When asked to produce an important document, W. C. Fields, in the movie The Man on the Flying Trapeze, approaches an enormous rolltop desk, pushes back the top, and, with a sly grin, extracts the document out of a huge pile of crumpled paper.

Alas, when life underwriters seek information to match the right underwriting class with the best plan type, the problem is not so easily solved. Whats needed is a way of systematically categorizing risk within its context and continuity. Only then can underwriters make proper judgments.

In terms of that W. C. Fields movie, insurers need to clear away the disorganized pile of paper to reveal the pigeonholes in that rolltop desk. To create a reasonable measure of context for insured cases, they need to label the columns by underwriting class and the rows by product type, and then fit various mortality risks into this two-dimensional model. Insurers might add a third dimension, tooa continuity element, say, such as time or history.

Furthermore, as new product types emerge and the business changes, insurers need to refine things further.

This begs the question: Since the life insurance marketplace has undergone significant change in the past year or so, what refinements do product developers need to plan for now? Well look at that in a moment. First, lets review this history.

In the not too distant past, term, permanent and traditional products (like paid-up life or family policies) required relatively limited underwriting classes. The average policy size was small, and the policy featurescompared to todays policieswere fairly simple. For companies offering nonsmoker/smoker products, a flat nonsmoker discount seemed like a good idea. Also, female rates were determined using an age adjusting setback of some years. This simplified conservatism provided ample cushion, and for a time customers were content.

But, with the advent of interest-sensitive and universal life plans, product developers traded in some of that conservatism for growth. Distinctions like smoking status and the first real preferred classes made it essential that companies have competitive products. As a result, consumers could now afford larger face amounts. Suddenly, the life insurance industry found itself competing harder, offering more bells and whistles and more protection, and also vying with stocks and mutual funds, whose fortunes were on the upswing.

That was a sea change. Insurers started emphasizing the investment aspect of their plans, and downplaying the death benefits.

Virtually no one anticipated the subsequent backlash brought on by charges of market misconduct (real or imagined). Neither did anyone expect the renewed interest in products with guarantees or in products that emphasize protectionan interest triggered by the recent recession and the war on terrorism. Yet both changes have occurred.

As a result, insurers are once again looking at ways to maximize underwriting potential. Here are some strategies that could help:

Repair relationships with insureds. There remains a genuine need for products that provide good value. We must fill up the pigeonholes with products that allow the insured to feel secure. Focus on permanent plans, but use sophisticated knowledge of mortality differences based on amount bands, improved testing, and other tools for pricing. Hammer home the value of protection.

Look for underserved market segments. Critical illness products, guaranteed and simplified issue plans have evolved and must fit into our context model. There are few products for smokers. This could grow into a highly profitable line.

Design protection products for global markets.
This coverage, so common in North America, has seldom been properly marketed overseas. Life insurance as we know it will offer much to those who recognize the importance of security for loved ones and estate protection. A modern banking system and access to the Internet will drive down the cost of this coverage. Our robust underwriting expertise is an asset and will dictate how these markets are developed.

Take the high ground. Many consumers today are feeling uncertain about their financial situation, due to reported misdeeds at some corporations. So now, more than ever, insurers need to work to be sure their pricing, product development, and underwriting provide value and suit the customers needs.

Most of all, product professionals everywhere need to avoid allowing their desks to collect obscure piles of paper that clutter decision making and forward thinking. They need to be able to see the pigeonholes, and to evaluate risks and strategies in the context of the new environment. This will enable insurers to meet promises and grow revenues with skill and agility.

David G. W. Bragg is president at John M. Bragg Associates Inc., Atlanta, Ga. His email is dgwb@braggassocites.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 15, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.