Modernize and Automate Underwriting to Overcome Today's Tough Times
Have you asked yourself if this could be a time to retrench, work smarter and pound the drum faster? Or, is it time to rethink, to look for new ways to increase productivity in tandem with quality?
Fortunately, answers exist to these questions. According to Robert Hartwig, president of the New York-based Insurance Information Institute, who spoke at the National Council on Compensation Insurance Annual Issues Symposium held recently in Orlando, Fla., "Management has more and better tools that allow faster adjustments to price, underwriting and changing market conditions than it had during previous soft markets."
The underwriting process is the most critical determinant of revenue and profitability for any insurance carrier, yet for many companies, it is time-consuming, semi-manual, cumbersome and error-prone. The traditional approaches and systems supporting underwriting are self-limiting and constrain a carrier's ability to succeed. Underwriters must be able to focus on underwriting, and automation needs to be designed with that end in mind.
MARKET CONDITIONS AND PRESSURES
During his NCCI presentation, Hartwig said that "profits in 2006-2007 reached their cyclical peak," but he stressed that "by no reasonable standards can profits be deemed excessive."
With that in mind, the outlook for 2008 is considerably less rosy, with industry analysts predicting 2008 will see significant reductions in profitability resulting from decreasing premium rates and exposure bases, as well as limited investment income.
Decreasing premium rates put pressures on underwriting teams and processes. During these times, key metrics and performance indicators can change rapidly and drastically. Policy counts go up to meet premium target objectives. Premium per policy goes down, pulling down premium per underwriting hour. Underwriting hours go up, increasing costs and stress on your key underwriting staff.
All this drives underwriting expenses up, pushing up expense and combined ratios. And, in the midst of it all, management, Wall Street, auditors and regulators demand more underwriting quality and discipline, more risk information and analysis, and more accurate predictive models.
Today's soft market could very well be a perfect storm for underwriters. Increasing productivity and improving underwriting discipline is hard at any time, but it is nearly impossible on yesterday's systems and platforms.
NOT AS EASY AS IT SOUNDS
It certainly sounds good to say, "Simply modernize and automate your underwriting process through the use of new technologies."
Unfortunately, nothing is ever as easy as it sounds. The underwriting process for most carriers is a complex, manual process including numerous separate systems and partially automated steps.
The full submission process--from initial contact through rating, quoting and binding--includes many different systems. Often, the entire underwriting process encompasses an agency portal, ratings system, policy issuance system, claims and billing systems, underwriter notes, e-mails, faxes and telephone messages, as well as various other external Web services or systems.
The various types of systems and methods of communication that enter into the process are all designed to access loss experience, loss control, credit, financial, inspection/survey, geo-code, catastrophe, MVR or driving records, criminal background checks and OFAC information. Then there's the underwriting manual, e-mail directives, the underwriters' letters of authority, state and bureau filings, and circulars that still "live" on paper.
Thinking about these challenges in terms of how to achieve greater underwriting productivity and discipline may appear at first blush to be a case of "you can't get there from here," but that's not to say you can't make significant improvements.
In fact, so many opportunities exist in the underwriting process today that you could make incremental improvements for the next ten years, maybe even indefinitely.
Insurance carriers cannot dramatically improve productivity and discipline in the complicated insurance underwriting process without taking several key steps, including:
-- Eliminating or minimizing data entry by the underwriting team
-- Ensuring the underwriter only has to look at complete submissions within the insurance carrier's selection criteria that require some level of underwriting expertise to make a decision
-- Implementing business rules to automate declines and quotes for the clear winners and losers
-- Enabling underwriters and agents to communicate and collaborate to resolve the 30-second questions and issues in 30 seconds rather than a day or two
-- Assigning rights within the system to require supplemental data entry, to screen and tier risks, to bring carrier best practices right to the underwriter's desktop, and to enforce referrals and letters of authority provisions automatically
You can significantly improve your underwriters' productivity if you can shrink the setup and research time, place a completed application for qualified business with all the information at the underwriter's fingertips, provide real-time access to rating and Web services, and facilitate communication and collaboration about the account within the same platform.
You can significantly improve your underwriting discipline and quality results if you can bring insurance rules to bear in the process.
To date, underwriters have had to live with partial automation that only addresses pieces of the process, often with little regard for the context of the underwriter's process. It is prudent to start your underwriting automation process by planning how you wish your underwriters could process, regardless of current system concepts and constraints. Then look for solutions that can enable your vision instead of constrain it.
But be careful of assumptions. You likely do not have to replace your policy administration system or the systems that wrap it. Because the underwriting process is typically in front of the policy administration process, it can be complementary to your existing policy solution.
Ripping and replacing your ratings, issuance and policy administration systems will be a far more disruptive project than simply automating the underwriting process that is in front of it.
HOW TO EVALUATE UNDERWRITING SOLUTIONS
You need to make certain the underwriting or automation solution you choose fits your company's specific needs, or that it can be customized to do so.
One feature you may want to require is out-of-the-box insurance content, such as data, screens, rule sets and letter of authority provisions you can configure. Starting from scratch in this particular area with a toolkit or a team of programmers could cost you years and hundreds of thousands of dollars more than your original budget.
Additionally, you should look closely at the capabilities and complexity of a product's screens and workflow, upload, selection and process rules, external Web service and system integrations, best-practice controls, role and user permissions, and, perhaps most importantly, the configurability of all of the above.
As you research and document your company's specific needs and wants in this area, keep in mind that the underwriting process is not simply an extension of policy administration. Underwriting and policy administration are different types of processes. Policy administration systems are designed for processing items fitting limited, specific criteria, and are usually for internal processing only.
The underwriting process and solution must be flexible enough to adjust coverages and ratings to accommodate market and consumer demands, support underwriter judgment, a plethora of outside information sources, multiple options, and collaboration between the underwriter and agent. Attempting to retrofit your policy administration system to accommodate the underwriting process is likely to produce disappointing results.
Instead, evaluate and quantify specifically where you will achieve productivity gains and quality/discipline improvements, and how much those gains will be worth both in the current soft market and the ensuing hard market. Choosing a specific underwriting solution that can be implemented within a year will help you pay for the project a year or two after that.
Let your underwriters concentrate on writing the right business at the right price. The technology exists to support an underwriter-centric workflow. Search out vendors with the right capabilities for you to see if they can help you achieve your vision of better underwriting. But don't wait too long--the soft market and the competition aren't waiting, and the next hard market won't wait either.
ED GRAY is the director of customer solutions for FirstBest Systems, where he works with customers to develop a shared vision for how an underwriting management system can bring real-world productivity and quality benefits to the carrier's internal and agency operations.
July 1, 2008
Copyright 2008© LRP Publications