’Singhing’ about Scalability

RLI Insurance Co.'s (Peoria, IL, $1.71 billion in assets) relationships with its head product line underwriters are compared to arranged marriages by vice president of IT, Piyush Singh. And it seems the matchmaker of these unions must be doing something right: RLI's business paradigm bases profits mainly on underwriting, rather than investments, and for the past 10 years it has outperformed the industry's combined ratio by an average of a whopping 12.1 points.

The secret to the insurance company's success lies within its unique business model's growth strategy, which revolves around obtaining head underwriters who will act as the leads for the product lines they are chosen to represent. As part of its courtship of these essential profit-drivers, RLI Corp. allows these partners to set up shop in the location of their choice. Additionally, in an effort to motivate profitability, line leads' incentives are based on the profitability of their lines, explains Singh, who describes the value proposition and motivation that accompanies it as tremendous.

Because of this focus, underwriting technologies and other risk-assessment tools have been essential since the business model's inception in the 1960s. The company that began as Replacement Lens, Inc., was born out of the identification of a lucrative business opportunity by innovator Gerald D. Stephens, CPCU, who realized in 1961 that lost contact lenses were costly to replace. Replacement Lens partnered with optometrists and became one of the first companies to insure replacement lenses.

A Change in Vision

After deciding he wanted to diversify the lines of business carried by Replacement Lens, Stephens approached experts in the field of underwriting property and casualty coverages. Since then, top underwriting talent has grown the organization into a carrier of unique commercial property and casualty lines of business.

Although RLI is continually open to obtaining leads to start up new lines of business in segments where there seems to be potential for profitability, "we don't want to add people if they don't add value," contends Singh, who relates that in 2002 revenue per employee at RLI was $1.42 million-twice the industry average.

In an effort to keep up these impressive numbers and streamline the automation that makes such profitability possible, RLI's IT works towards "providing a standardized set of services across all units, as well as unique product-specific functionality that caters to the unique needs of the businesses," explains Singh. "IT is constantly interacting with the underwriting folks to understand movements in the marketplace," he says.

Although it seems that communication would be one of the easier parts of Singh's job, he says his greatest business challenge involves discussions with members of RLI's business community. "While members of IT see a lot of what is happening in the business market, members of business units are often too deep into their businesses to see the true potential of technologies across the entire spectrum," according to Singh. In an effort to get business executives involved in "the bigger picture," Singh and his colleagues research new technologies by doing things like communicating regularly with industry peers and visiting "every booth at trade shows." And although they may not necessarily purchase something, they are able to bring ideas back to the business. While taking care not to look for problems that will fit specific solutions, Singh "questions business executives and plans with them, playing out different scenarios to get an idea of what they truly want to achieve. This helps to gain the clarity of a vision, as well as engrain it within the minds of members of RLI's business."

Establishing Accountability

Improved business/IT communications are part of the carrier's objective of establishing a project management office that tracks accountability on both the business and IT sides, so that if a project doesn't do as well as expected it doesn't turn into a "blame game." In order to ensure that projects are reaping the maximum ROI, each project is carefully reviewed from the start of implementation. One of the fruits of this way of doing things has been a tool that RLI likens to a cash register. The system-formally named eSubmissions-is an intranet application that is used by underwriters and their support staffs to clear submissions, quote, rate and bind new and renewal business, as well as perform subsequent policy activity, such as endorsements and cancellations. It was built to address the wholesale brokerage operational needs for commercial general liability, commercial umbrella, difference in conditions, fire and allied lines, construction, transportation, executive products and employers indemnity.

eSubmissions was developed in-house and enables a single point of data entry. After information is submitted, it is transferred automatically to "downstream" applications, reports Singh. Because eSubmissions integrates to other applications, loss data use is enabled on the front-end. Another useful function of the system is the benchmark rates it provides. These enforce a more consistent approach because they allow underwriters to target their rates and monitor the variance between the benchmark rate and the targeted rate. Direct financial benefits are also being realized by RLI as a result of the quicker binding of policies, which allows for the earlier collection of premium.

Although the system's benefits are numerous, eSubmissions puts a lot of pressure on IT, concedes Singh. "eSubmissions consists of several moving parts and the business expectation is that it will always remain up and running 24x7," he says. Singh, however, doesn't consider continual support of the system a business necessity. Instead, the carrier commits its resources to keeping the system-which supports underwriters from the East Coast all the way to Hawaii-up and running 16x5 (16 hours a day, from 6 am to 10 pm CST, five days a week). This approach is most efficient, explains Singh, because underwriters and their support staffs "aren't going to be using eSubmissions in the middle of the night. And if there are 10 people in the world who are using it, it's not worth the amount of money that it would cost to support them."

Employee-facing applications such as eSubmissions are a major area of focus for Singh, who compares himself to a city planner who is currently focusing on suburban initiatives. He relates that in his "city" the suburbs are areas where employees live and spend time, while the downtown area is where RLI's legacy system resides. Singh's philosophy is to leave downtown areas "as is" for now. And, if changes are made to Singh's city's downtown, he strives to make them frictionless and occur without the employees' knowledge.

Managing IT Expenses

For now, Singh is working towards a more scalable suburbia, and he is careful to take costs into consideration. "My CEO, John Michael, always makes it clear where RLI's revenues and expenses are," explains Singh. "RLI's expense curve has to have a lower steepness as compared to its revenue curve. Keeping expenses well under revenue through the use of technology is helping to keep the company prepared, irrespective of the market conditions."

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Underwriting for Profit

COMPANY: RLI Corp. (Peoria, IL, $1.71 billion in assets).

LINES OF BUSINESS: Excess and surplus lines, specialty insurance, commercial and personal umbrella, general liability, transportation and program coverages.

KEY EXECUTIVES: John Michael, president and CEO; Michael Stone, president and COO; Joe Dondanville, senior vice president and CFO; Piyush Singh, VP of IT.

VENDOR PARTNERS: AIG Technologies (Livingston, NJ) P&C solutions, Lawson Software (St. Paul) financial systems, Adobe Systems Inc. (San Jose, CA) for forms, SeeBeyond (Redwood Shores, CA) for EAI.

KEY TECHNOLOGY INITIATIVES: The development of a project management office. RLI has also created eSubmissions, an intranet application that is used by underwriters and their support staffs to clear submissions, quote, rate and bind new and renewal business.

WHAT IS YOUR GREATEST BUSINESS CHALLENGE?

SINGH: "Planning with business executives, playing out different scenarios to get an idea of what they truly want to achieve."