Picking up the pace: The president of the association of home office underwriters talks about speedier underwriting and the quest for knowledge. (Underwriting Life/Health Q&A).

The life and health insurance industries have been struggling somewhat for the past 10 years with shrinkage due to mergers, consolidations and companies becoming insolvent.

In addition, market forces, changes in medical techniques, availability of information on insurance applicants, and both state and federal regulations have changed the way underwriters process an application.

Last year, the two organizations representing professionals in the life underwriting arena in the United States--the Home Office Life Underwriters Association and the Institute of Home Office Underwriters--merged to form the Association of Home Office Underwriters, which now includes members of both organizations as well as representatives of the health underwriting field.

In October, AHOU held its annual meeting and elected John Krinik as its first president. Krinik spoke with Best's Review about major changes coming in the life and health industries, with underwriters on the front line of the action.

Q: How do you expect life and health underwriting to change?

We will still evaluate individual risks with medical histories, financial histories and nonmedical criteria. However, the techniques will change drastically. The insurance-buying emphasis has shifted to money set aside for retirement, rather than simply a death benefit. With electronic information systems, and more customers doing research on the Web, there will be pressure for faster underwriting. Underwriters will have to work with less information, look for alternate sources of information and make decisions without complete medical records. This is part of the trend to faster issue and approval in underwriting--"how much information do we really need to evaluate a risk?"--the trend toward less information and faster issue, because the market demands it.

Q: What about the use of genetic testing for life and health insurance?

The basic principle of risk classification is that you base decisions on sound actuarial principles and reasonably anticipated experience. In the case of genetic testing, you do not have a wealth of actuarial information and experience. When you read about gene screens that allegedly tell you whether you are going to get a disease, that information is inaccurate or misleading. I don't see genetic testing being used as a basis for declining coverage, but I am concerned about the attempt to use gene screens as a means to offer more competitive pricing. This would be dangerous, because it wouldn't be based on sound actuarial principles, but would be driven primarily by marketplace competition for the lowest pricing.

Q: What is your opinion of expert underwriting systems? Will they replace human underwriters?

When these systems were released, too many companies used them only for the purpose of screening uncomplicated applications, rather than using them for real-time underwriting. They weren't willing to allow their system's knowledge base to make adverse decisions. To get the most out of an expert system, you have to be willing to let the system make the decision. No company I know of was willing to permit that. To make effective use of an expert system, you have to let the system do what it was designed for.

Q: What will life and health underwriters need to know as the industry moves forward?

There will be a premium on education. About 10 years ago, reinsurers began to audit their client companies, not only by reviewing application files, but evaluating the educational achievements of the company's underwriting staff. If there were no, or only one or two, fellows of the Academy of Life Underwriting in a group of 15 or more underwriters, a reinsurer might feel compelled to offer less favorable premiums because of the risk associated with lower levels of underwriting expertise. Reinsurers increasingly prefer that a client company's underwriters have top-notch educational credentials in order to get the very best automatic reinsurance rates. As you look at the economy in general, the premium on education is going up and up. Continuing education is absolutely necessary because of the rapid changes in all fields, not just in medicine or computer science. Employees have much more value if they continue to obtain educational credentials as well as their basic training. The more successful companies see t he value of making decisions which are accurate the first time.

Q: How will AHOU be a part of the new underwriting market?

The whole reason an organization such as AHOU exists is to enhance educational opportunities for underwriters. Those educational opportunities are increasingly u unavailable inside the companies, because they are cutting back on employee training costs along with other home office expenses. Employees must acquire education from outside. The Life Underwriting Education Committee, administered by AHOU and the CIU [Canadian Institute of Underwriting] in Canada, runs as many as five seminars a year in addition to its FALU [Fellow of the Academy of Life Underwriting] program, and it is planning to do more to keep underwriters up to date through continuing education opportunities.

RELATED ARTICLE: John Krinik is the first president of the newly formed Association of Home Office underwriters. He has worked in the underwriting field for 30 years and currently serves as editor and publisher of Underwriter ALERT, publisher of Hank's JournalScan and executive editor of On the Risk, the Journal of the Academy of Life underwriting. In addition, he is co-author of Getting It Issued, a handbook for producers about dealing with the underwriting process.

Krinik is a founding member of the International Underwriting Congress Planning Team, co-founder of the State of the Art Seminars, past chairman of the Joint Risk Classification Committee, and a charter faculty member of the Academy of Life Underwriting Continuing Education Seminars and the Society of Actuaries Underwriting Seminar Series.

Combining Forces

The Association of Home Office Underwriters was created last year when the two organizations representing life underwriting professionals agreed to merge.

The Home Office Life Underwriters Association had served its more than 1,200 individual members since 1930. The Institute of Home Office Underwriters was created in 1937 as a company membership association and has 471 member companies.

The combined organization's membership will be composed of individual underwriters and others associated with the selection of individual life, health and/or living benefits risks and will include medical directors, actuaries, agents, brokers and related professionals.