Is Technology Altering the Art of Underwriting?
Insurance Networking News, September 1, 2008
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.
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"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."
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