Automating Underwriting: Moving From Art to Science

Automating underwriting can help insurers define the appropriate risk parameters and price products accordingly while improving the efficiency of the process.

Q: What challenges do insurers face today in the underwriting process? How are they addressing these issues?

A: Donald Light, Celent: The two biggest issues facing underwriting groups are productivity and decision quality. How much premium, from how many producers, sending in how many submissions, can one underwriter process in a year? Good underwriters are expensive, so there is an incentive to make them as productive as possible. Of course, high levels of output do a company no good if an underwriter is making bad decisions. The heart of underwriting is creating the right combination of a correctly priced quote with the right terms and conditions that a producer and prospect will accept.

A: Becky Turnbull, Armed Forces Insurance (AFI) Exchange: For AFI, the major issues and challenges are that our underwriting processes are all manual. This increases our cost and lowers our efficiency. The personal insurance consumer expects an instant answer, so companies must have automated underwriting systems that facilitate that service level. We manually review our risks and have created individual reports to track our processes. Unfortunately, those methods do not increase our efficiency, effectiveness or service delivery.

A: Stephen Packard, Deloitte Consulting: The principal challenges in underwriting include finding ways to grow the business in a softening pricing environment. This is more than a process issue; it's a strategic issue. To deal with this, insurers are working hard to transition underwriting from something that's historically been an art to more of a science -- bringing more objectivity, discipline and technology to the process.

A: John Belizaire, FirstBest Systems: In a softening market, insurers face increasing price pressures and, as a result, are earning less revenue on the same number of accounts. The challenge is to scale their businesses efficiently and profitably, and make it easier for agents to do business with them -- to be the carrier of choice for agents. To deal with these challenges, carriers need to grow their existing books of business and also expand their portfolios by entering new markets and leveraging their existing staff and resources. It also requires the right technology to support their vision and strategy and to streamline underwriting processes without adding overhead.

Q: What technologies are available to help insurers optimize the underwriting process?

A: Turnbull, AFI: User-configurable automated underwriting systems, such as the SURE system from [Wyncote, Pa.-based] Insurance Data Processing [IDP], have become available in the market. By using SURE in conjunction with IDP's Acies One policy system, we can automate data retrieval from third parties and SURE can perform some preliminary analysis. Systems of this type allow underwriters to define the risk parameters that are clearly acceptable and not acceptable, and then review only those risks that truly require individual attention.

A: Light, Celent: The most important technologies are rules engines, workflow and business process management [BPM], and content management. These tools are used to automate specific decisions, tasks, and access to internal and external data and information. Occasionally, for simpler products, the tools or solutions can automate the entire underwriting process -- meaning achieving straight-through processing [STP].

A: Packard, Deloitte Consulting: We're seeing a lot of interest in the use of predictive models as a key enabler of consistency and discipline to the underwriting function. That's probably the single most significant underwriting development of the past several years. Increasingly, it's a must-have capability for companies to underwrite efficiently and effectively.

Q: What are the benefits of automating underwriting? What are the risks?

A: Turnbull, AFI: The benefits are efficiency, uniformity, improved risk selection and better risk management. All of these will improve our profitability. The risk is setting the parameters appropriately. An error in definition will be applied to an entire book of business. The new technology has required that underwriters work closely with technology staff to merge their traditional skill set with the new automation tools.

A: Light, Celent: One major benefit is achieving higher underwriting productivity -- greater underwriting capacity without increasing head count. Consistency in decisions and processes also can be improved. The risk is that you may just be automating a bad process or an incorrect decision.

A: Packard, Deloitte Consulting: It takes a lot of the variability out of the processing by employing a disciplined, actuarially developed methodology for pricing and risk selection decision-making. Underwriters can therefore spend their time more valuably working on the more complex accounts, letting the model-enabled automated processes deal with the high-volume, routine business.

A: Belizaire, FirstBest Systems: Automation brings scalability and efficiency through straight-through processing. New Web-based platforms enable real-time collaboration -- not just internally, but externally with agents. Knowledge management lets carriers enforce underwriting discipline and consistency and capture and share the knowledge of seasoned underwriters, while providing a platform for predictive analytics and precision pricing. With a unified system, underwriters spend less time hunting for data and more time analyzing data. As for risks, some carriers fear new technologies will mean scrapping homegrown systems and losing the intellectual capital residing in them, but new Web 2.0 technologies can sit on top of existing IT investments.

Q: What should carriers look for in next-generation underwriting systems? What are the benefits/drawbacks of a homegrown solution versus a vendor solution?

A: Turnbull, AFI: We can never fully replace the judgment of an underwriter. Our core competency is underwriting, not systems, so we prefer to let someone else build a system that we can use. By using a vendor system that is highly configurable we can underwrite more quickly, effectively and efficiently. While a vendor system may include every feature we would have included, we can benefit from other insurers that have contributed to the design.

A: Light, Celent: An insurer should look for an underwriting system that allows managers to see the flow of transactions in real time -- business activity management, or BAM -- monitor the achievement of key goals through standardized and easy-to-create custom reports, and change processes quickly by use of configuration capabilities -- as opposed to rewriting the code base. Another option utilizes solutions from certain vendors that provide underwriting frameworks that can then be customized for a given insurer's organization and goals.

A: Packard, Deloitte Consulting: Depending on the type of business carriers are writing, the underwriting processes need to advance the speed, quality and ease of doing business within that arena. They need to recognize their core competencies and know when to look for outside expertise. They need to resist the temptation to significantly customize vendor products and solutions in a manner that adds cost and complexity -- with little commensurate value -- and makes the resulting platform more difficult to maintain and operate.

A: Belizaire, FirstBest Systems: New standards-based technologies will work with insurers' existing environments. New Web-based software as a service [SaaS] models eliminate upgrade issues and won't have to be replaced in a year. Business analysts should be able to customize and configure the system without new programming. Look for technology that enables real-time collaboration, management visibility into the underwriting process, straight-through processing, exception-based underwriting, knowledge management and execution of predictive modeling -- in one solution.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio