As stated in July, the more things change the more they stay the same - but how are systems checked and how are they assessed? Gill Salton explains.
Underwriting has been a changing beast over the past 10 years. Standards have certainly improved with the use of more detailed application forms, tele-interviewing, expert underwriting systems and increased medical evidence limits.
In addition, the standard of companies' internal auditing has greatly improved, which has also had the knock-on effect of increasing underwriting standards and has helped to drive cheaper reassurance rates. To further develop underwriting we still face other challenges, e.g. from non-disclosure and the efficiency of underwriting systems.
However, companies have implemented underwriting systems and improved their internal auditing methods. This has resulted in high quality immediate underwriting decisions that allow distributors to manage their customers' expectations.
With all the improvements in underwriting, it follows that auditing also needs to be smarter and other auditing methods need to be adopted.
Historically, auditing has been left to the reassurers who reviewed a specific number of cases to gain a view of the underwriting standards of a company. This could be seen as looking for a needle in a haystack of 200 or so cases and is often no longer appropriate to the way in which companies currently operate.
Most major companies now use internal quality checking as the basis of their auditing. Large companies have dedicated auditing teams who are auditing thousands of cases per year and have implemented sophisticated auditing processes.
Not only does this ensure a high standard of underwriting with fewer errors, it also gives reassurers access to a far greater auditing resource than they could ever achieve. The reassurers can review the internal auditing process and the quality/consistency of the auditing decisions and suggest recommendations to improve the process and/or quality.
Once the process has been agreed and the quality of the auditing is of a good standard, reassurers can be satisfied the company results being produced as part of the regular management information reporting, are credible.
Reassurers may then focus their future auditing on a sample of the company's results to ensure the standards previously agreed are still being reflected. The company with the best process and highest quality score can be rewarded with cheaper reassurance rates.