Without standard criteria and processes, inconsistencies in the underwriting process can lead to negatively impacted loss ratios. And, by the late '90s, the lack of standardization in Fireman's Fund Insurance Co.'s ($12 billion in assets, Novato, CA) underwriting process was problematic, according to Joe Beneducci, senior vice president of commercial insurance, Fireman's Fund.
"There wasn't much consistency in terms of the underwriting criteria that we used," says Beneducci. "Without complete consistency of how underwriters went through the process, they would wind up asking similar risks a variety of different questions." Accordingly, it was decided that an automated underwriting system had to be developed to eliminate this problem.
Near the start of 1999, Beneducci commissioned a few members of Fireman's IT team and one business member of commercial business to evaluate six vendors of configurator software. The team was in search of a vendor that could embed Fireman's underwriting expertise into an automated system. The prospects included Selectica (San Jose, CA), IBM (Armonk, NY), Siebel Systems (San Mateo, CA) and Oracle (Redwood Shores, CA). Established requirements for the system included a product that could enable a speedy underwriting process. Also, Fireman's wanted a robust configurator, and the solution had to be scalable in terms of the number of users able to access its knowledge base. It also had to be Internet-based. Additionally, the team requested that the system allow for underwriters to add logic easily to the configurator, so it could be enhanced with logic over time.
After extensive review, Selectica's ACE Application Suite (the applications that comprise its Interactive Selling System) was chosen because the Internet-based applications met each of the requirements; it was considered the most robust offering. The implementation of Fireman's Underwriting Efficiency System (UES) began in early 1999. Beneducci's strategy for roll-out of the system was to have a baseline product installed within 90 days. Rules would be added incrementally over time because "no underwriting logic can be static," he explains.
The first step of implementation was to align Fireman's business resources to create the best logic to embed in the system. "Fireman's needed to take its best underwriting logic in assessing risk and exposures across a pretty huge spectrum of insureds," Beneducci reports. Also, the carrier had to employ data mining efforts to determine which areas of the business were performing well and where they were lacking. This information would be embedded into the automated system. A group of about seven Fireman's underwriters were commissioned to the task. This team would also be responsible for adding logic to the system after its installation, on a continuous basis.
Both Fireman's and Selectica's teams, relates Beneducci, worked triple-time to complete the 90-day installation goal. The system runs in an IBM AIX environment. Very rudimentary business rules were applied during this installation. Fireman's rule-programming underwriting team now adds rules to the system when they believe a change is needed-for example, as a result of the financial performance within a particular book of business or changes in the marketplace.
$12 Million In Savings
By the end of the first year of the UES utilization, the carrier had recognized dramatic improvements in its loss ratios, saving $12 million. Because the UES provides underwriters with key underwriting questions, the consistency of underwriting decisions has improved drastically. Also, the whole underwriting process has been simplified for the underwriters because the new system is easier to navigate. "Fireman's changed a process that was quickly turning, if not already from rocket science, into something that is much more simplified," says Beneducci. "Fireman's will continue to see exponential improvement the further we go with this."
Case Study Closeup
Fireman's Fund Insurance Co., Novato, CA, $12 billion in assets.
LINES OF BUSINESS:
Personal and commercial P&C insurance.
Selectica's (San Jose, CA) ACE Application Suite; IBM (Armonk, NY) AIX environment.
Implement an underwriting efficiency system.
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