Underwriting Technology Matures: The Birth and Rise

Today’s underwriting leaders are recognizing that the next generation of underwriting talent will grow and thrive not by the oral history passed along from the prior generation, but by the ability to provide an environment fueled by superior rules, insight-driven analytics, real-time collaboration and faster execution.

(Image credit: Dollar Photo Club.)

The insurance industry has experienced its fair share of technological disruption. One of the most significant – and perhaps underappreciated – changes has been the rise of dedicated underwriting systems. Alternately called the underwriting “desktop,” “work station” or “work bench,” underwriting-centric software has enabled carriers to reduce underwriting leakage, improve risk selection and pricing, lower processing costs, provide integrated account management and enhance the overall quality of their books and broker interactions.

In the mid- 1990s, commercial insurers recognized that policy administration systems were unable to support increasingly sophisticated underwriting processes. Because no dedicated underwriting technology existed at the time in the software vendor market, insurers were forced to develop their own. Many of these early systems simply aggregated information from disparate client and policy systems to provide underwriters with a cohesive view of their accounts and enable tracking of milestone processes. By the early 2000’s a few software companies saw an opportunity to develop packaged underwriting solutions. While a big step forward, these packaged offerings still required extensive customization to meet the unique processes and environments of individual carriers.

(Related: Are Underwriters Smarter than Predictive Models?)

Fast forward to 2015. Underwriting desktops have certainly matured during their brief history. However, many in the industry still want to know specifically what underwriting desktops do that policy administration systems don’t.

The answer speaks directly to the fundamental differences in how these underwriting desktop systems are used. Commercial and specialty underwriters need to go beyond policy-specific views to gain broader, account-level insights. Dynamic workflow capabilities are also necessary in underwriting, 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 (hundreds of attributes including diverse external data sets) than that required for rating and issuance, they need systems that enable considerable depth of analysis, not to mention seamless hand-offs within their teams and integration with other business unit product offerings for cross-selling opportunities.

Complex Methodologies

Further, 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. Their data capture and system rules are designed to complete relatively simple and linear processing, rather than enable a complex and iterative 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.

Importantly, underwriting systems provide real-time insights into operational and risk portfolio results. Underwriting and operations management teams benefit from more granular and timely data to analyze the leading indicators of their book performance such as hit and retention ratios, flow and mix of submission activity against plan and deviations from underwriting and pricing rules. Furthermore, these underwriting systems support more reliable compliance with regulatory requirements and enable rapid adjustments to processing due to external factors such as emerging risks or internal factors such as organizational change.

Some Customization Necessary

While underwriting desktops and workstations now have a definitive role in the insurance IT landscape (and, indeed, are recognized by leading insurance analysts), it’s important to note that underwriting solutions will always require a degree of customization. Whether starting with a vendor package, a vendor framework or an internal suite of software products, an underwriting solution should integrate with and leverage existing tools and data repositories as well as new sources of data enrichment. They must align with the variable processing needs and diverse range of risk complexity with commercial and specialty business, which will include different automation and delegation approaches. And, they must complement the surrounding application landscape, including agent portals, sales and producer management systems and policy administration systems.

Today’s underwriting leaders are recognizing that the next generation of underwriting talent will grow and thrive not by the oral history passed along from the prior generation, but by the ability to provide an environment fueled by superior rules, insight-driven analytics, real-time collaboration and faster execution. This environment will be powered by underwriting systems and bring capabilities that will soon become table stakes for the industry.

 

Gail McGiffin // Gail McGiffin is partner/principal in the Ernst & Young Insurance practice and leads the Underwriting, Product, Policy and Billing Solutions. Most recently, McGiffin was CIO at ProSight Specialty Insurance where she led the creation of a fully outsourced platform. Previously, she was a senior executive/managing partner in Accenture’s Insurance practice, leading its Global Underwriting Transformation Offerings. In this role, Gail was responsible for the design, development and implementation of software solutions for Accenture’s insurance clients. She architected Accenture’s consulting assets for underwriting and product development such as diagnostics, business architectures, operating models, process models, performance scorecards and change management. McGiffin started her career in the P&C industry with 15 years at Chubb and two years at Royal & SunAlliance. Her areas of consulting and industry expertise include commercial lines and specialty underwriting, product innovation, customer segmentation, policy administration, operational transformation, distribution optimization, predictive modeling, business intelligence, data mining, GIS and enterprise location intelligence. McGiffin can be reached at [email protected]

Comment (1)

  1. What are some of the leading vendor products? I believe some of the reinsurance companies like Munich Re, Reinsurance group of America have their proprietary underwriting work benches.

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