Challenging market conditions, led by accelerating price competition, are causing insurers to look more closely at streamlining their underwriting procedures to defend or improve their profitability. Inevitably, this is creating a new focus by senior executives on data, technology and process management.Although underwriting is a basic building block of the insurance process, traditional methods often are slow, inefficient, inconsistent and inaccurate.
Therefore, to support underwriting optimization and improved underwriting profitability, insurers must develop new strategies and deploy technologies to automate and manage the process better.
Underwriting optimization includes: the development of real-time information access; an electronic workspace for sales staff and underwriters to collaborate; streamlined information and data collection with third-party providers; reduced dependence on paper; automation of simple underwriting decisions; and analytical methods to reduce underwriting risk.
At the end of 2003, a Gartner Inc. study found that 74% of U.S. property/casualty insurers and 65% of U.S. life insurers were implementing an automated underwriting solution to improve product distribution and new business.
While the number of companies investing in solutions may be high, the investment dollars are generally much lower than in policy and claims systems. In addition, underwriting investments have been in point solutions that support the existing process, rather than on tools to transform the process and improve outcomes.
This is beginning to change, however. Gartner anticipates that investment in underwriting tools and technologies will grow during the next six to 12 months as insurers increase their focus on improved underwriting profitability and as vendors' offerings mature.
Investment will be split among four different categories. Use of all four, however, are required for underwriting straight-through-processing (STP) and optimal decision-making.
- Electronic third-party data and information. This includes such information as credit scores, Medical Information Bureau data, and Motor Vehicle Records. Having a complete electronic record will help streamline the decision-making process, eliminate re-keying errors, reduce paper costs, and facilitate automated decisioning and analytics.
- Management of underwriting workflow. An electronic workspace that stores all content and manages the end-to-end process should be created for distributors and underwriting staff. The use of middleware, application integration tools and XML will help insurers integrate the workflow to agency management, point-of-sale and underwriting workstations to support STP.
- Management of business rules and decision support. It is imperative that insurers reduce the amount of manual underwriting that takes place. Underwriting business rules should be documented and managed. A rules repository can then be used to filter incoming cases to automate the decision completely or provide a decision recommendation.
Exception-based underwriting, or the process where only high-risk or exception cases are handled through manual underwriting, can be established and used to improve decision consistency, speed the decision process, and help reduce the workload in the underwriting department.
- Underwriting case management. Additionally, insurers must have a Web-based solution for underwriters to better manage their cases. This solution must be tightly integrated with the decision platform and with imaging and workflow systems. It should have enhanced analytical capability to assess risk, and be able to receive electronic data from both internal and external sources. Case management information should be real-time, which will enable the underwriters to quickly make decisions and improve the accuracy of risk assessment.
Combined, these four project categories will enable insurers to create a platform to automate, manage and re-engineer their underwriting processes.
Underwriting will improve, by reducing costs, improving data quality, shortening sales cycles, identifying problems more quickly, improving agent and broker satisfaction, and managing risk better.
Benefits can also be achieved in the financial bottom line, as well as throughout the company. For example, underwriting analytics and insight can be shared with other departments, such as product development, claims and marketing, to help with loss assessment, risk management and opportunity identification.
In-depth underwriting analysis and process documentation can also be used in compliance and audit procedures, which may help with financial ratings in the future.
These benefits will provide strategic value to insurers and will drive dramatic increases in underwriting tools and technologies during the next 24 months.
Kimberly Harris is a vice president and director of insurance research for Gartner Inc., Stamford, Conn.
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