...but I get my ‘numbers’ and that’s all they care about.”
What is it about “getting my numbers” that sounds like something one would expect to hear from a factory worker?
Bottom line: those who conveniently understate/largely ignore the importance of high quality underwriting in order to maximize productivity are putting their employers’ bottom lines in grave jeopardy.
Report of an Unpublished 2016 Survey
After hearing many comments similar to the one cited at the beginning of this essay, I decided to conduct a brief survey with new business executives who are members of of my three study groups.
I invited 24 of them to take this survey. All but one complied.
We will now review the most salient questions raised in this survey, looking at how new business executives responded, along with a few of their many timely comments. The questions are in bold italics for easy identification.
All things considered, which do you think is the more important benchmark for overall underwriter job performance: productivity or quality of decision- making on cases?
61% chose quality of decision-making, 39% felt they were equally important...and not one elected to answer “productivity.”
This is the most eye-opening comment in response to this question:
“Considering productivity as equal to quality, when it comes to risk selection, is making a deal with the devil.”
Have you either adopted for the first time or changed your underwriter productivity standards in the past 5 years?
61% said they had done so whereas the other 39% had not.
One respondent noted that his company had “...made some adjustments along the way to be less aggressive with productivity.” Another survey taker added: “we reduced our productivity expectations for 2016.”
Looks like some new business departments are backing off on previously heightened productivity requirements.
One wonders what motivated them to do so.
Have your new productivity standards/criteria set higher expectations?
57% said “yes.”
The focus here appears to have been on staffing models.
And the drivers for one carrier were “technology and workflow improvements.” Have you set desired/required time limits for the completion of specific underwriting tasks such as reviewing an APS?”
While every survey taker said “yes”, it is noteworthy that 2/3rd chose the response option that added: “...but underwriter performance evaluation is not currently impacted by these criteria and we do not expect to do this in the future.”
The comments suggest that average APS review time is primarily used in developing staffing models, and that broader “service level expectations” take precedence over time intervals for specific tasks.
From my 40-year perspective, the surest stratagem for putting mortality results in harm’s way is to make slipshod APS reviews in underwriters’ best financial interests!
Have you had any attrition in your underwriter ranks likely attributable directly or indirectly to your new/revised productivity standards/criteria?
50% said “yes” and other half said “no”.
This is the only survey question that failed to generate comments.
Do you require underwriters to keep an ongoing record of how they spend increments of their time during the day?
Only 3 insurers (13%) said “yes.”
The rest abstain from this tedious practice.
One added that this was done for the duration of a study (by inference, timing underwriters) and discontinued thereafter.
What % of cases reviewed to assess an underwriter’s performance over the course of a year are pending cases (as opposed to those where a final decision was made)?
Two frank outliers reported 50% and > 80% respectively.
53% said less than 25% and the remaining 39% do not review any pending cases in this context.
There is less performance assessment value in reviewing pending cases. Final underwriting actions (approve as applied for, rate or decline) and the reasons underlying them tell us what is most important: the quality of decision making based on all risk-related information at hand.
This said there are also definite quality aspects inherent in how underwriters manage pending cases (especially the “juicy” ones that have been languishing for 30+ days!).
Therefore, being in the ± 25% range here likely makes the most sense.
What % of an underwriter’s final performance assessment/rating is based on quality of case-related decision-making?
I gave respondents 7 options, ranging from < 25% to 75%, and each of these possible answers was selected by at least one survey taker.
Overall, 26% chose < 50%, 30% said 50% and 44% indicated that over 50% of their performance assessment was quality-driven.
Several respondents added that there were additional components to their audits that did not fall squarely within productivity or underwriting quality parameters.
This is probably a poorly constructed question. However, it does tell us that the pendulum tilts significantly in favor of quality and 74% of respondents consider productivity not greater than 50% impactful on their performance review.
Do you think that potential savings from increased productivity expectations would likely exceed any increased mortality costs due to underwriting errors incurred by trying to meet higher productivity questions?
This is the most important survey question bearing on the consequences of productivity obsession.
Therefore it is instructive that 74% do not think that the payoff from heightened productivity demands can even match the inevitable mortality losses.
One adroit responder summed up this issue: “there is a point where productivity expectations, if too harsh, would cause errors than would impact mortality.”
If you were considering changes in productivity and related standards, would you seek out forthright input from underwriters before such changes were embraced?
87% said “yes” without equivocation.
Whereas 2 chose opted for the caveat that they would not do so: “if they anticipated that such feedback would be highly negative and/or significantly at odds with our goals/intentions.”
And, inscrutably, one respondent answered “no.”
Two comments are worth noting:
“Of course! They know the job much better than I do.”
“I wish we would but top management would not want this to occur.”
When a producer appeals an underwriter’s decision, from whom does that producer learn the results of his appeal?
87% chose “usually from the underwriter who made the decision being appealed” while the remaining 13% opted for “always” from that underwriter.
It is reassuring that not even one respondent indicated that this sensitive response to a producer would “usually” or “always” come from someone else.
Why is this so important?
Because nothing undermines an underwriter’s credibility more severely than producers perceiving that management has such little regard for their underwriters that they will override their decisions willy-nilly and do not show them an ounce of respect.
Any time an underwriter’s decision is changed – and regardless or whether or not the underwriter agrees with that change – the response to the producer in this setting must come from the underwriter.
Self-respecting underwriters would prioritize for seeking out opportunities to leave any insurer that did not adhere to this practice.
Do you think that the net effect of the increasing focus on underwriter productivity in the industry will have an adverse impact on underwriters’ professional status and/or compensation over the next 5 years?
65% said yes on both counts.
The others have put their credibility on the line by maintaining, in the face of common sense and despite the weight of evidence to the contrary, that underwriters will somehow remain unscathed despite unabashed clericalization of their jobs.
Indeed, one is tempted to coin the term “factory-a-zation” in light of what we know about the origins of “lean management” philosophy and its widget-making mentality that drives productivity mania.
To briefly summarize the essence of this essay:
If we allow productivity obsession to run roughshod over the quality of underwriting, the only possible outcome is significantly higher actual-to-expected mortality.
The full impact of this will not come to bear until 3 and 5 years after unfettered embrace of productivity obsession.
By then, many of its architects will have other positions with the company or have moved on to work for other firms.
And their sandbagged successors will be left to clean up this mess.
Our hope is that chief underwriters, actuaries, medical directors, C-suite executives and all others genuinely concerned about the success of their company will pause to consider what is at stake here.
And do this before we pass the tipping point and it too late to intervene.
This is the first in a series of commentaries covering a wide range of issues directly or indirectly impacting the future of underwriting and the its professional practitioners. Topics will include the impact of artificial intelligence, a balanced approach to underwriting practices, etc. These commentaries will be announced in Hot Notes© and published at www.insureintell.com.