How to Implement High-Performance Underwriting With Lower IT Investment Risk

Four functional imperatives underlie desktop underwriting solutions that consolidate multiple sources for risk evaluation, liberating underwriters from administrative tasks for higher-value work, and enabling reduced loss ratios and higher profit margins.

Underwriters spend the majority of their time responding to questions from agents, brokers and supporting transactional processing, such as submissions, quotes, referrals, and renewals. They spend time in activities to validate risk characteristics, surfing numerous websites, and reviewing volumes of text based data from survey reports, forms and other documents. Depending on the carrier, line of business, size of the risk, underwriting guidelines and personal experiences, the role of the underwriter varies significantly. They feel responsible for ensuring that the next risk they approve or renew will have adequate price and that a new large claim is not going to show up on their watch.

Looking at the historical data, many of the underwriters spend more than 25% of their time requesting and collecting data to evaluate the risk. The renewals that represent the majority of their workload, require even greater scrutiny as most of the experience and risk related information is in the company files, either electronically or in image form. The challenge for the underwriter is to find the relevant information and to decide if that particular risk should be renewed or non-renewed; if it should get debit or credit to pricing compared to other similar risks, etc. Beyond evaluation of the individual risk, there is a continuous need to evaluate risks on the aggregate portfolio level. These evaluations are frequently conducted off-line by specific portfolio risk managers while normal business renewal processes continue. Portfolio risk management decisions are generally made at higher management levels and have an impact on the distribution channels (agents, brokers, and the market place). Results of these actions have a longer-term impact and as a result, many carriers make broad underwriting and pricing adjustments cautiously. Technology plays a key role in supporting most of the underwriting and risk management activities described above. The needs of the underwriter represent a segment of the overall policy administration process. Many IT organizations at one end of spectrum focus on replacing the policy administration system, which is a very expensive and a long-term solution with significant risks. At the other end of the spectrum, many IT organizations are creating ad-hoc solutions for the underwriters specific to their lines of business that may not seamlessly integrate with other risk-related information sources. There are several solutions in the market place that are designed to consolidate multiple information sources for the evaluation of the risk and pull it all together at the desk top of the underwriter.

These solutions also improve collaboration between the carrier and the agent/broker. Cost and risk for implementation of these solutions is significantly lower than the cost and risk inherent in a full policy system replacement. At the same time, cost to integrate the underwriting solution with the distributions system, rating and policy system, and document management system is high. Another component in the unbiased evaluation of risk is to deploy predictive modeling in real time and let the system suggest the relative merit of the risk for pricing adequacy. Creation of this capability also requires tight integration with multiple internal and external data sources.

[For more on the importance of underwriting best practices, see: Insurers Focus on Underwriting Discipline After 2011's Catastrophes.]

In an organization where these capabilities have been successfully deployed through the use of technology, and underwriting judgment is layered on top, high performance underwriting results are achieved with reduced loss ratios and higher profit margins. The ingredients for high performance underwriting require development and deployment of many of the following capabilities.

Provide Single Point of Access for Information Sound underwriting requires access to diverse information in real time relevant to the risk. Conceptually, the first view after a single sign-on welcomes the underwriter, suggests the priority activities that are pending and need immediate attention. These include referrals, renewals that might be past due, submissions that need underwriter review and response, communications, and a view to underwriter performance dashboard. All of the functionality should be based on intuitive workflow designed with the goal of "ease of doing business" for the underwriter.

Improve Underwriting Effectiveness Strategic use of a business rules engine promotes superior underwriting results that can be analyzed, and dynamically modified by the business users. By leveraging a proven business rules engine, automated underwriting decision support can be deployed across the enterprise. The rules engine typically can consume real-time internal and external data as well as industry-specific knowledge. This results in shortened decision time with improved quality and accuracy.

Accelerated speed-to-issue reduces not-taken rates as well as improves consistency and underwriting quality. By capturing and analyzing data analytics, underwriters have the ability to identify, evaluate and refine underwriting rules and guidelines. These powerful capabilities can improve underwriting consistency and ensure that decisions made are aligned with the corporate appetite. These practices drive operational excellence.

Enhance Collaboration and Communication Effective collaboration and communication is the cornerstone of underwriting success and helps build relationships with the agents/brokers. The underwriting system needs to be able to find and share information and to respond more quickly to inquires and action items. Real-time collaboration and interactive workflow ensures that the right information is communicated to the right person at the right time. A good solution provides underwriters with a simple way to communicate, collaborate, access expert advice and share business knowledge. Communication with agents/brokers needs to be streamlined and a history of contact notes is necessary.

Create High Value Solution An integrated underwriting technology platform is expected to deliver continuous value by promoting underwriting discipline and best practices, automating business process management, reducing policy processing turnaround times, and streamlining workflows. It should link front and back office systems and processes and provide the underlying data for workflow, underwriting, reporting and compliance.

About the Author: Akhil Triptathi is CEO of Unirisx, a provider of policy administration and product management software to the P&C Industry. Prior to this role, he held CIO positions at Harleysville Insurance, Marsh Consumer Division, AIG's ALICO unit.