Early in his career, Gary Kaplan spent a decade in loss control engineering, Then he moved into the underwriting arena and found that all the effort he and his colleagues had put into their engineering was arbitrarily applied to underwriting decisions."When I went into underwriting in 1988, I was appalled at how loose it was-the lack of structure and the lack of guidelines," says Kaplan, who is now senior vice president and chief underwriting officer at Zurich. "There was no consistency. The way business was priced was very disappointing to me after 10 years in engineering. I said, 'This is how all my work got translated into a price?'"

Since then, Kaplan's mission has been to bring more discipline and structure-more "engineering" if you will-to the way underwriters evaluate and price risk. And, by the looks of what Zurich has achieved in its underwriting operations so far, that mission is virtually accomplished.

Even before Kaplan was appointed as Zurich's chief underwriting officer last October, the Schaumburg, Ill.-based commercial insurer was a leader in the industry with its underwriting technologies. Those include an award-winning, automated, Web-based small-business platform called eZSB, and an underwriters' workstation for large property accounts, which Zurich implemented back in 2002.

More recently, the carrier has developed an enterprise underwriting strategy, supported by an evolving state-of-the-art underwriters' workbench, that focuses on establishing the correct "technical price" for every risk the company assumes.

"This is a fluid business, with the regulators changing the game and the law in the states changing on a regular basis," says Kaplan, who joined Zurich in 1995 and was instrumental in the formation of the company's underwriting technical center in 2001.

"But we [at Zurich] think we're getting closer and closer to this notion that there is a right price to charge on a risk over a continuous period of time-regardless of the market cycle. And that's what the technical price is," he says. "It's the price we would charge for the next 2,000 or 3,000 years if there were no market influences and the legal environment were stable. It would cover claims and expenses and our margin."

The Zurich Way

Technical price is the "heart and soul" of "The Zurich Way," an enterprise underwriting framework sanctioned by Swiss-based Zurich CEO James Schiro, who joined the company in 2002 after a long career at Price-waterhouseCoopers.

"What we've tried to do over the last few years is to get a very consistent process in place for underwriting," says Kaplan.

"There is a certain way to underwrite no matter what market you're in, no matter what segment you're in, no matter what country or state you're in," he says.

That consistent process is outlined in the Zurich Way-which a team of Zurich underwriting experts from around the world hammered out in 60 days a year and a half ago. It's the roadmap for underwriting within the Zurich enterprise. The team also developed an underwriting framework specific to Zurich's four lines of business-general liability, workers' compensation, and commercial property and auto.

"We use the Zurich Way to determine how we build our underwriting tools, and to guide how we audit," says Kaplan. "And it all comes together on the underwriter's desktop."

The underwriter's desktop-or workbench-brings together internal and external data to improve collaboration, underwriting efficiency and customer knowledge across the company.

It's a single, integrated Web-enabled interface that provides access to tools and information that Zurich has determined the entire account team needs- which includes underwriting, premium audit, risk engineering, marketing, collections, and other services-to evaluate and monitor customer accounts.

Core components of Zurich's workbench include a collaboration tool, alerts, contact management, forms, a notepad, document management, links to third-party applications, computer-based training, centralized registration for all lines of business and workflow tools, such as an integrated e-mail feature, which eliminates the need to toggle out of the system to contact another member of the team.

Built on a single SQL server database, Zurich's underwriting workbench also eliminates the need to collect the same information about customers across Zurich's four lines of business.

The workbench also provides historical information about underwriters and producers associated with each account. At press time, the company was adding functionality to display producer data, including premium written and loss ratios, to better enable underwriters to identify key performers.

One centralized place

"There are themes within our underwriting framework across all lines of business, such as geography," says Kaplan. "So we've built enterprise solutions that cut across all lines of business that enable us to think about geography in the same way."

All Zurich underwriters use the same tools in the risk selection process, he notes. For the geography component, for instance, they use the same tool to provide them with information about Zurich's appetite for business in various states.

"The theme here is that it's all triggered from the workbench," says Rick Harold, vice president and director of enterprise underwriting process and design at Zurich. "It's all in one central place-so a loss run, for example, isn't just sitting on someone's desk."

Harold draws a diagram to illustrate the workbench-a large box with four smaller boxes at its base to represent Zurich's proprietary risk selection process tools for each line of business.

Circles coming off the workbench include catastrophe modeling tools, an underwriting knowledge center, the company's proprietary state outlook tool-and other circles that represent future components, such as an agency interface.

"This is almost like a cockpit," says Harold. "Underwriters can see that a premium audit came in or other messages, via the workbench, as opposed to having pieces of information all over their desks. This is structured and disciplined," he says.

That structure and discipline is applied not only to underwriting workflow, but also to the analysis of risk. This is where the company's concept of "technical price" comes to life as underwriters use the risk selection process tools.

Essentially, the tools lead to a risk "score" for each potential piece of business.

Peter Casa, assistant vice president and director of underwriting program projects at Zurich NA, describes the analysis process during a live demonstration for Insurance Networking News.

An underwriter selects a product, he begins. (He selects workers' comp.) A prequalification tool, workers' comp cat analysis tool, and workers' comp risk selection process tool show up on the screen.

"For prequalification, the underwriter goes through a series of questions developed by the business-unit subject matter experts based on their best practices," Casa explains.

Following that step, another series of questions-also based on proprietary best practices and algorithms-appears, which is aimed at determining exposure, loss history and other risk factors.

"The system keeps track of where the underwriter is in the process, what questions have been completed or not-and when the underwriter is finished, the system provides a number-or score-for that risk," he says.

In the final analysis, the underwriter can see if the company can take on this piece of business at a profit, Casa explains.

"The tool illustrates expected expenses, how much money Zurich can expect to make, and the expected return-on-equity." In this example, the ROE is 18% on a $255,000 premium.

"Now, when the underwriter goes into negotiation, he or she can use the ROE calculator to change the premium and see the expected ROE," Casa explains.

He enters $225,000 in premium and the ROE drops to 12%. Changing the ROE to 25% bumps the premium up by $25,000.

"This is where reality hits," Harold pipes in during the demo. "This is where the underwriter can see their part in the company's performance-by driving it down to what they actually do on a daily basis."

The knowledge center

In addition to determining a "technical price" with Zurich's sophisticated risk selection process tools, Zurich underwriters also spend much of their time gathering information to help them evaluate and manage their accounts.

That information includes industry data, location data, updates on the regulatory environment, and enterprise underwriting guidelines and procedures on how to handle particular types of business.

To help underwriters with this part of their job, Zurich built an underwriting knowledge center, which is a Web site that can be accessed through the workbench or through the company's intranet site called Channel Z.

"At Zurich NA, knowledge management started several years ago with guidelines-underwriting rules that we wanted underwriters to follow," says Katherine Tersago, enterprise project manager at Zurich.

But the business units managed that information inconsistently, she says. They varied in the amount of detail they provided and how the information was developed, maintained and viewed.

"Even where the information was stored wasn't standardized," Tersago says. "So we wanted to have an enterprise approach to knowledge management and getting information to underwriters in a consistent, reliable way."

The knowledge center's value lies in its accuracy, timeliness and credibility of content, says Harold. And Zurich ensures that value by allocating appropriate resources and controls.

"We have really good content managers (70 of them) who know what that means," he says. "And that's important because we're presenting enterprise-sanctioned information, guidelines and authority. So we have exceptional controls, such as removing data that has expired and verification that the content is correct."

In keeping with the theme of the integrated, centralized workbench, underwriters or other users of the knowledge center can e-mail guidelines or other pertinent information to members of an account team.

"Some of the information from the knowledge center is pushed to underwriters," says Harold. But Zurich's vision goes further.

"When a submission comes in, we want to push all the information we have about that business to the underwriter through the use of business rules," he says. "We want to say, 'here's what we want you to know about this piece of business-the financial statement and exposures you should be looking for, for example."

Similarly, Zurich provides underwriters with an enterprise view on the state regulatory environment. It does this through a proprietary technology it developed called the state outlook tool.

"This is another example of how underwriters look at an account and they have locations and coverages in different states, and they may remember there's some regulatory situation brewing for workers' comp or auto, and they need more information," Harold explains.

State regulatory outlook

Using the state outlook tool on the workbench, underwriters can click on a state map, and pull up a state's regulatory rating for all four lines of business-from poor to excellent. Arrows next to the ratings indicate if the environment is improving or deteriorating.

The information for the state outlook tool is gathered and updated regularly by a team of experts from the business units, the underwriting technical center, and the claims, actuarial, legal and regulatory departments.

"This information about the regulatory environment was available before but it was in different places," Harold says.

"This is where we bring it all together in an enterprise view as opposed to a single underwriter saying, 'I know what's going on in that state.' This is the corporation saying, 'This is the way we want you to think about it.' We have more combined knowledge as a corporation than any one underwriter has."

Admittedly, instituting this kind of structure and discipline can't be effective without careful attention to managing people's resistance to change, says Harold.

"I've run into people who say, 'I know how to underwrite. Why do I need this tool?,'" he says. "And I've said, 'Not everyone is as good an underwriter as you are.' That's why we've created champions in the field. We make sure the field is part of this development process and they own it."

He illustrates this by telling a story. "A Zurich underwriter was complaining to one of his colleagues about using one of the new tools, and the colleague responded by asking, 'What's your loss ratio?' Maybe it would be better if you used this tool that we built to help you.'"

Consistent profitability

In the end, that's what it's all about for individual underwriters and for the Zurich enterprise: results.

"The theme is to bring some engineering to the underwriting process, but underwriting discipline is not the end state," says Kaplan. "The end state is more consistent profitability."

Has the company's underwriting initiatives helped it to achieve that goal?

Only time will tell, but Zurich's financial statement for the first half of this year was positive. Net income increased 21% to U.S. $1.8 billion compared with the first half of 2004. And return on equity is holding for the first half of this to a similar level at this time last year at 18.4%.

"We measure everything," says Kaplan. "We put metrics in place to ensure that the changes we make are in fact translating into benefits. We measure how frequently the tools are used, when they are used, and the quality of their utilization. Then we translate that into capturing the value of the changes we've made. We never arbitrarily make changes at Zurich anymore."

Zurich GUARD's against terrorism risk exposure

Catastrophe modeling is a critical component of analyzing and pricing risk. At Zurich, homegrown catastrophe modeling tools, as well as those from Risk Management Solutions Inc. (RMS), Newark, Calif., have been an integral part of its underwriting process for several years-but only for natural disasters.

Then along came 9/11, and Zurich-like every other insurer with property and workers' compensation policies in the United States-was completely unprepared.

"Terrorism exposure in the U.S. was something no one had figured out-and I mean no one," says Gary Kaplan, senior vice president and chief underwriting officer at the Schaumburg, Ill.-based U.S. headquarters.

The industry scrambled-and so did Zurich.

"The reinsurers were very nervous after 9/11, so we had to rapidly come up with some new tools," says Rick Harold, vice president and director of enterprise underwriting process and design at Zurich.

The carrier also began working on strategic cat modeling projects, including partnering with Risk Management Solutions to build terrorism modeling into its tools.

"Now we can see what our terrorism exposure is in New York, Los Angeles, and Chicago, for example," Harold says.

The project is called GUARD, for Global Underwriting Accumulations Repository of Data, and it integrates the RiskLink and RiskBrower tools that Zurich licenses from RMS.

RiskLink is a detailed risk modeling and analysis tool used by specialists in the company's underwriting technical center to determine the accumulation of terrorism exposure on a designated portfolio. Accumulations can be calculated for property and workers' compensation lines of business within a specific building or within a specified distance of a given street or latitude and longitude.

RiskBrowser is used by Zurich property underwriters to determine terrorism exposure at the building level while underwriting a specific risk. The tool generates a variety of outputs, such as a building-level map, aerial photographs of the site, and detailed building attributes including the number of stories, construction class, square footage, and year built. Underwriters can run an account or location-level analysis and calculate the incremental impact of a new account or risk on the company's existing accumulations.


* Zurich

* Headquarters: Zurich, Switzerland (Zurich North America in Schaumburg, Ill.)

* Gross written premiums: U.S. $49.3 billion (2004)

* Net income: U.S. $2.6 billion (2004)

* No. employees: 62,000 worldwide

* Return on equity: 13.4% (2004)

* Business sectors: Personal insurance (Europe), small, mid-sized and large commercial insurance (Europe and U.S.)

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