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Underwriting and calculators

On our travels we speak to a lot of people about underwriting manual developments. One topic which comes up time and again is calculators: great invention or the work of the devil?

Some underwriting manuals have had simple calculators for many years, for example for pulmonary function tests, financial ratios and BMI, all of which are designed to help the underwriter by speeding up and simplifying assessment. In recent years calculators have increased in number and complexity. There are calculators for overall cardiovascular risk, coronary heart disease itself, breast and skin cancer, liver function tests, and even occupation risks. In this article we look at the pros and cons of calculators generally but in particular the more complex calculators that deal with multiple risk factors.

Calculators have a number of advantages:

  • They perform calculations quickly and present ratings without the need to refer to rating tables.
  • They ensure that the underwriting philosophy is implemented consistently by each underwriter on every case that shares the same risk features and across a company with multiple underwriters and multiple sites.
  • In theory it should be easier to defend ratings that are challenged where the decision can be tied to an evidence base and there is less influence of underwriter discretion.
  • Calculators can ensure that important steps in the decision-making process are not missed, such as in the assessment of cancer cases.
  • Where a ‘global’ manual is used in multiple markets, a calculator can be customised to ensure that outcomes are tailored to individual market conditions in terms of disease prevalence and local pricing.

On the other hand calculators do attract some understandable criticism:

  • Usually they don’t display the ranges or steps in ratings so that an individual who has a BMI that is right on one of these rating group borders gets the ‘book’ rating without leaving the underwriter some say in the matter. In contrast to a rating table, calculators only deal with ‘black and white’ and not ‘shades of grey’. When a rating threshold is crossed it is crossed – and that’s it.
  • Underwriters may learn and build up real experience more slowly because the calculator does the thinking for them. And of course calculators don’t learn either – well not yet anyway.
  • Some calculators deal with risk factors in isolation and don’t account for the interactions between them. Others may give the impression that they do but in reality just add up the numbers, misleading users into thinking that the calculator is carrying out the full risk evaluation process.
  • Calculators can produce quite inappropriate answers if incorrect data has been keyed in – garbage in, garbage out as the saying goes.
  • Because their workings are unexplained, calculators produce answers in isolation; users don’t know how they were derived and thus cannot question them – assuming he or she were so inclined (see below).
  • Experienced underwriters have learned over the years what is significant and what is not. Calculators may not be able to deal with these subtleties of underwriting (although the counter-argument is that the ‘subtleties’ are subjective, are derived from dubious traditional wisdom and myth, and thus have no place in modern risk assessment).
  • Related to the points above, underwriters are discouraged from thinking about the individual case before them and tend merely to apply whatever the manual says.

Some calculators, especially those dealing with multiple or cardiovascular risk factors, have become increasingly complex; we suggest that the majority of the end-users don’t understand how they work and how they deal with complex interactions between risk factors. In fact, the workings are probably understood only by those who devised them… Furthermore the algorithms may be regarded as ‘proprietary’ and thus are not made public, so where the calculator stops and where old-fashioned experience and judgment come in are far from obvious. How many users believe that the calculator is always right and never needs to be questioned?

Calculators vary in sophistication. Some algorithms are based on complex interactions between one or more risk factors. Others use simple risk factor counting, with perhaps individual consideration being required when there are four or more factors in play. Some will only give decisions for some conditions when further test are available, for example offering critical illness terms for diabetics only when urinalysis, GFR or cholesterol readings are known.

Cancer calculators tend to be more a process for simplifying decision making in complex situations, and ensuring that pieces of information or vital steps are not omitted.

Whatever their limitations, we believe calculators are here to stay. Underwriters are under increasing pressure to get through more and more cases and they need tools that help them do so. With a lack of experienced underwriters and less training taking place, perhaps there are not that many underwriters now that are still able to apply ‘old school’ judgment and experience (not that this can be relied on 100%, maybe). However, underwriters do need to remember to engage their brains before using calculators – it’s what they are paid for.

And maybe producers of underwriting manuals need to explain how their calculator algorithms work and what is included so that users don’t have to make assumptions that might be wrong.