By Sorin Rogojinaru
More often Underwriters are seeing increasing pressure on their daily practice. Old times when you could obtain verbal quotations or when deals were done outside the office are gone. Nowadays everything needs to be done “by the book”. Guidelines were there for ages, but experience was the main rule of practice. The destination was more important then the journey. But as the market becomes tougher, the pressure imposed by owners and reinsurers increases; the journey is now watched over by sets of strict rules and regular audits.
What is Underwriting Governance? Reinsurers and owners expect Underwriters to manage the book of business in ways to maximize the premium/losses ratio. Underwriters on the other hand know more about the specific market they are dealing with and they try to develop and keep good relationships with all the players: brokers, agents and clients. It is not an antagonistic interest, but a different view, and sometimes different strategies are adopted. The end results or objectives are the same. Underwriting Governance minimizes the gap between ownership and control by creating guidelines and incentives between the parties.
Guidelines. Guidelines are developed to provide a clear framework for sound governance. If guidelines are too tight, Underwriters will find ways to be superficially compliant while exploiting situations not covered by the guidelines. Market conditions are in a continuous flux of change, conditions of risk are changing and the pace of rule changing seems always one step behind. This is why principles are very important. Principles are applicable to broader situations. A narrow application of underwriting guidelines may lose sight of the principles that gave rise to those guidelines in the first place. Every client and every risk need to be treated as an “individual” and guidelines need to be tailored and interpreted in the broader principle context.
Incentives. These come in form of delegation, motivation and trust. Offering an “underwriting pen” is a form of delegating the authority and responsibility to subscribe risks. A delegation process starts with training, continues with communication and establishment of accountability mechanisms and finishes with evaluation of results. The last activity is the most important as it needs to be seen not purely as control of respecting guidelines, but on respecting principles and in applying the guidelines based on the specificity of each account.
Information. Underwriting is based on the amount of information obtained. More information available will justify a principled interpretation of a rule. Information is more easily obtainable if relationships are developed between Underwriters and Brokers, Agents or Clients. One of the major guidelines needs to be communication and flexibility in “looking” at a specific risk. Applying one rule to all situations will create a unilateral selective process that may create short term premium, but will not sustain a long-term strategic relationship.
Trust. Insurance is about trust. As the Client trusts his Agent or Broker and the intermediary trusts his Underwriter, in the same way Underwriters must be trusted by their Reinsurers or owners. A strategic direction needs to be established and the role of any supervisory activity limited to overseeing that boundaries are not crossed. Without trust one can not promote a culture of innovation and change.
Once the market returns to previous levels of trust, we all hope that flexibility and adaptability towards the rules and strict guidelines will prevail. Lack of flexibility means lack of innovative products adapted to the market shift. Underwriting Governance will then be just the framework necessary in guiding the work, and not a restrictive “boundary”.
Sorin Rogojinaru, Insurance Broker, can be reached at srogojinaru, yahoo.ca The comments in this article represent his own personal opinion, and do not necessarily reflect the vision of his employer.
November 16th, Toronto