The Tale of Two Underwriters

By Bill Rusteberg

“What color is that orange?” asks the first underwriter. “It’s yellow!” says the second underwriter. “It can’t be! It’s an orange!” responds the first.

Same orange. Two different underwriters with two different views. Sound familiar?

Brokers have known for years that no two underwriters share the same view of a given risk. Send the same data to market and watch what happens – rates, conditions and contingencies can be all over the board.

The same stop loss carrier may issue quotes through multiple MGU’s holding their paper. This can be confusing to plan sponsors when they receive three quotes on ABC Insurance Company paper with three completely different rating basis, conditions & contingencies.

Understanding this phenomenon, a broker/consultant would be wise to underwrite risk themselves before sending to market. Experience rating is not that hard. We have found our underwriting projections consistently produce terms and rating basis accurately within a 4% margin of error. All with a hand calculator and 50 years of experience to back it up.

Underwriting risk without claim experience is harder but not impossible. Corporate culture, local provider community historical claim patterns, demographics tied to industry, etc., all play in the calculation whereas not so much under an experience rating basis.

The best underwriter is the one who, at the end of the day, predicted risk more accurately than anyone else and placed a value on it win or lose.