Just as ships are judged by their displacement of water, probably one of the best measures of a technology's success is the disruption it leaves in its wake. If this is so, new underwriting systems and rating engines are-for insurers-the technological equivalents of battleships and aircraft carriers. Like those ships, these modern systems are outfitted with an impressive array of technology. Geared toward non-technical business users, they sport sleek graphical interfaces and seek to make rules more visible to end-users. They are invariably Web-based, and enable users to pull data, including geocoding, spatial and motor vehicle C.L.U.E. reports, in real time.
The result of this influx on new technology is that rating and underwriting, once quintessential back office functions, are now moving to the front office.
"Nowadays, much more of the underwriting process is happening in real time, so while you're getting a quote, you're also being underwritten," says Lindsay Fassett, product manager for Frisco, Texas-based Skywire Software's Insbridge rating product.
This speed is a good thing in areas such as personal lines auto, where consumers expect instant answers and will grow impatient waiting for a quote. "It's better to tell consumers up front they're not a good fit than get back to them with that news three days later," Fassett adds.
Craig Segbers, manager of e-business at Columbus, Ohio-based State Auto Insurance Cos., is a believer in the benefits of front-end underwriting. "We are trying to push as much out as we can to the point of sale and our agents," he says. "Today, we get 98% of all new business on personal lines quoted and issued by our agents."
Segbers says one of the primary benefits of moving to a Web-based solution is speed to market.
"With a tool like Insbridge where you don't need programmers, we can move so much faster than we could with mainframe," he says. "We are able to rollout ratings, new products or enhancements to products so much more quickly."
In addition to speed, newer solutions make it easier to test products in development. "Our actuaries will use Insbridge to do ‘what if' scenarios on our existing book of business," he says. "Those types of things weren't possible with our back-end, mainframe-based rating system."
FIRST THINGS
So where does a carrier looking to update this core process?
Dean Butler, product manager of personal insurance development at State Auto, says that addressing rating first is a good idea. Butler says adding the Insbridge rating engine enabled State Auto to add more pricing points and rating variables to both its auto and home products. "We enhanced our rating process to where we can rate more risk accurately, so even if a customer has a prior loss, violation or lapse in coverage, we can put that into our rating scheme and still rate the risk and clear it without needing to refer over to the underwriter to review it," he says.
As a consequence, the company can now write a wider range of customers by more accurately being able to price within the segments. Butler says that now more than half of the company's new business endorsements and claims are processed and cleared through the new system as opposed to 20% on its old system. What's more, the new system applies to more lines of business, including standard auto, home, non-standard auto and dwelling fire. "So, we've not only expanded the number of risks that we can clear, we've also expanded the lines of business we can underwrite," he says. "The enhanced rating and automated underwriting has helped us refer fewer risks over to our underwriters to review."
To create this multi-variate analysis, a good deal of consultation with State Auto's actuarial team was necessary to come up with multiple points, Butler says.
Andy Yohn, CTO of Bolivar, Mo.-based Duck Creek Technologies says that the process to define the rules for entry into a new system can pay unexpected dividends. "Often we help them discover rules they didn't even know they had," he says.
Fassett agrees that the key to multivariate rating is using analysis of risk data to create smaller groups of like-minded risks to which carriers can gear their rating logic. Insurers also must work hard to define the criteria to determine what is a good risk or bad risk, she says. "There's no special sauce."
Carrier should start with "knockout" questions, Fassett says, such as "Does a swimming pool need to be fenced in for a person to receive a homeowners policy?" and work toward more complex questions. Moreover, Fassett says, once the rules are established, the process is not that resource-intensive. "Once you have those requirements down, there are applications out there that allow you to automate those rules very quickly."
OLD DOG, NEW TRICKS?
So, if a good amount of business can bypass the underwriting process, what are the implications?
Duck Creek's Yohn believes advanced underwriting and rating technologies can augment the work of underwriters by freeing them to focus on the more exceptional risks. "The goal is to eliminate a mundane review and allow them to spend their time on the things that are true judgment calls," he says.
Mike Fitzgerald, senior analyst with Boston-based Celent, says as automated technology does more of the work, a trend is emerging to get underwriters to sell and develop accounts as well as make decisions and price. "Companies have initiatives underway to either switch the workload or introduce technology to free up middle-market and commercial underwriters to sell," he says.
State Auto plans to address a broader range of risk, Butler says, with the same number of underwriters. "The goal is, as we write more business and expand into new territories, to have our underwriters handle larger territories and more agencies," he explains. "We also give them more sales and business development-type functions to further enhance their job."
According to Butler, the new technology allows the company to train inexperienced underwriters more quickly with less need for one-on-one guidance. "In the old days you would have an experienced underwriter sit with a less experienced underwriter and explain the guidelines and how the system works," he says. "With automation, it makes it much easier for a new underwriter to learn the system."
Yet, Fitzgerald cautions that underwriters may not be properly prepared or inclined to take on higher value tasks such as these. "Now, you are asking them to leave the office and close deals. These are things they may not like to do," he says.
Moreover, Fitzgerald foresees another danger if underwriters don't learn the simple tasks now done by automation: They will be ill-prepared to handle larger tasks in the future.
However, insurers may not have a much of a choice to have fewer underwriters with larger purviews given the demographics in the industry. Matthew Josefowicz, director of insurance at New York-based Novarica, says many carriers are interested in having remote and work-from-home underwriters. "As the workforce shrinks, it becomes harder to find qualified underwriters in your city," he says, adding this is especially true for smaller carriers. "It's difficult enough to recruit underwriters without being restricted by geography."
Yohn agrees that there needs to be a cultural shift for carriers to fully get a return on investment. "I still see carriers not leveraging the technology they have available to the fullest," he says. "They need to embrace the technology."
THE FUTURE
Even without demographic concerns, the move to automate underwriting might be inexorable, as there's a greater demand for information being directly available to consumers. In personal lines-especially personal lines auto-it's becoming a prerequisite and is not just for large insurers. "If nothing else we're keeping up with the competition," Butler says.
The adoption by specialty and commercial lines is taking longer, according to Fassett. "We're definitely seeing it move into commercial lines categories," she says. "It only makes sense that after we've seen it expand into commercial, that it will move into specialty lines."
At State Auto, Butler says its underwriters will continue to increase the number of variables they use to rate, and look at things such as predictive modeling to refine their rating even more. They also plan to eventually put the underwriting engine ahead of where it is today, and enable agents to make a "go" or "no go" type decision even quicker.
"From an operational/business side standpoint, I think we are very comfortable with being able to put that upfront," Butler says. "We have confidence in the underwriting system."
Ultimately, moving to an automated underwriting environment is not a process where you can go from zero to full automation, Fassett allows. "I don't know if we will ever get to a point where it's 100% automated," she says. "There's always an exception to every rule."
Find more about underwriting by searching "Automated Underwriting: A Reality for Life Insurers" www.insurancenetworking.com.
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