Despite working in the same building as the editor of our sister magazine The Review (“delivering timely and unbiased reinsurance news and analysis for the global risk management industry”) my interactions with those who pull the strings of the protection industry have so far been limited to telephone interviews and listening to actuary jokes at various industry events (“What’s the difference between God and an actuary? God doesn’t think he’s an actuary”). So when Mick James, business development manager at Reinsurance Group of America (RGA), invited me to spend the day at the reinsurer’s offices down the road from Health Insurance HQ in the City, I decided to take him up on the offer and find out more about the impact their decisions have on our readers’ businesses.
RGA entered the UK market in 2000 and now works with 12 major UK protection brands. Put simply, each of these providers transfers to RGA some of the risk they acquire by selling protection products, paying a regular premium in exchange for greater financial stability. This emphasis on providing stability has spawned a whole host of jokes about actuarial caution and James is keen to dispel the myth that delay within the industry can be lain at the door of reinsurers.
“The objectives of advisers, life insurers and reinsurers are clearly aligned,” he says, summarising these as “volumes of business, acceptable levels of risk and acceptable levels of profit”. Many of his colleagues are directly involved in finding ways to reduce the cost of protection, beef up benefits and shorten the length of time it takes to get policies on risk. For example, RGA has a strict service level agreement in place which means that, when reviewing claims (it reviews about 25% of critical illness [CI] claims), it must respond to 90% of cases the next day. At a large case financial risk underwriting level, 96% of cases are returned within 24 hours and 99.7% within 48 hours.
Neither is it the case, according to claims manager Peter Barrett, that reinsurers, any more than life offices, seek to decline claims.
“Nothing could be further from the truth,” he argues. “Declining a claim is the biggest pain in the neck for everyone. It’s the worst possible outcome.”
Barrett believes that a significant improvement in recent years has been the increased contact between claims assessors and claimants.
Throughout the day James’ colleagues are keen to stress that reinsurance is not a passive, reactive business. While everything from new CI conditions to new products is trumpeted by life offices, behind the scenes are reinsurers scouring global markets for ideas to adopt or adapt. Greg Becker, product development actuary, is in charge of managing RGA’s worldwide Innovation Centre and will look at everything from design to distribution. He believes that reinsurers are able to take an impartial, holistic view of the threats and opportunities facing the protection market. Ideas can be exported, adopted and adapted. In South Africa, for example, short-term protection is sold via SMS text messages. What about our readers though? Should they be threatened by developments in other channels?
“The market can grow and IFAs will always deal with certain parts of that market so if the market is bigger that is in their interest,” argues Beck. “There is never going to be substantial value in certain low premium products and if that is the only way a product is seen as cost effective for certain groups, then ignoring that is a poor strategy.”
Of course, there is a huge amount of heavy lifting to be done before new products or even amended products come to market, and bearing the brunt of it is the research team, armed with PhDs in statistics and, according to James, “absolutely fundamental to everything we do”. Or as researcher Anton Brink puts it “we are the ones behind the assumptions”.
“People always want to do new things all the time,” explains Brink. “Someone has to make sure we come up with a sensible price, ask whether it will actually work, and turn the ideas into numbers.”
He gives the example of an idea to write cancer definitions for CI on the basis of treatment, rather than the staging of the tumour. This sounds much simpler than current policy wording in theory but in practice it is incredibly complex given the many variables involved in determining what treatment each patient receives, not necessarily associated with the severity of their condition. Pricing analyst Karl Sawetz, who works closely with the research team, gives another example of a request to reduce the minimum age on child cover on a CI plan down to zero. This isn’t just a matter of whether it can be cost effective but involves an element of ethical debate.
Beck’s point about holding a “holistic, impartial” view is an important one given the dynamics of the protection industry, in which reinsurers, life offices and advisers work according to certain assumptions, which themselves are subject to change. For example, Mick James points out that pricing is based on the assumption that policies will lapse before their term.
“A lot of work is going on around retention but if everyone held on to their policy for a term, everyone would lose a lot of money,” he warns. “It’s a structural problem with the industry.”
James also believes that advisers may not be aware of the extent to which life offices “take the hit” rather than pass on reinsurance premium increases to consumers. It’s a timely reminder of the complex interactions between reinsurers, life offices and advisers and a spur to keep a closer eye on who is pulling the strings.