The Online Quest

For all the investment in information technology that insurance companies have put into their underwriting and distribution systems, has it made any difference to solving the four “Is” of the transaction process – incompleteness, illegibility, inaccuracy and ineligibility?

Few companies today could say their transactions through brokers are any more complete, legible, accurate or eligible. And expense ratios have shown few signs of coming down, despite heaps of money thrown at the problem. In fact, the idea of what constitutes “automated underwriting” seems to be in the “eye of the beholder”. Some companies think that sending out bulletins online to brokers/agents is “true automation”. Others argue that a limited inquiry function for client, billing and policy information is the path to efficiency. Yet, this “first generation” of Internet capability has only partially solved the high cost and frustrating delays of underwriting and distribution. Indeed, it is only scratching the surface of what automation can truly do for insurers.

PROCESS INTEGRATION

The ability to achieve straight-through processing of new business or to conduct policy change is hampered by the complexity of the process, the manual application of underwriting and product rules and a lack of integrated technology approaches at many companies. Disconnected workflow and too many touch points between clients, brokers and underwriters also contribute to inefficiency.

A simple phone call from a client requesting a quote sets off a seemingly endless chain of touch points and tasks to complete a policy transaction. When you look at the process of brokers obtaining comparative quotes and entering data, companies correcting errors or completing information on submissions, ordering third-party reports, such as “MVRs” or loss history, and then moving on to underwriting and fulfillment, there is no wonder the typical policy cycle time is well over 30 days.

And, when companies change their underwriting and product rules, as has happened frequently in the last three years, these are inconsistently applied throughout the organization. In other words, a new head-office underwriting bulletin may be issued, but it is not changed at a field underwriting unit, a website transactional processing function, a broker point-of-sale, etc. There is both a manual and inconsistent application of underwriting and product offer rules across multiple channels. This is a recipe for higher costs, greater inaccuracy and longer delays in underwriting and distribution.

Therefore, there is little wonder that Gartner Inc. predicts 75% of technologically aggressive insurers will invest in underwriting solutions and re-engineer the underwriting process in 2004. For insurance companies, the challenge is one of integration and automation. Insurers need to bring the information together to provide brokers with fully underwritten and rated new business and policy change capability at the point-of-sale. This has to be done through integrated business rules, workflow and communications technology. There are three steps that involve both technology and process:

Bring together all underwriting, rating and product rules to define, test and analyze;

Implement the rules in the back office and at the point of sale to reduce cycling; and

Integrate all external third party report data directly into the underwriting process.

NEW DEMANDS

An insurer’s business rules actually bridge several different areas – marketing, actuarial and underwriting. These, however, coalesce into some key risk requirements that drive underwriting decisions, such as client data, risk behavior, location, property data, environmental use data and prior abstract records.

Insurers use these rules to match products to customer and market needs, price and configure products to select/acquire new business (risks) and retain high value customers. With the current softening market, the requirement for cross-functional and cross-product rules is increasing as companies define high value clients across multiple products. The need for technology to automate these rules has never been so high.

Brokers (and customers) need convenience, accuracy, authority and speed to process transactions. The solution is to involve agents/brokers and customers more closely in the transaction process. The automation of rules is a process that must be extended to the broker/agent at point-of-sale for policy change and new business. If not, the competitive advantage of cross-functional and cross-product rules is severely diminished.

Brokers are realizing that this competitive advantage has to involve more than just broker management systems (BMS). In the end, it does not matter how streamlined or technically efficient a BMS solution is, if the insurance company does not move its automated rules to the front-line sales channel.

The next step is to actually implement the rules in different places and distribution channels. In other words, an application has to be able to run the rules, detect issues for risk management, notify the user and resolve risk management issues.

This is where “advanced rules technology” comes in. This is done through advanced “XML modeling”, a process that increases an insurer’s flexibility, speed and functions. The freedom to work in true, native XML platforms means lower cost of development and faster time to market as business rules can be changed with minimal hassles and costs.

ENSURING EFFICIENCY

However, even with the above taken into consideration, customer transactions cannot be completed without all information available. Underwriters need to retrieve and integrate third-party report data. Indeed, obtaining information from numerous external providers has been a time consuming hurdle for underwriters. To date, this cumbersome process has involved faxes, written documents and couriers.

Today, the technology exists to electronically access and integrate third-party data, such as credit scores, motor vehicle records, and loss histories, right at the point-of-sale to ensure the transaction is right the first time. The ACORD/CSIO standards that are being adopted for XML will vastly improve the underwriting process.

Technological advances in rules definition, XML modeling and application software development support automated underwriting in the back-office and point-of-sale for all lines of insurance. They can create efficient exception-based underwriting, in which high volume simple decisions are done completely via point-of-sale and “right the first time”, with the underwriter only handling high-risk or exception cases. This approach has the capability to speed processing, eliminate re-keying of errors and make decisions more consistent.

After years of frustration, insurers are starting to invest in underwriting solutions. Many are beginning to correlate underwriting accuracy and process with bottom-line performance measurement. This is a core competency of insurers that has been linked far too long to piecemeal, product-oriented approaches to automation.