Economic signs in Hong Kong may be starting to point in the right direction once again but the recent downturn has inevitably forced investors to take a long, hard look at the state of their personal finances and review exactly where they stand. Many have realised they cannot risk their long-term financial security and that of their families solely on the vagaries of international stock markets or a local property sector that can no longer be seen as a guaranteed money-spinner. As a result, adequate life insurance has become an increasingly important part of individuals' investment portfolios and the insurance business as a whole has moved much more into the spotlight.
While the insurance sales agent represents perhaps the most visible side of the industry, the nerve centre of any large life insurance company is the team of underwriters who apply company guidelines and make the key decisions about terms to be offered for any policy.
Miranda Leung, assistant vice president of Life Operations for American International Assurance (Bermuda) Limited, (AIA), gives a succinct definition of underwriting. "The underwriter's job is to assess the information provided by an applicant to decide whether the application for insurance could be accepted and, if so, on what terms. This means assessing an individual's expected mortality to determine a price to charge this person for a life policy."
Several major factors are being assessed during the underwriting process. Foremost among them, the underwriter must decide if an "insurable interest" exists. This is the basis of setting up a life policy contract. It determines if the beneficiary of an insurance policy will suffer a genuine loss in the event of death of the life insured. Assuming the interest is established, the underwriter's task is then to apply a number of tests and checks which cover the insured person's financial background, earning power and net worth, medical records, occupation and lifestyle, before setting the terms of the policy.
The underwriter must always be alert to unusual findings
"Training and experience are important. Experienced underwriters know when and where to look for further information," explains Ms Leung. "For example, some occupations such as working at heights are inherently more risky than [the job of] a white-collar worker. A smoking habit or taking part in dangerous sports are lifestyle choices which will also affect an assessment. The underwriter must always be alert to unusual findings noted in the information submitted. If incomplete information is presented, the need for vigilance is even greater."
AIA, a market leader in Asia and internationally-recognised for its financial strength, recruits high quality people with good potential to join its underwriting team. They include university graduates, preferably with some working experience, as well as other candidates with a strong background in medical services, accounting or finance.
Extensive training is provided to ensure that its underwriters meet the company's standards. Training in the first year concentrates on the principles of insurance and underwriting, analysis of financial information, basic medical knowledge and the interpretation of medical reports from an underwriting viewpoint. Programmes are conducted both in-house by AIA managers and externally by reinsurers, medical specialists and professional institutions. Underwriters are also trained in effective communication and interpersonal skills.
AIA strongly encourages its underwriters to continue their professional and personal development. This includes participating in the programmes of the Life Office Management Association (LOMA), an esteemed international association with more than 1,250 insurance and financial services companies as members.
The company provides examination fees reimbursement, textbook subsidies and tutorial assistance for their underwriters to complete the association's intensive 10-part programme to qualify as a Fellow of the Life Management Institute (FLMI). AIA also awards special financial bonuses to those who have successfully passed the examinations.
The career path of an underwriter starts as a junior and progresses to become a medical then a senior underwriter. On average, this takes about eight years. Thereafter, a senior underwriter can either further specialise in certain technical aspects or move into a managerial role.
In outlining the key qualities of an underwriter, Ms Leung expects, "an analytical mind, caution and flexibility, effective interpersonal and communication skills, good common sense and an excellent service attitude."
Ms Leung emphasises that, "Underwriting must be done properly. If the premiums we charge are not in line with the market, the company may lose its competitiveness and eventually its market share. However, if the premium we charge is not adequate, it will affect the company's profitability."
Being an underwriter is a challenging and varied job with good career prospects. It is especially attractive as the skills acquired are applicable in all life insurance operations worldwide.