Underwriting discipline evolved from art to science.

This is a response to your article ("The Art of Underwriting," Best's Review, November 2005) stating underwriting is an art. For most personal and many commercial lines, we believe it is a science. Frederick Taylor taught there is always one best way to do work. We suggest this is also true for underwriting, if it is to be consistently profitable. Our rebuttal was composed with words that mean what they say and say what they mean.

As the World Book Dictionary indicates, a discipline is probably a science if it is any activity that is the product of a prescribed process or working principles gained by education and/or training. Examples include grammar and biology. A discipline is probably an art if it is the product of and has primary appeal to one's imagination, and depends more on special practice than general principles or a set of working principles gained by experience. Examples include philosophy and sculpture.

We propose that underwriting began as an art and has developed into more of a science. Experience taught the original Lloyd's underwriters which cargos and routes were riskier. No checklists or actuarial analyses existed as profitability guides. Whether current underwriting practices are art or science is contextual.

Consider insuring a museum collection, where spread of risk is not achieved. Particularly when a collection is not of exceptional value or rarity, underwriting expertise has been developed. An element of science remains based on experience and of art based on the collection. Further, consider the best way to insure a newly discovered Leonardo Da Vinci painting. Determining the risks associated with unique and priceless property is more art than science. Underwriting the risk of U.S. auto exposures is much more science due to spread of risk, statutory/regulatory requirements, voluminous actuarial data, and societal expectations.

Underwriting can be performed as a science if:

* correct principles are learned;

* learning is consistently applied in structured ways;

* underwriters confer about unusual circumstances to learn and work smarter in the future; and

* supervisors reward cooperation, compliance, and creativity.

Disciplined underwriting has these qualities and contingencies. The work is correct if it:

* conforms to fundamentally sound principles, applied accurately according to legal requirements, and in ways stakeholders have agreed upon;

* is consistent if guidelines are implemented in structured ways;

* is cost effective if underwriters use their time efficiently and effectively, being certain about what is relevant, and focused on what needs attention; and

* is completed with confidence and assuredness (underwriters know what to do and when to do it).

Stakeholders are more confident about their future knowing the work done by underwriters is correct and consistent, which should be conducive to profitable results. If the law of large numbers exists and the primary concern of underwriting is profitability, underwriting should be conducted as a scientific discipline.

John Gilleland

Joseph Wiest

USAgencies Inc.

Baton Rouge, La.