Transformational Thinking in Insurance Underwriting
Insurance Experts' Forum, February 18, 2014
Good underwriting is the key to a profitable book of business for an insurer. Underwriting profitability is an important financial measure, and is flanked by other typical key performance indicators used to measure underwriting effectiveness such as the number of new policies, percentage of revenue from new policies, customers and products, underwriting speed, reduced loss ratio, and the ease of doing business.
Unfortunately, most insurance underwriters are still working with dated processes and procedures, underwriting manuals and spreadsheets, antiquated systems that require multiple points where data must be entered, manual workarounds, and incomplete data. Decades of enhancements and incremental changes to the underwriting processes and systems have, for the most part, added layers of complexity and resulted in underwriters spending more time gathering data, entering data into multiple systems, and hunting through paper files and emails. Every layer of complexity serves as a barrier to insurance underwriting efficiency.
What if underwriting could be truly efficient while not losing the quality of decisions tied to years of underwriting philosophy and manual development? The answers may lie in transformational thinking. (For a deeper explanation of transformational thinking and legacy thinking, see my first blog.)
Transformational thinking can accomplish Underwriting’s goals
Moving toward transformational thinking in insurance underwriting begins with these steps:
Reject these ideas:
Transformational thinking starts with rejecting the thought that underwriting can only be done using existing underwriting processes, manual data entry, manual workarounds, and information and communication exchanges that require tracking and manual confirmations. Insurers should also abandon the notion that minor changes and incremental enhancements will make a significant difference.
Accept these ideas:
The insurance industry is now faced with more informed and demanding consumers, even as competition has grown more intense and global in scale. Regulatory compliance requirements are stricter. Insurers have to accept that the current state of most underwriting processes and systems will not adequately meet the demands of the industry.
Insurers should also accept that there is a cultural divide within their workforce. Age diversity issues manifest themselves more prominently in Underwriting departments. On one hand, there are a substantial number of experienced underwriters who are ready to retire, yet hold the golden key of underwriting understanding in their minds. On the other are a substantial number of Gen Y underwriters, many of whom are tech-savvy and ready to take underwriting to the next level. They grasp how technology can assist underwriting, but may not yet comprehend the subtleties of it as an art or science. It is important that they, and their powerful technologies, capture the underwriting business knowledge from retirees ready to exit the company. The new technologies will transform underwriting if they structure the incoming data properly and gather time-honed rules to make the right decisions. Built properly, those technologies will transform businesses.
Lead with these ideas:
Excellent transformational journeys encourage process innovation, raise the level of information and data quality, improve timeliness, leverage new technology-based solutions and truly transform insurance underwriting. Look to others who have made the leaps you are considering making.
Here are a few underwriting transformation steps we have seen major insurers take over the last year.
Underwriting workbench implementation
A major insurer implemented an underwriting workbench that now serves as a ‘one stop shop’ for making underwriting decisions. It simplified case management, provided online access to data and files, added search capabilities relevant to user business alignment and preferences, and included diaries, notifications and alerts. It reduced the amount of time needed to gather the information necessary to underwrite from weeks to hours.
Leveraging workflow management
Small workflow adaptations can have a big business impact. One insurer engaged in business process optimization, rules management, streamlining of underwriting activities and authority, qualification, referral, notifications and roles-based decision-making. Underwriting activities and tasks are now routed to specific underwriters based on their role and skill level, resulting in more timely and accurate underwriting decisions.
Analytics and Business Intelligence implementation
A leading insurer leveraged dashboards to track portfolio performance, overall risk exposure, shift in demographics and customer preferences, data mining from structured and unstructured customer and distribution information. They now receive insights into lead management, account intelligence, and benchmarking.
Risk management enablers deployment
Underwriting has gained a clearer picture of risk with scoring models, risk exposure management, aggregation and threshold management, single account and customer view, down payment prediction, pre-qualification automation, a GIS solution, CAT modeling, predictive risk, loss control pricing and price modeling. With the deployment of these enablers, the insurer was able to more accurately gauge the risks it was willing to assume, and was able to improve the pricing of products to cover these risks.
An insurer introduced dynamic front end capture and information pre-fill from external interfaces, ISO circular adoption, state filing, statutory coding, and a 360° view of the customer. This eliminated multiple data entries, reduced errors caused by manual steps, and accelerated processing time by over 50%.
To capture and disseminate underwriting knowledge effectively, an insurer created and sustained networks of underwriting expertise and enhanced controls through Wikis, Blogs, Mash-ups, User-Generated content, social networking, and cloud computing. This resulted in the creation of a powerful virtual network of underwriters, thereby shortening the time taken to locate the specific underwriting expertise and consequently, the time taken to complete the underwriting process. The insurer also utilizes the tools to train new underwriters.
Rather than risk losing years of underwriting expertise, an insurer worked to extract underwriting rules from existing systems to use them in new rules engines and new underwriting systems. This allowed them to keep proprietary business knowledge intact and saved the time required for building from scratch. In addition, through this exercise, the insurer removed dated and unnecessarily complex business rules.
This is just the ‘tip’ of the list. Underwriting transformations are under way throughout the industry and organizations are reaping the rewards from the point of first contact through final claims. If you are contemplating an underwriting transformation or using transformational thinking to re-envision a different kind of underwriting, you are taking the best first step.
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