By Rozhan Yusof, Subject Matter Expert (Life), MII Product Development Department
Leaders of insurance companies today have begun to appreciate and recognize the importance of creating a talent pool of next generation underwriters. This new breed is not the typical underwriting experts that grow and thrive by traditional mentoring. They are underwriting experts with the ability to contribute using advanced analytical skills, real-time collaboration and faster execution; whilst operating in a highly regulated insurance sector. As the insurance industry is continuously experiencing technological disruption, one of the most significant changes has been the rise of underwriting systems. Also called the underwriting “desktop,” “work station” or “work bench,” underwriting-specific software or system has enabled insurance companies to reduce underwriting leakage, improve risk selection and pricing, lower processing costs, provide integrated account management and enhance the overall quality of broker interactions.
Underwriting Desktop vs Administration Systems
Underwriting desktops have certainly matured. But what can an underwriting desktop do that policy administration systems can’t? The answer lies in the underlying differences in how these underwriting desktop systems are really used. Commercial and specialty underwriters need to go beyond policy-specific views to gain broader, account-level insights. Dynamic workflow capabilities are also necessary, given the highly iterative nature of assessment and decision-making processes. Because underwriters ask more questions in assessing risk and need access to more data than that required for rating and issuance, they need systems that enable considerable depth of analysis, as well as integration with other business unit product offerings for cross-selling opportunities.
Underwriting systems use complex, rules-based methodologies such as pattern techniques and predictive models to best align risk selection with appetite and pricing with exposures, optimize contractual terms and conditions and tailor risk management programs.
Customised Solution Using Complex Methodologies
Underwriting systems use complex, rules-based methodologies such as pattern techniques and predictive models to best align risk selection with appetite and pricing with exposures, optimize contractual terms and conditions and tailor risk management programs. In comparison, policy administration systems typically only capture policy-centric data required for calculation of manual premiums, application of modification factors, premium booking, policy issuance and statutory reporting. The data capture and system rules are designed to complete relatively simple and linear processing, rather than enable a complex and analytical process. Commercial and specialty carriers considering an investment in underwriting systems will likely build their business cases around a few essential elements:
- Lower loss ratios through better risk selection, more accurate pricing and enhanced risk mitigation through improved terms and account servicing – the institutional expertise of the best
underwriters is codified in the underwriting solution to promote continual learning and consistent decision-making.
- Increased productivity and efficiency through automation of low-value manual tasks and improved account collaboration – this enables underwriters to focus on producer relationships, market
growth, key account retention and higher-value analytical activities.
- More targeted growth through consistently applied risk appetite rules, optimal pricing and terms for high quality business and faster turnaround on new business proposals. In addition to the essential elements, underwriting systems provide real-time insights into operational and risk portfolio results. Underwriting and operations management teams benefit from more detailed and timely data to analyse the leading indicators required in underwriting such as hit and retention ratios, flow and mix of submission activity against plan and deviations from underwriting and pricing rules. These underwriting systems support more reliable compliance with regulatory requirements and enable rapid adjustments to processing due to factors such as emerging risks or organizational change.
It is important to note that underwriting solutions will always require a degree of customization. An underwriting solution should integrate with and leverage existing tools and data repositories as well as new sources of data enrichment using either a vendor package, a vendor framework or an internal suite of software products. The chosen solution must align with the variable processing needs and diverse range of risk complexity. Different automation and delegation approaches must be considered especially for commercial and specialty business. A robust solution must also complement the surrounding application landscape, including agent portals, sales and producer management systems and policy administration systems.
References: www.ey.com www.iireporter.com