U-shaped curves: teleunderwriting's many advantages can be undermined if underwriters consistently overstep prudent boundaries.

Underwriters know (or should know) that there are many so-called U-shaped curves now widely recognized and affirmed in clinical medicine. These curves have important implications for risk appraisal.

Perhaps the best known is the U-shaped curve related to alcohol consumption. Countless studies show us that temperate drinking confers a notable longevity advantage--mainly regarding coronary disease--when compared with either complete abstinence or robust over-indulgence.

The same is true for cholesterol.

Prominent epidemiological investigations have proven that very low cholesterol, in the range of 160 mg/dL or less, is directly linked to even greater mortality (and with a notably shorter latency) than elevated cholesterol.

Now, we have yet another of these U-shaped curves-the one that arises when life (and health) insurers embrace the revolutionary approach to risk selection that we call teleunderwriting. One key aspect of teleunderwriting is its unique capacity to reduce our longstanding dependence on medical records. And what is more timely than to affect such a reduction?

As insurers embrace the main driver of teleunderwriting--the tele(phone) interview with carefully crafted drilldown questioning of all "yes" answers to risk-related questions--they often find that underwriters are tempted to overstep prudent boundaries in their new-found comfort zone.

An experience of a major life company illustrates this clearly. Prior to adopting teleunderwriting, the insurer in question routinely tracked down medical records on 40% of its new business. After teleunderwriting was up and running, the incidence of requesting doctors' reports declined progressively, bottoming out at a mere 5% of cases.

Prompt audits revealed that, as anticipated, too few reports were being ordered. Thus, risks were being taken without adequate protective information. Appropriate intervention soon brought the doctors' report ordering threshold back up to 15%, which was well within the firm's comfort zone.

Why is this U-shaped curve so crucial to insurers?

Because the many advantages conferred by teleunderwriting can be undermined--to the appropriate chagrin of insurers and their reinsurers alike--if prudent boundaries are consistently overstepped by underwriters eager to please (and, no doubt also appease) producers.

Invasive cancer, coronary heart disease, systemic lupus erythematosus and chronic obstructive pulmonary disease are not impairments well suited to teleunderwriting. The depth of medical detail needed to make sound insurability judgments cannot be realized from teleinterviews alone. One can underwrite garden-variety histories of arthritis, headache, fainting and gastrointestinal complaints via sound teleunderwriting, but it would be correspondingly daft to do likewise with malignant melanoma and coronary artery bypass surgery.

To achieve and sustain an acceptable plateau in a teleunderwriting environment requires three things:

First, a good set of interview questions should be fashioned, with meticulously honed drilldowns that elicit maximum relevant information without prolonging the interview process.

Second, the essential retraining of all underwriters, so they can work consistently and efficiently off of the teleinterviews, is crucial. Prevailing underwriting manuals are geared to clinical diagnoses, not symptoms and interventions. They are not formatted to facilitate decision-making based on answers to drilldown questions. Rather, they will likely confuse and inhibit the underwriter.

To make the teleunderwriting work, one must teach underwriters how to make assessments using this novel resource. Experience shows that once this is accomplished, huge expense savings will be realized without jeopardizing the result.

The third step is enlightened auditing. Underwriting managers--and their reinsurance partners--must review sufficient numbers of teleunderwritten new business to make certain that foregone medical reports were not essential to the process.

Being on the high end of the left slope of the teleunderwriting U-shaped curve means too few medical records are being pursued. This evokes the specter of eventual excessive mortality or morbidity.

Conversely, positioning on the right (ascending) slope equates to failure to realize the full potential of teleunderwriting, by ordering too many medical reports.

The answer, as in many things, lies in the middle: Watching expenses and delays dramatically decline and knowing that (ever-more-significant) underwriting gains are all but assured.

Hank George is the principal in his own consulting and training firm, Hank George Inc. He may be reached at [e-mail].