published September, 2006 - On the Risk and InsuranceNewsNet, February, 2007, InsureIntell, February, 2007, ProducersWEB, September, 2007
Mastering the APS Paradox
Executive Summary
In the first two articles we discussed the importance of distribution and underwriting working together in partnership, as well as the need to breach operating silos across the lifecycle of an insurance policy. We also examined market dynamics such as staff attrition, lack of training and long-term career development, and the emergence of global automation and outsourcing all of which are posing serious questions for the insurance industry.
It is our supposition that underwriters in the 21st Century are uniquely positioned to benefit from these dynamics by taking advantage of technology and outsourcing solutions to help manage the stresses caused by fluctuating volume cycles and the ever increasing impact of staffing challenges. Another challenge to consider in underwriting (and claims) is time and cost effective use of the Attending Physician Statement (APS). In this installment we will discuss tools available to better manage the process of acquiring and then utilizing the APS as a productivity driver—and not a productivity detractor.
Introduction: The Paradox
Attending Physician Statements (APS) have long been an industry paradox. On the one hand they are an important source of information about an applicant’s insurability, but they are also inconsistent, duplicative, voluminous, and expensive to procure. Why do companies use an APS? Simply defined, an APS contains information from medical records to allow proper pricing of mortality or morbidity risk according to company guidelines. The goal of every insurer is to cut down on their reliance/volume of APS’—and innovations in risk management such as tele-underwriting, rules based engines, and pharmacological databases have contributed significantly to that end. None the less, the APS is an indispensable tool that will continue to play a role in the risk evaluation process for the foreseeable future.
Underwriting departments are back logged with more trial apps and higher case volumes than ever before. Simultaneously, they are understaffed and as a result, high-value resources (senior level underwriters) are being asked to perform administratively driven functions. The result of diverting the time of experienced underwriters in this way is:
· Decreases in productivity and case review cycle times
· Opportunity and real costs per case are on the rise
· A measurable decline in morale permeates the industry
As the saying goes, “you get out of something what you put into it”, and in the case of an APS, certain companies are getting more value and return on investment from how they handle an APS as compared to others. As the population ages and becomes more affluent, the volume and complexity of the typical APS has risen considerably. This simple fact has placed an increased burden on already over taxed underwriting departments and has added to the friction between producers and underwriters. The question is: How does one balance the desire for expeditious decision making with the need for prudent risk management?
First—build a better mousetrap
Companies have been struggling for years with the methods and services available to retrieve an APS from a doctor’s office. The cost and reliability of available options have been a challenge for companies seeking only to acquire evidence of insurability in a timely and cost effective manner. Single handedly taking on the task of retrieving an APS from a doctor’s office is clearly not practical in today’s Byzantine environment of HIPAA regulations, special authorizations, myriad copy services, payment requirements, and disorganized medical records departments.
There is no doubt that the advent of technological advances over the last ten and twenty years should have reduced the time and difficulty of retrieving an APS. But the question must be asked: are today’s time frames ranging from fifteen to thirty calendar days as good as it gets? Perhaps a few years ago that was impressive but technology and means of communication have continued to advance—shouldn’t standards and expectations for APS retrieval continue to advance as well?
Raise your expectations, raise your productivity
Companies need to take a hard look at what is acceptable in terms of time service, tracking/status, and success rates when retrieving an APS. If you could shave today’s average time frame by 1/3-2/3-- what would that mean in terms of productivity, field and customer relations, and persistency of applications taken? Underwriting departments are under ever increasing pressure to increase productivity with decreasing resources—the ability to recapture days lost to unnecessarily protracted APS retrieval time frames can’t be ignored. The time has come to expect better results and real time information during the APS retrieval process—and an average of ten calendar days is the new industry standard.
Another APS productivity factor is how underwriting departments handle the information once it arrives: Is the APS imaged or paper? Is it sorted and put into chronological order? Is the APS summarized with the key information presented as a concise health history? Are illegible entries and missing records annotated? Not only is the time it takes to get an APS important, but the circumstances of its arrival and utilization are also key factors that impact productivity.
What is an APS Summary?
An APS that is summarized by a trained and experienced risk management expert can be the difference between dealing with a frustrating burden and working with an important productivity tool. The components of a well constructed APS summary include a health history synopsis that chronologically details tobacco use, medications, prior conditions, lab tests, BP, Cholesterol, HDL, LDL and Cholesterol/HDL Ratio.
But how should companies use their internal, high value resources when it comes to the APS—to perform the laborious administrative task of deciphering and summarizing the medical information or focus on using the medical information to underwrite and make decisions?
A high level underwriter is not necessary to prepare an APS summary. Junior level underwriters and medical professionals can be trained (and are often better qualified) to dissect an APS and create a composite of the applicants medical history. A high level underwriter is necessary to interpret that medical summary against a company’s guidelines and procedures to evaluate the insurability of the applicant and then issue a risk based decision. An underwriter’s focus should be on underwriting and not on sorting records to begin that process.
Consider a visit to a doctor’s office
Think about your last check up. When you arrived at the office the reception area took care of your paper work. When you went in to the exam room an intern or nurse measured your vitals and “summarized” basic medical elements such as height, weight, blood pressure, heart rate, etc. in advance of the doctor’s arrival. The doctor’s time and value is maximized by having a patient composite prepared in advance by trained professionals who know how to deliver a “summary” that allows the doctor to focus on core functions: diagnosis, treatment, and prescriptions.
Henry Ford had it right when he devised the assembly line to manufacture automobiles-- it is the most time and cost effective way to bring a group of trained professionals together to focus on delivering their area of expertise as part of a collective effort to produce the desired end product.
Just like in the doctor’s visit, the components of an APS summary are very specific and play a similarly important role as part of the underwriting process. Specialists with underwriting and medical backgrounds are trained and have experience in the specifics of medical terminology, chronological sorting, reviewing, note taking, annotating gaps and indecipherable entries, and double checking for duplicative entries/records, inconsistencies, and spotting patterns. To ensure quality and reliability of data, very strict quality standards, training regimens, and audit schedules must be in place.
Underwriters supported by this type of “information triage” will be more productive and can underwrite more cases per hour—and therefore become a more profitable contributor to the bottom line.
What should a company look for when outsourcing APS summaries?
An APS summary is a very specialized risk management tool. A minimum requirement to be able to prepare an effective summary is knowledge of medical terminology and pharmacology. Underwriters and medical professionals are well suited to be trained to apply their knowledge and experience in this direction. In the case of a third-party provider of APS summaries, look for a company that offers more than a “one size fits all” approach to APS summaries.
Every insurer’s guidelines and workflow demands are different and an APS summary needs to be customized to match the needs of the underwriters.
Remember—the reason you are looking at an APS in the first place is to give you information about the insurability of an applicant so you can make a sound risk based decision. An APS summary is a productivity tool specifically designed to increase the effectiveness of that process. If you decide to use outside resources to produce APS summaries make sure you are working with an organization that understands your needs
and has the appropriate personnel and processes in place to deliver a high quality tool that is consistent with your guidelines.
Conclusion
Although companies are constantly looking for ways to reduce their reliance on the APS—it remains an important tool in the underwriting and risk management process. The key to success for an underwriting operation (and claims) is to obtain an APS faster than your competitor and then to extract and use the pertinent information in the smartest, most efficient manner possible. For those seeking to underwrite successfully in the 21st Century-- working faster and smarter will always be the key ingredients.
In today’s stressed underwriting environment—maximizing the value and utility of the APS is just what the doctor ordered.
Original version published in On the Risk September, 2006 as Underwriting in the 21st Century: Mastering the APS Paradox
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Thursday, March 6, 2008
Understanding the Risks of Private Aviation
published March, 2007 - On the Risk and InsuranceNewsNet, July, 2007 World News Network, July, 2007, ProducersWEB, October, 2007
Understanding the Risks of Private Aviation
Executive Summary
With the tragic accident in 2006 of Yankee’s pitcher Corry Lidle shining a spot light on the potential risks involved with private aviation, some in the life insurance industry have cast a concerned eye on their exposure when covering a licensed pilot. Underwriters are looking for more information to evaluate the latest crash data as well as advancements in avionics and safety technology to better understand and quantify the risks involved with flying. Often a private pilot will be an individual of substantial net-worth and most likely covered by life and disability insurance worth millions of dollars. In this article we will provide some basic reference information to better inform underwriters and claims examiners for cases involving a private pilot. Among the areas that we will cover: aviation basics, levels of licensing, technological advancements, and statistics that categorize and quantify crash scenarios.
Introduction
There are four basic areas to understand when considering risks associated with a private pilot:
Aviation 101:
· Licensing
There are a variety of categories for a private pilot license: Student, Recreational, Private, Commercial, and ATP. Pilots are also rated for flying using visual (VFR) reference and/or instrument (IFR) reference. An instrument rated pilot is able to fly relying solely on their cockpit instrumentation in situations of reduced or zero visibility. Those pilots possessing a license designation of “private pilot” represent the highest percentage of crash totals among the license types. As crashes related to pilot error account for as much as 80% of all incidents; training, licensing and experience are all critical safety measures.
· Aircraft
Private planes are categorized across three classes of fixed-wing general aviation aircraft: single-engine fixed landing gear, multi-engine retractable landing gear and multi-engine. Other classes of aircraft would include jet engine, sport, glider, antique, and homebuilt aircraft such as an ultra-light. Single-engine aircraft account for the highest crash totals, and although multiengine aircraft have far fewer accidents, they are far more likely to be fatal when they do occur. Statistics show that the more complex the aircraft the greater the chances of fatalities in an accident. In fact, the "lethality index” (percentage of accidents that result in death) in a single-engine aircraft is about 10% as compared to multi-engine aircraft at about 50%.
· Flight Hours
Private pilots are also ranked by actual flight hours in a specific type of aircraft. A pilot with less than 500 hours is considered a novice and generates the highest percentage of crash totals. Ironically, pilots with over 4,000 hours are considered very experienced but as a group represent a not insignificant percentage of crash totals—possibly indicative of over confidence and higher risk tolerance for more experienced pilots. Over the last decade there was a 26% decrease in accidents per 100,000 hours flown and a 25% decrease in fatalities.
· Type of Use
There are three categories of non-commercial aviation: personal/recreational, business (uncompensated piloting) and corporate (compensated piloting). In terms of safety, each of these categories is successively safer than the other. Removing commercial aviation from the equation, the remainder of all flying across the three remaining categories breaks down as follows: Personal/recreational aviation accounts for 50% of all flying but 76% of fatal accidents, business use accounts for 15% of aviation and 3% of fatal accidents, and lastly corporate aviation accounts for almost 6% of flying and less than one half of 1% of fatal accidents.
Highlights from crash statistics (2005 AOPA ASF Nall Report - www.aopa.org):
· There has been a 25% decrease in total and fatal accidents over the reported ten year period—and within this period, since 2003, there has been a 7% decrease in accidents and a 3.5% decrease in fatalities.
· 75% of accidents can be attributed to pilot error as compared to less than 8% attributed to mechanical problems.
· Although landing is the leading category of accidents, it is one of the least likely to cause fatalities (due to the slower speed of approach and airport vicinity).
· Pilots using aircraft for training and recreation are 7 times more likely to have an accident than those using aircraft for business (an important distinction for insurance underwriters).
· Weather related accidents have the highest percentage chance (94%) of ending in fatalities (and are one of the most avoidable with proper planning and equipment).
Perspective Based on Experience
In October of 2006, Eli Rowe, CEO of Parameds.com (PDC), addressed the current state of private pilot safety and aviation with over 1,000 of the life insurance and reinsurance industry’s leading risk management experts attending the Fifth Annual Meeting of the Association of Home Office Underwriters (AHOU) in Las Vegas, Nevada. Mr. Rowe, a nationally recognized instrument rated pilot who flies hundreds of hours a year, is a Chief Executive who has worked in the life insurance underwriting arena for well over a decade.
Mr. Rowe, owner of a Cirrus SR-22 single-prop aircraft equipped with MFD/PFD and safety parachute, highlighted some of the recent advancements in aviation technology such as real-time satellite weather data-link and WAAS GPS, traffic collision avoidance systems, engine monitoring displays, terrain and ground proximity awareness systems, anti-icing technology, airbag seatbelts, and even the safety parachute that can be deployed in mid-air to save a crippled aircraft from crashing. Mr. Rowe pointed out that Cory Lidle’s plane, which crashed into a building in mid-town Manhattan, had many of these available technologies, and the true reason for the accident as well as the failure to deploy the parachute might never be known for sure. He also pointed out that Lidle would fit into the novice class of pilot experience measured in hours as 500 or less which statistically have the highest accident rate.
“Quite possibly,” Mr. Rowe was quoted as saying, “the headlines about many of the accidents we have been seeing with TAA (technologically advanced airplanes) might be the indirect fault of all these technological advances. The irony, in my opinion, is that some pilots may be suffering from a false measure of extra confidence that his or her equipment is a constant blanket of protection, and possibly a license to take much more substantial risks than might otherwise not have been taken. This false ‘license-to-take-chances’ might be the reason so many Cirrus’s, known to have a built in parachute for the entire plane and loaded with advanced features, have had accidents in-spite of their features.”
During the month of October, 2006, it was noted that there had been three crashes of Cirrus aircraft in less than a month that resulted in eight fatalities—the Lidle aircraft among them. The manufacturer of Cirrus aircraft urged all those operating their planes to exercise prudence when making flight plans and to not challenge the elements, or their own skill levels, with a false sense of security or increased capabilities due to all of the advanced technological and safety features.
“From a mortality and morbidity perspective”, opined Mr. Rowe, “life insurers and re-insurers need to be able to determine whether these increased safety features, that should reduce accidents, instead may possibly contribute to them as more pilots attempt to fly in conditions that might otherwise have prohibited a pilot from taking off, and as such actually increase the risk of an accident -- and ultimately mortality -- triggering a payment of policy.”
Mr. Rowe concluded by saying, “As a private pilot and an insurance industry veteran, I recognize the importance of this type of insight into quantifiable risk statistics and advancements in avionics and safety technology. Insurance underwriters are very detail oriented and constantly on the look out for accurate information to use as a basis to inform their risk evaluation process. With so much recent advancement occurring in safety and avionics and at the same time private aviation so intensely scrutinized in the headlines, the timing could not be better for underwriters to seek out the latest data on the current state of General Aviation and Technologically Advanced Airplanes.”
Conclusion
“The desire to fly is an idea handed down to us by our ancestors who, in their grueling travels across trackless lands in prehistoric times, looked enviously on the birds soaring freely through space, at full speed, above all obstacles, on the infinite highway of the air.” (Wilbur Wright)
“What is it that makes a man willing to sit up on top of an enormous Roman candle, such as a Redstone, Atlas, Titan or Saturn rocket, and wait for someone to light the fuse?” (Tom Wolfe, 'The Right Stuff,’)
Flight is arguably human-kind’s most significant “invention”. The ability to travel by air shrank the globe and made possible the world we live in today. But aviation is not just a statement on the ingenuity of human-kind; it is also a reflection of our adventurous spirit and willingness to take risks while advancing our interests (be they commercial or personal). One cannot separate the science from the art of flying just as one cannot separate the true nature of people: the pragmatist vs. the adventurer.
Perhaps this should be taken into account when measuring the risks associated with a private pilot. Technology in aviation has reached an unprecedented level of advancement and safety, yet the true determining factor of risk (as demonstrated by statistics) lies with the individual. Statistically speaking-- how well you know the applicant is probably more important than what you know about the plane they fly. How much time spent flying a particular class of aircraft is critical. How do they plan to use personal aircraft—business or recreation? Are they thrill-seekers? Will they or won’t they fly in adverse weather or visibility challenged conditions? Do they have the hours and licensing that indicates experience? Even more so than the type of plane an applicant flies--who they are as well as how and when they plan to fly may be the real key questions to measuring risk.
Bibliography
1) Krey, Neil; 2005 NALL Report, AOPA Safety Foundation, 2006
2) Landsberg, Bruce; Safety Advisors and Safety Pilot, AOPA Safety Foundation, various 1996-2006
Original version published in On the Risk March, 2007 as Underwriting in the 21st Century: Understanding the Risks of Private Aviation
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Understanding the Risks of Private Aviation
Executive Summary
With the tragic accident in 2006 of Yankee’s pitcher Corry Lidle shining a spot light on the potential risks involved with private aviation, some in the life insurance industry have cast a concerned eye on their exposure when covering a licensed pilot. Underwriters are looking for more information to evaluate the latest crash data as well as advancements in avionics and safety technology to better understand and quantify the risks involved with flying. Often a private pilot will be an individual of substantial net-worth and most likely covered by life and disability insurance worth millions of dollars. In this article we will provide some basic reference information to better inform underwriters and claims examiners for cases involving a private pilot. Among the areas that we will cover: aviation basics, levels of licensing, technological advancements, and statistics that categorize and quantify crash scenarios.
Introduction
There are four basic areas to understand when considering risks associated with a private pilot:
Aviation 101:
· Licensing
There are a variety of categories for a private pilot license: Student, Recreational, Private, Commercial, and ATP. Pilots are also rated for flying using visual (VFR) reference and/or instrument (IFR) reference. An instrument rated pilot is able to fly relying solely on their cockpit instrumentation in situations of reduced or zero visibility. Those pilots possessing a license designation of “private pilot” represent the highest percentage of crash totals among the license types. As crashes related to pilot error account for as much as 80% of all incidents; training, licensing and experience are all critical safety measures.
· Aircraft
Private planes are categorized across three classes of fixed-wing general aviation aircraft: single-engine fixed landing gear, multi-engine retractable landing gear and multi-engine. Other classes of aircraft would include jet engine, sport, glider, antique, and homebuilt aircraft such as an ultra-light. Single-engine aircraft account for the highest crash totals, and although multiengine aircraft have far fewer accidents, they are far more likely to be fatal when they do occur. Statistics show that the more complex the aircraft the greater the chances of fatalities in an accident. In fact, the "lethality index” (percentage of accidents that result in death) in a single-engine aircraft is about 10% as compared to multi-engine aircraft at about 50%.
· Flight Hours
Private pilots are also ranked by actual flight hours in a specific type of aircraft. A pilot with less than 500 hours is considered a novice and generates the highest percentage of crash totals. Ironically, pilots with over 4,000 hours are considered very experienced but as a group represent a not insignificant percentage of crash totals—possibly indicative of over confidence and higher risk tolerance for more experienced pilots. Over the last decade there was a 26% decrease in accidents per 100,000 hours flown and a 25% decrease in fatalities.
· Type of Use
There are three categories of non-commercial aviation: personal/recreational, business (uncompensated piloting) and corporate (compensated piloting). In terms of safety, each of these categories is successively safer than the other. Removing commercial aviation from the equation, the remainder of all flying across the three remaining categories breaks down as follows: Personal/recreational aviation accounts for 50% of all flying but 76% of fatal accidents, business use accounts for 15% of aviation and 3% of fatal accidents, and lastly corporate aviation accounts for almost 6% of flying and less than one half of 1% of fatal accidents.
Highlights from crash statistics (2005 AOPA ASF Nall Report - www.aopa.org):
· There has been a 25% decrease in total and fatal accidents over the reported ten year period—and within this period, since 2003, there has been a 7% decrease in accidents and a 3.5% decrease in fatalities.
· 75% of accidents can be attributed to pilot error as compared to less than 8% attributed to mechanical problems.
· Although landing is the leading category of accidents, it is one of the least likely to cause fatalities (due to the slower speed of approach and airport vicinity).
· Pilots using aircraft for training and recreation are 7 times more likely to have an accident than those using aircraft for business (an important distinction for insurance underwriters).
· Weather related accidents have the highest percentage chance (94%) of ending in fatalities (and are one of the most avoidable with proper planning and equipment).
Perspective Based on Experience
In October of 2006, Eli Rowe, CEO of Parameds.com (PDC), addressed the current state of private pilot safety and aviation with over 1,000 of the life insurance and reinsurance industry’s leading risk management experts attending the Fifth Annual Meeting of the Association of Home Office Underwriters (AHOU) in Las Vegas, Nevada. Mr. Rowe, a nationally recognized instrument rated pilot who flies hundreds of hours a year, is a Chief Executive who has worked in the life insurance underwriting arena for well over a decade.
Mr. Rowe, owner of a Cirrus SR-22 single-prop aircraft equipped with MFD/PFD and safety parachute, highlighted some of the recent advancements in aviation technology such as real-time satellite weather data-link and WAAS GPS, traffic collision avoidance systems, engine monitoring displays, terrain and ground proximity awareness systems, anti-icing technology, airbag seatbelts, and even the safety parachute that can be deployed in mid-air to save a crippled aircraft from crashing. Mr. Rowe pointed out that Cory Lidle’s plane, which crashed into a building in mid-town Manhattan, had many of these available technologies, and the true reason for the accident as well as the failure to deploy the parachute might never be known for sure. He also pointed out that Lidle would fit into the novice class of pilot experience measured in hours as 500 or less which statistically have the highest accident rate.
“Quite possibly,” Mr. Rowe was quoted as saying, “the headlines about many of the accidents we have been seeing with TAA (technologically advanced airplanes) might be the indirect fault of all these technological advances. The irony, in my opinion, is that some pilots may be suffering from a false measure of extra confidence that his or her equipment is a constant blanket of protection, and possibly a license to take much more substantial risks than might otherwise not have been taken. This false ‘license-to-take-chances’ might be the reason so many Cirrus’s, known to have a built in parachute for the entire plane and loaded with advanced features, have had accidents in-spite of their features.”
During the month of October, 2006, it was noted that there had been three crashes of Cirrus aircraft in less than a month that resulted in eight fatalities—the Lidle aircraft among them. The manufacturer of Cirrus aircraft urged all those operating their planes to exercise prudence when making flight plans and to not challenge the elements, or their own skill levels, with a false sense of security or increased capabilities due to all of the advanced technological and safety features.
“From a mortality and morbidity perspective”, opined Mr. Rowe, “life insurers and re-insurers need to be able to determine whether these increased safety features, that should reduce accidents, instead may possibly contribute to them as more pilots attempt to fly in conditions that might otherwise have prohibited a pilot from taking off, and as such actually increase the risk of an accident -- and ultimately mortality -- triggering a payment of policy.”
Mr. Rowe concluded by saying, “As a private pilot and an insurance industry veteran, I recognize the importance of this type of insight into quantifiable risk statistics and advancements in avionics and safety technology. Insurance underwriters are very detail oriented and constantly on the look out for accurate information to use as a basis to inform their risk evaluation process. With so much recent advancement occurring in safety and avionics and at the same time private aviation so intensely scrutinized in the headlines, the timing could not be better for underwriters to seek out the latest data on the current state of General Aviation and Technologically Advanced Airplanes.”
Conclusion
“The desire to fly is an idea handed down to us by our ancestors who, in their grueling travels across trackless lands in prehistoric times, looked enviously on the birds soaring freely through space, at full speed, above all obstacles, on the infinite highway of the air.” (Wilbur Wright)
“What is it that makes a man willing to sit up on top of an enormous Roman candle, such as a Redstone, Atlas, Titan or Saturn rocket, and wait for someone to light the fuse?” (Tom Wolfe, 'The Right Stuff,’)
Flight is arguably human-kind’s most significant “invention”. The ability to travel by air shrank the globe and made possible the world we live in today. But aviation is not just a statement on the ingenuity of human-kind; it is also a reflection of our adventurous spirit and willingness to take risks while advancing our interests (be they commercial or personal). One cannot separate the science from the art of flying just as one cannot separate the true nature of people: the pragmatist vs. the adventurer.
Perhaps this should be taken into account when measuring the risks associated with a private pilot. Technology in aviation has reached an unprecedented level of advancement and safety, yet the true determining factor of risk (as demonstrated by statistics) lies with the individual. Statistically speaking-- how well you know the applicant is probably more important than what you know about the plane they fly. How much time spent flying a particular class of aircraft is critical. How do they plan to use personal aircraft—business or recreation? Are they thrill-seekers? Will they or won’t they fly in adverse weather or visibility challenged conditions? Do they have the hours and licensing that indicates experience? Even more so than the type of plane an applicant flies--who they are as well as how and when they plan to fly may be the real key questions to measuring risk.
Bibliography
1) Krey, Neil; 2005 NALL Report, AOPA Safety Foundation, 2006
2) Landsberg, Bruce; Safety Advisors and Safety Pilot, AOPA Safety Foundation, various 1996-2006
Original version published in On the Risk March, 2007 as Underwriting in the 21st Century: Understanding the Risks of Private Aviation
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
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