Point/Counterpoint

What Factors Should Underwriters Consider?

Should underwriters use all sorts of data or restrict themselves to models and loss data?
By: and | August 1, 2013 • 4 min read

Point: Use long-term trends in underwriting, not unrelated data.

Using an insured’s loss history in combination with group data and models are the best ways to ensure profitable underwriting.

Underwriting is an art, and the best underwriters know it’s best to filter out unrelated data that could result in an unprofitable decision.

Anyone who has looked incredulously at the latest fad, whether it’s buying $350 ripped jeans or frenzied Beanie Babies collecting, knows that long-term trends are better predictors of behavior.

An insured’s history of losses, in combination with modeling and group data, should be the primary factors in any analysis of risk from an underwriting perspective. History has shown that it’s nearly always useless to try to predict future behavior. Vague gut feelings are frequently wrong, and this is true for underwriters as well as for most individuals.

In fact, underwriting is a perfect example of collective intelligence being able to produce better results than any one individual, as most recently outlined in James Surowiecki’s The Wisdom of Crowds.

In that book’s opening anecdote, he writes of an experiment where the aggregate guesses of a crowd at a county fair, many of whom had no knowledge of the subject, more accurately guessed the weight of an ox than the individual estimates of experts who were asked.

What is underwriting other than a collection of the wisdom of crowds? The collected history of insureds is the best predictor of what the future will hold. Adding in unrelated data that purports to predict behavior creates a flawed calculation.

Even the attempt to add in that data can put carriers in a potentially risky situation. Such is the case when underwriting specific, individual risks butts up against the strict laws against the use of health-related data in workers’ compensation, for example,

In addition, the use of genetic testing results raises serious ethical, and potentially legal, questions if used to underwrite group life-insurance policies.

How can an insurance carrier really calculate the best price if the underwriting is flawed by using unrelated data? New underwriting factors, unrelated to the specific risk should be ignored, especially if the data invades the privacy of the insured.

Using past history of an insured in combination with modeling and group data is the prudent way to analyze risk and underwrite.

Counterpoint: Use all available data in underwriting.

The case can be made that when underwriting fails, it’s a result of a failure to use all available data.

The analysis of seemingly unrelated factors can many times point an underwriter in the right direction.

Nowhere is this more true than in the current situation facing workers’ compensation underwriters. Those who insure the risk are pounding their heads against the wall, facing combined ratios approaching 120, in many cases.

But some would restrict the ability of underwriters to gauge this risk, thinking they are arguing in defense of civil liberties. A patient’s mental health history or whether their father was a heavy drinker has no bearing on the patient’s loss history or the ability to predict a catastrophic workers’ compensation claim, they say.

If a patient has genetic addictive tendencies and suffers from depression, however, those are factors that could influence the outcome of an injury claim. Using those red flags to stage an intervention to prevent that patient from abusing opioids is something that will add to that patient’s quality of life, not subtract from their civil rights.

The use of credit scores in personal lines underwriting is another area that has generated controversy. Opponents say credit scores have no relation to whether someone can operate or maintain a vehicle safely. Really?

Is it that much of a stretch to conclude that someone who can’t bring order to their finances will lack order in other parts of their life? To me, that sort of thinking collides with common sense.

A failure to use all available data at this point in time seems particularly short-sighted. At no other time have we had the analytic tools that we have now. These tools are powerful, but to run optimally they need good data, and lots of it.

I think it’s time we drop the collective, foolish pride that stops us from sharing important information on such topics as family obesity, mental health or financial ineptitude and face those issues together as a society. People already post more on Facebook than I want to know anyway.

Insurance will always be a modifier of behavior, but it can’t modify behavior with one hand tied behind its back, deprived of useful, relevant data.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]