It's tough out there. As the global economic crisis grinds into its fifth year and persistently low-interest rates erode investment yields, insurers such as the Phoenix Companies, CNA and others, are looking to underwriting tools to help enter new markets, increase share-of-wallet from current customers, better evaluate risk and increase profitability.

And they are not alone.

According to "2013 Insurance Ecosystem: Insurer Technology Spending, Drivers, and Projects," a white paper from insurance research and consulting firm Strategy Meets Action, 55 percent of insurers say they are increasing IT spending for new business and underwriting his year, and 39 percent of insurers surveyed say they have underwriting projects planned for 2013.

"The recession really clamped down on this industry, especially in the commercial markets," says Louie Bode, solutions architect for Great American Insurance Group, explaining that since the economic crisis of 2008, payrolls and revenues have declined for many commercial clients, which has driven down premium revenues.

In the absence of organic growth, insurers increasingly are focused on improving loss ratio, expense ratio and ultimately combined ratio, explains David Schmitz, director of insurance technology for Deloitte Consulting. "Historically, combined ratios were not always below 100, and the investment returns would make up for a lot of sins," Schmitz says. "Many companies have already invested on the claims side to reduce their loss ratio, the cost of doing claims and reduce leakage. Now the overall combined ratio is more important than ever and the opportunity is to invest on the policy side; to make sure you are really right-pricing your business."

Underwriting projects support insurers' three most-prevalent growth strategies: making more-accurate decisions and optimizing underwriting quality; increasing responsiveness and speeding the application process; and making it easier for agents and brokers to do business with them, according to software provider FirstBest Systems' recent survey of P&C insurance executives.

"Underwriting succeeds when underwriters have the best information from different systems right at their fingertips, so that they can assess each risk and make the best decisions in the least amount of time," says John Belizaire, co-founder and CEO of FirstBest Systems. "The resulting quality and efficiency gains help carriers to actually write more of the right business to increase profitability."

New Markets

The Phoenix Companies, a life insurance and annuity provider, used to serve high-net-worth clientele in a high-touch environment, characterized by personal communications with customers, agents and agencies, says Don Griswold, Phoenix's second VP, product and operational delivery. However, the economic crisis and weak recovery necessitated a change in direction.

"The world we're in now, the middle-market space, is a much more transactional business," Griswold says. "People want to submit the business, have us take care of it and get their commission payments on time. And it should run like trains on a track."

When Phoenix launched the new Remembrance Life product, a final-expense policy, the company had to change many back-office practices, which had been created to support the old fully underwritten products.

"What we learned about the middle-market final-expense and simplified issue products is that many - if not all - have a point-of-sale interview process, which we needed to have," Griswold says. "Our methodology for dealing with the fully underwritten products was not what we wanted to build on for this for this new market, or the new direction the company was taking. We needed this foundation to enable us to be successful in this space."

The new system would need to accommodate large transactional flows in a very low-touch environment, Griswold says. "Business rules and process rules are flowing the business through the organization and flipping triggers back to humans to do things when they need to do them, but trying to make the system be as independent as it can be when it receives data from the various input sources."

For the old fully-underwritten products, the process of scheduling a paramed visit, collecting blood and urine samples and Attending Physician Statements (APSs), could take weeks before an underwriter could evaluate the materials and determine what the company could offer to the insured, Griswold explains.

"Today, it's a simplified-issue product set. There are no APSs. There are no fluids taken. It's all based on common information that we can gather," Griswold says, including questions in ACORD's Life Insurance Application Part 2 Medical History form. "As people answer those questions, we may drill down on conditions they may have, or medications they take, to find out a little more. That matches up with information we pull from MIB [Medical Information Bureau], the prescription check databases we utilize, the motor vehicle reporting we get from LexisNexis, and matches up with the ID-checking software."

Griswold says that information comes together and is run through a new set of business rules in StoneRiver's LifeSuite, a Web-based new business and automated underwriting system that drives straight-through automation. LifeSuite produces an approved, declined, incomplete or referral to an underwriter. The underwriter receives and reviews the information and calls the prospective insured at the point of sale.

Currently there are three points of entry for the StoneRiver platform, Griswold says. Some agents prefer to write traditional Part I and Part II applications, which are input at the home office and then run through the business rules. Decisions are made and communicated to the agent and client. Agents also can submit a "drop ticket," taking and submitting Part I data, including products applied for, beneficiaries, riders and the other particulars about the insured and owner. Phoenix follows up with the prospective insured to conduct a phone interview.

The third option, which is where Griswold says most of the business is heading, is the point of sale. An agent calls the tele interviewer, who validates the agent, what products are to be sold and that signatures have been received, including the HIPPA and Part I documents before interviewing the client.

"They move forward through the medical interview: the medications they are taking, certain conditions that they have based on the questions we ask," Griswold says. "That is bundled together and passed into the LifeSuite system and the tele interviewer is looking at the LifeSuite system and sees requirements being setup, requirements being satisfied, and also the decision that comes back, whether that is an approved, declined or review by underwriter."

Implementation of the StoneRiver system began in June 2012, and launch was March 11, 2013. There were 20 full-time people on the team. Previously Phoenix worked on a homegrown policy admin and underwriting system that had been in production since the 1980s.

Decisions, Decisions

To accommodate the new business, and the new way it is conducted, Griswold says an internal shift had to take place. Under the old model, systems were designed to push data to human decision makers. Under the new model, many decisions are now automated and more will be in the future. To accomplish the change, the company hired new blood.

"We wanted a really fresh start on this, so we hired, right out of college, business-rules analyst/developers, who learned the syntax and the process StoneRiver has for building these business rules," Griswold says. "They heard what the underwriters said about the decision processes and decision trees underwriters wanted and sat side-by-side with the chief underwriter to write those rules. They weren't encumbered by how we've always done it and they were able to drive us in a new direction."

Knowing what he knows now, Griswold says there are a just a few things he would do differently. First, he would make sure the entire team understood the entire vision for the project, not from a feature/function standpoint, but rather from a conceptual and connectivity vantage. For example, the tele interview script posed a challenge.

"We envisioned how certain things would drive responses, and the system could do that, but we hadn't sat down with StoneRiver and explained how we wanted it to work in front of an interviewer, so it was kind of choppy. The way we described it didn't describe the true fluidity you need to have," Griswold says. "We took it back to them and they were able to retool the process and make the process glide the way it should."

The other challenge was simultaneously launching new insurance products and the technology platform to support them. New insurance products necessitate new internal processes and paperwork, which affect multiple departments, including compliance and legal, and distribution partners, and that ultimately are filed with state insurance regulators.

"When you start getting filings back from the states, you may have different takes on what certain states allow you to ask on an application, or certain ways to ask certain questions," Griswold says. "We didn't know the full gambit of state variations we were going to have to deal with from an underwriting, paperwork and an app-package perspective, which is inherent to drive the automated processing, because it counts on having all the answers to all the questions the way you ask them."

As a result, the scripts in some circumstances needed to tweaked, as did the rules engines. "If you were putting a mature product into the system, you would have had all that when you were going through your design. If you are standing something up, I would do it with a product you already have in the portfolio," Griswold says. "That wasn't an option for us, because we didn't have one."

Trusted Advisors

In the property/casualty industry, the struggling economy has decreased premiums, as well as the number of potential customers, increasing the pressure to maximize the value of every sales opportunity and streamline processes.

"If you look outside the insurance industry, you see evidence of automation geared toward creating a better sales experience; kind of like the Amazon model," says Belen Tokarski, AVP technology and agency solutions at CNA Insurance. With that in mind, CNA began evaluating premium in force for CNA Connect, the company's business owners' policies, and realized that many of the insureds didn't have all of the policies they should. Tokarski's team then worked with its agents to understand the customer life cycle and how agents work with customers to increase the effectiveness of up front selling. The result is the Custom Coverage Option, an automated underwriting system for commercial liability.

CNA created Custom Coverage Option without any vendor packages, Belen says, by building an extension off existing CNACentral applications. Custom Coverage Options are generated using the existing application framework, where rules are kept in an Oracle database and retrieved by Java/MVC framework application code. A small percentage of complex rules were written entirely in application code. There were no additional components and no new software was installed, she says, because it was all developed inside the existing application. The construction effort took two months, however, they spent about a month validating the design on the front end and ensuring they had all of the right business requirements. They spent another six weeks, on the back end, testing the solution.

"With the Custom Coverage Option, we review the submission the agent puts forth. They are in our online rating system, entering information about the particular risk. When they've finished, we calculate and automatically provide a second quote option that includes additional relevant coverages that should make sense for that insured," Tokarski explains. "Then we go one step further and include marketing messages that will help the CSR explain the coverage to that customer. It gives them a sense of confidence. They are a 'trusted advisor.' The clients are seeing their agent as truly understanding their business and the coverages that they should have."

For example, if an agent is working with a florist and doesn't include "hired non-owned" coverage, the automatically generated second quote would include that coverage as well as marketing messages to explain why the insured should have it.

"Most florists deliver and often use their own vehicles, or have employees who use their own vehicles," Tokarski says. "So we provide their quote and then we offer that coverage. Or, often they don't realize that they can buy higher general liability limits for an incremental premium charge; or they didn't pick 'broadened wind.' You really need that in certain parts of the country. Custom Coverage is like having another set of eyes. Maybe they knew that coverage should be there, but they had a new CSR who missed it, so it's almost like an errors and omissions protection as well. We are making sure they see that second coverage option with all those additional options that they should have."

CNA's goal is always incremental improvements, Tokarski says, because the way agents are doing business is always changing. "It's not investing in big, big things," she says. "It's listening and making the incremental change for every underwriting project. What they care about most is servicing their customers and making sure those customers have the right coverage. Underwriting projects have to be focused on the user experience."

The goal is streamlining the quoting workflow, she says. "Most of it is making sure we are accurately assessing risk and finding the right price. But if you enter with that mindset, you are really missing the boat. Agents have a number of carriers they can do business with. We are not the only ones out there, and we're certainly not the biggest. So working in the land of giants, we've got to make sure we are really listening to our agents."

While CNA's Custom Coverage Option does not access external databases yet, it does access and retrieve data from CNA's data marts. It also works with IVANS Transformation Station, a real-time managed internet data exchange using ACORD XML for real-time transactions between agencies and the carrier, and Vertafore's Transact Now for straight-through processing.

"If I'm going through straight-through-processing and I've uploaded some data from the agency management system directly to CNA, I get a bindable quote in 30 seconds or less, but I'm also going to get a quote that shows the additional coverages," Tokarski says. "We make sure we've got the right solution for all of our agents, regardless of their preferred workflow. Agents won't migrate to it if it doesn't fit in their workflow."

For anyone beginning an automated underwriting project, Tokarski recommends building tools that can be changed quickly, easily and inexpensively, and also partnering with business people, so that business changes are not driven by IT. "It's not about the technology," she says. "It's about the intent."

The Work Doesn't End

CNA has additional initiatives to automate underwriting. Because customers are no long calling or walking into insurance offices, and prefer to do research on the Internet, a next step may include Web-based data collection to route customer information to the best-equipped agent, providing some consultation and leveraging automation and straight-through processing to offer a bindable premium.

"For an agency that writes a lot of photographers, for example, it's very possible to capture a couple data points to create a bindable premium and indication for a BOP [business owner policy]," Tokarski says. "The agent still does the underwriting, making sure they meet our underwriting guidelines, and they are responsible for that customer, but I think you will see things changing a lot more."

Tokarski says since the launch the Custom Coverage Option, CNA has seen average new-business premiums increasing. Agents are able to add coverage, demonstrate deeper understanding of their clients' businesses, and create deeper relationships as a result. Another next step may be reevaluation of the business already on the books to look for additional coverages.

"What we don't know, or what we learned just yesterday, is not really a handicap," Tokarski says. "There is so much we say we can't do today that we will be doing very soon. There's really nothing you need to demystify about automated underwriting. For my generation, this can all be automated. It's really a matter of talking with people and managing the change. Understanding their pain points and addressing them in a manner that makes them comfortable."

Underwriting automation projects are currently more apparent in personal lines and small commercials, which are characterized by more homogeneous risks, says Donna Schlegel, Deloitte's director of underwriting excellence. But these advances are beginning to make inroads with middle-market commercials through underwriting modernization projects.

"When you get into middle markets, they can take advantage of these capabilities to get greater discipline; to have the guidelines be more embedded in the technology, to have the underwriter more aware when they are moving outside them," Schlegel says. "It's a great way to use technology to increase underwriting discipline."

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