Accelerating Underwriting Profitability
By
Jim Dean
Vice President
In challenging financial times, insurance carriers cannot rely as much
on investment income to boost profits. They must look for
improvement opportunities across the enterprise, including core
business operations. One area of close examination is improving loss
ratio through improved risk selection and premium pricing. But such
changes take precious time.The real trick is to accelerate
implementation of improved underwriting standards to achieve
benefits sooner.Research shows a
typical underwriting period—that is, the time between implementing
one set of underwriting changes and the next—ranges from 32 to 36
months. By reducing this cycle time to 18 months, a carrier can,
over a 3-year period, effectively double the effective loss ratio
improvement.
By utilizing stand-alone technologies
such as new data analytics tools, advanced rules engines, automated
workflow, and predictive modeling techniques, underwriting
improvements can be accelerated without the need of expensive and
costly changes to existing underwriting, claims, and back-office
systems. Other benefits can also be achieved with these tools. For
example, expenses can be reduced by improving productivity and
reducing labor costs associated with developing and rolling out new
rates and rules. The tools also enable actuaries and underwriters to
analyze more pricing scenarios with a greater number of rating
variables than previously possible, which in turn reduces risk and
improves effectiveness.
How does a carrier begin to implement
these improvements and accelerate capturing the benefits?
Fortunately, such changes can yield significant benefits when
applied incrementally, as opposed to a massive redesign/replacement
of the existing environment. In fact, the infrastructure needed is
complementary to an existing environment. The first step is to
develop a clear vision of the desired environment based on five key
areas: data research, rate and rule development, predictive
analysis, automated exception monitoring and notification, and a
framework for how they will all work together. In my next article,
I’ll elaborate on subsequent steps which include process and
solution design, implementation, and benefits capture.
