How health insurers underwrite in the best of times has a staggering impact on their profitability.
Real-world experience, however, suggests this nugget of reality has not reached higher cortical consciousness across the industry. This is unfortunate because it has positively protean implications for either righting the ship or – forgive me – “staying the course.”
Given that unprofitability is not a diffuse source of angst at this writing, it is (more than) timely to focus on how carriers can dodge a hollow-point bullet: The underwriting-mediated consequences of suboptimal revenue due to the “W” word (“wastage” – the unwitting sacrifice of viable business).
When morbidity gets out of hand, one hunkers down, asking: ‘were our underwriting standards too liberal in relation to risk?’ Conversely, when morbidity is acceptable but potentially-profitable business likely sacrificed on the altar of conditioned nitpickosis, ask: how might our approach to risk assessment be fine-tuned so as not to toss out “the baby (revenue) with the bath water (genuinely untenable risks)?”
How is this accomplished?
Ask first: Are we too-much “lumpers” and too-little “splitters?”
Lumpers bask in broad generalizations about prevalent adversities besetting Homo sapiens to the counterintuitive extent of missing the trees for the forest.
The lumbering lumper asserts “all abnormal liver tests are anathema!”
“Au contraire!” rightly says the splitter with this Orwellian insight: “All may be less than ideal, but some are less ‘less than ideal’ than others!”
Two points for the splitter!
Take home message: Obsessively broad, compulsively (over)conservative underwriting practices fuel the jettisoning of perfectly good new business.
It doesn’t have to be that way.
Woe betides the revenue stream of those who do not heed the splitter, for they are doomed to toss gobs of sound new business in the Dumpster of lost opportunity!
What’s in YOUR underwriting manual?
Part the second is to ask: how do we gather core risk information used to establish insurability?