Booster Shot
Injecting underwriting into sales, issuance, and other policy life-cycle processes promises big benefits, but there are barriers to underwriting automation carriers need to overcome to reap the greatest rewards.
If interest in underwriting technology is any indication, carriers are well aware of the potential payback of moving some or all of the underwriting function to different parts of the policy life cycle. Benefits from shortened cycle times and improved efficiency to increased revenue per underwriter and greater consistency in decision-making all are tempting targets made possible by a slew of rules-based technologies that
gradually are replacing manual processes and hard-coded, application-bound business logic at many companies.
“There is a greater focus [today] on rules engines than ever before,” says Mark Gorman, strategic research adviser at TowerGroup. “We've also seen an expansion of the [underwriting] functionality carriers are moving forward. Historically they may have used auto-mation for the edit function. Now we're seeing them move the actual business rules forward.”
Despite the interest and activity in underwriting automation, no change in process comes without challenges. The first barrier carriers face is convincing underwriting staff automation actually is a good thing.
“Underwriters view themselves as defenders of the kingdom, and rightly so,” asserts Craig Weber, senior analyst in the insurance practice at Celent. “They're conditioned to be suspicious.”
Involving underwriting staff from the outset and throughout an automation project is therefore critical for insurers not only to assuage job-loss concerns but also to get the willing cooperation of experts who will be needed to help codify underwriting rules and make the project a success. “The best underwriters understand efficiency can be brought to the process without sacrificing decision quality,” Weber says. They also can be shown technology can augment, rather than replace, their work.
Getting Buy-In
Neal Ruffalo, ACUITY's vice president of enterprise technology, admits the carrier faced a fair amount of resistance from personal lines underwriting staff when ACUITY first began deploying an expert system in personal lines in the late 1990s. “We tried to find some very open-minded, technology-savvy underwriters who were respected by their colleagues both to assist in the system development and to take information back to the rest of the group and help us achieve buy-in,” Ruffalo says.
Today, ACUITY accepts personal lines applications electronically via its own agent portal and through bridges with various agency management systems, using the same internally developed rating and issuing system on the back end. The rating system routes applications to ACUITY's expert underwriting system, based on Blaze Advisor from Fair Isaac (originally developed by Neuron Data). Seventy percent of those applications pass through its underwriting system with no manual intervention and are sent to the carrier's internally developed policy administration system, which produces policies as PDFs that are e-mailed to the agent within minutes of approval.
This automated process, which the carrier calls ACUITY ASIST, has led to a fundamental redefinition of the role of the personal lines underwriter at ACUITY. “Underwriters have evolved from being paper processors to sales specialists,” indicates Ben Salzmann, ACUITY's president and CEO. “Instead of reviewing every application, they handle only the exceptional, more challenging cases. Today, a big part of an underwriter's job responsibility is to focus as an agency-level underwriter, working with agents to make sure we are getting the type of business that matches our market focus.”
Having seen the impact underwriting technology has had at other carriers, underwriters at Armed Forces Insurance actually are anticipating the completion of an in-process project to replace their 20-year-old legacy system with IDP's Acies/one product, scheduled for deployment in mid-2006. Brenda Dutton, the insurer's director of underwriting, says IDP's SURE underwriting engine was a “very important” component in selecting the IDP platform.
“Our underwriters all are a part of helping to build the SURE system we'll be using,” she notes. “It will free underwriters to do territorial management. We'll have better reporting capabilities and be able to profile the book of business–not just loss trends but also marketing opportunities.”
Agents of Change
Carriers also might find reluctance from agents if those agents feel the task of underwriting simply is being shifted from the carrier to producer. “Carriers with the most successful initiatives are those that have addressed [the agent] early on,” says Gorman. “If there is additional work for agents upfront [in completing the application], they need to be shown it actually makes things easier by replacing functions such as back-and-forth phone calls that previously were required.”
ACUITY has addressed any potential agent reluctance by mobilizing its personal lines underwriters, who historically had been a cadre of office-bound staff. “Today our underwriters are out in the field frequently, training our agents on the system and showing how it can benefit them,” Salzmann reports. “With over 92 percent of our applications coming in electronically today, we feel the effort has been very successful.”
Another challenge to integrating underwriting into the end-to-end policy process is business complexity. In theory, almost any decision can be distilled to a series of yes/no questions and if/then actions. However, carriers have tended to target first highly commoditized lines where both application processes and third-party underwriting information are standardized, such as low-face-amount life insurance and personal auto in P&C.
Standard Life, for instance, wanted to increase its market share in the protection market. “The protection market in the UK has transformed itself over the past two to three years, and online systems are a key differentiator for product providers to enter and grow their presence in that market,” explains Billy Burnside, sales technology manager in the insurer's Edinburgh headquarters. “Our market share [in the protection market] had dropped away over the last years because we didn't have an online offering.”
In January 2005, Standard Life deployed Protection Online, an XML-based quotation and application system, to its existing broker portal (www.adviserzone.com) and currently has bridged the system to three of the four leading Web-based comparative rating platforms in the UK. While the carrier had increased its underwriting staff in advance of the system deployment, Standard Life needed the majority of anticipated new business to be underwritten automatically to maximize the initiative's value proposition. Therefore, a critical component of Protection On-line was integration with the xpert-Bridge Automated Underwriting Engine from Allfinanz, which Standard Life purchased and deployed as part of the project.
The Protection Online system now generates about 50 percent of the applications Standard Life receives in the protection market. As brokers enter information, that information is passed to the xpertBridge engine, which either prompts the next field or asks up to five additional levels of drill-down questions.
Completed applications then either may be referred to underwriting, pass through with no changes, or pass through with additional premium loading based on dangerous occupations or other high-risk factors. Passed-through applications automatically are routed to Standard Life's policy production system to produce PDFs of policy offer forms that are sent to the broker to obtain a “wet” signature.
In addition, Standard Life has leveraged the xpertBridge engine for paper applications received for protection business. These applications are scanned, routed to underwriting support staff via the automated workflow system (DST Technologies' Automated Work Distrib-utor), and then passed through the underwriting engine to be processed as electronic applications.
Since deploying Protection Online, Standard Life has seen a threefold increase in protection business. The insurer has set an ultimate goal of a 60 percent pass-through rate for this line of business and currently is attaining about half that. “Because the system is relatively new, we had been attracting more complex cases that required more underwriting,” Burnside says. “We've implemented a series of rate improvements to target younger, 'cleaner' lives, and as a result, we're seeing an increasing percentage passing month by month.”
About Face
Standard Life's marketing strategy may run counter to other insurers, Weber comments. “Most carriers are trying to drive up their face amount, and that approach does not lend itself to automated decisions,” he says. “As you successfully penetrate the higher-face-amount markets, you almost guarantee you'll have to have human beings looking at those cases, which blunts the benefit you can gain from automation.”
Medical records commonly required by underwriting, such as the attending physician statement (APS), are a particular challenge. “You can use [a workflow system] to route an APS to an underwriter automatically, but you can't readily evaluate what a medical condition is and its impact on a life policy,” says Weber.
A more interesting value proposition for insurers looking to move the underwriting process closer to the point of sale, Weber claims, is to use a technology guaranteed to be already at their disposal: the telephone.
“Most carriers that do tele-underwriting are trying to reduce the need for the APS” by obtaining detailed medical information from applicants firsthand, he says. “Underwriters will tell you they can gain a lot of information by talking to an applicant over the phone to complete an application.”
Even tele-data entry has an impact on both production and underwriting. “First, it takes the agents out of the business of filling out applications so that they can be in the business of selling. Second, it makes the underwriting process more efficient because there's no opportunity for an incomplete application,” Weber says.
Baltimore Life, for example, uses its recently deployed Web application system in concert with a third-party call center to remove the bulk of application completion from its agents as well as nearly three-quarters of manual case underwriting from underwriters in its “simplified-issue” whole life market. Baltimore Life developed the system, called INSpeed, based on the NaviSys Front Office platform in 2002 to target a group marketing opportunity. In 2004, the company extended the system to the simplified issue market of small-face-amount whole life policies for its independent and captive agents as well as its own direct marketing division.
Agents phone the Baltimore Life call center and complete basic applicant and policy information with the call center representative. The client also participates in the call at the point of sale and answers all the medical questions, offers bank information, and verifies certain items provided by the agent. It takes approximately 15 minutes to complete the enrollment process. Calls are recorded and archived as WAV files, and all signatures are accepted through voice recognition.
The INSpeed system interfaces with the MIB Group to verify reported medical information. It also interfaces with the Baltimore Life policy administration system to check agent licensing, search for existing policies on the applicant, and populate the workflow with a policy number. Based on the underwriting rules in the automated system and the data retrieved from the policy administration system and MIB, the application either is issued automatically or referred for manual underwriting review.
“With the INSpeed system, agents don't have paperwork, commissions are paid more quickly, and policy pages are being produced and sent out the door the same day,” says Garry H. Voith, Baltimore Life's assistant vice president and director of distribution technology and market development. “It's one of the value adds we offer that helps us recruit and retain agents and provide a high level of customer service.”
Baltimore Life originally set a 70 percent pass-through goal for the system. Since INSpeed's deployment, the insurer has monitored referrals to refine underwriting rules further and develop additional drill-down questions, which actually has helped attain a 75 percent pass-through rate. In addition to a planned upgrade to the next version of the NaviSys platform, Baltimore Life also is getting ready to deploy its return-of-premium life policy on the INSpeed system.
Necessity for Some
In P&C, the role of underwriting systems in personal lines is evolving from point of competitive differentiation to a necessity for efficient processing. How-ever, the application of underwriting rules engines in commercial lines has been more elusive. TowerGroup estimates while 80 percent of carriers have achieved some level of straight-through processing involving underwriting technologies in personal lines, only 10 percent of commercial lines carriers can claim the same.
That doesn't mean carriers aren't trying. ACUITY, which supports all lines of commercial business via its Web-based quotation and application system, began using the Advisor engine for some classes of business-owners package policies in early 2005. For that business, Ruffalo reports the insurer has achieved pass-through rates of about 20 percent.
“It's not the [pass-through] rate of personal lines, but you have to start somewhere,” he says. “Commercial lines is a different beast, but we are monitoring the reasons policies are referred and working with underwriting to see whether those referral reasons are valid or whether we can develop follow-up questions to improve the pass-through rate.”
At Companion Property & Casualty Group, a Web-based system built on CSC's iSolutions platform, which the carrier calls Once and Done, has allowed agents to quote and bind workers' compensation policies online since 2000. However, rule changes regarding acceptability and available rate credits had been hard coded into the Visual Basic-based iSolutions system, making them time-consuming to modify in response to a high number of underwriting referrals.
In early 2004, Companion completed deployment of CSC's XML-based POINT IN system to serve as the administration system for business submitted via the existing Once and Done system. The POINT IN system includes a rules-based underwriting engine that now allows Companion to modify rules tables via an underwriting toolkit rather than making code changes. “Before, the simplest change was a 10-hour project,” says Helmut Tissler, Companion's director of e-commerce. “[Underwriting] management likes the fact now it can make changes and get them deployed quickly.”
Today, about two-thirds of workers' compensation applications pass through the system with no underwriter involvement. Equally important, the underwriting system has had an impact on underwriting results at Companion. “The loss ratio for Once and Done business for 2005 is at 50 percent vs. 62 percent” for other business, states Lyn-Ellen Maass, director of information systems, which she attributes to “the consistency in the application of the [underwriting] model.”
Companion also is able to run “what-if” scenarios on the impact of proposed rule changes in the POINT IN system. “We may write 20 of 100 quotes, but the information about and the decisions made on the total 100 is retained,” Maass says. “We can run all those quotes [through the system] to see whether a rule change would have an impact or not and whether that impact would justify the time to make the change.”
In August 2004, Companion added homeowners residential condo business in several states to the Once and Done system and now is working on deploying commercial auto. Although new business for these lines currently does not pass through the underwriting engine, Companion passes renewal business through to underwrite its book on an ongoing basis.
Companion is among the minority of carriers that use their underwriting system for renewal policies. “There's an understanding [by carriers] they can adopt the same practices with renewals and endorsements as with new business, but right now their focus primarily has been on new business,” Gorman says.
In the life business, carriers are “more concerned with making a bad decision that would show up quickly,” Weber maintains, explaining the focus of life insurers on the prospecting process for inclusion of underwriting automation. “The early claim rate is the one they're concerned about.”
Going forward, as carriers continue to seek new benefits by automating underwriting in additional lines of business and extending the underwriting function into additional policy life-cycle processes, they face a cost-benefit barrier they must address. As underwriting cases become more complex, the cost to automate those cases becomes greater, not only in upfront dollars and development time but also in the long-term risk that replacing intuition with automation will sacrifice bottom-line results.
“The hard part is finding the right balance between maintaining the human touch in underwriting and automating the pieces where you can gain efficiency,” Weber concludes. “At the end of the day, decision quality is more important than anything.”
Tech Guide: Underwriting and Rating Tools
Accenture
Murray Hill, N.J.
267-216-1049
Acuitrek
Sacramento, Calif.
916-920-4762
Advanced Management Systems
Troy, N.Y.
518-833-0363
AGO Insurance Software
Mount Arlington, N.J.
973-770-3200
AIG Technologies
Livingston, N.J.
800-788-0144
AIR Worldwide/ISO HomeValue
Boston, Mass.
617-267-6645
Allenbrook
Brunswick, Maine
877-764-6452
Allfinanz
New York, N.Y.
888-824-2929
Applied Systems
University Park, Ill.
800-999-5368
AQS, Inc.
Hartland, Wis.
262-369-7500
AscendantOne
Nashua, N.H.
603-598-5427
Atlatl, Inc.
Durham, N.C.
800-768-0907
Business Software Solutions
North Salt Lake City, Utah
801-294-3300
Camilion Solutions
Thornhill, Ont.
416-346-3713
Capgemini
New York, N.Y.
917-934-8000
CGI
Montreal, Quebec
514-841-3200
Computer Associates
Islandia, N.Y.
631-342-6000
Comtec
New York, N.Y.
212-268-8500
Connective Technologies, Inc.
Houston, Tex.
800-856-6788
Consilience Software
Rumson, N.J.
732-915-4766
COSS Development Corp.
Mequon, Wis.
262-241-8989
Cover-All Technologies
Fair Lawn, N.J.
201-794-4811
CSC Financial Services
Austin, Tex.
512-275-5000
Data Life Associates
Verona, N.J.
973-239-7500
Decision Research Corp.
Honolulu, Hawaii
800-836-6057
Duck Creek Technologies
Bolivar, Mo.
866-382-5832
e2Value, Inc.
Stamford, Conn.
203-975-7990
Ebix, Inc.
Atlanta, Ga.
678-281-2023
ePolicy Solutions Inc.
Torrance, Calif.
310-819-3200
FileNet Corporation
Costa Mesa, Calif.
714-327-3400
FirstApex
Bangalore, India
91-80-5118-7111
First Data
Omaha, Neb.
888-565-5990
Fiserv Insurance Solutions
Cedar Rapids, Iowa
800-943-2851
Garvin-Allen Solutions Limited
Halifax, Nova Scotia
902-453-3554
Global Insurance Solutions
Secaucus, N.J.
201-223-2900
Global IQX Inc.
Ottawa, Ont.
888-686-6635
Guidewire Software, Inc.
San Mateo, Calif.
650-357-9100
Hexaware Technologies
Jamesburg, N.J.
609-409-6950
Hyland Software, Inc.
Westlake, Ohio
440-788-5000
3i Infotech
Edison, N.J.
732-225-4242
IDMI
Warner Robins, Ga.
888-856-6388
The Innovation Group
Danbury, Conn.
203-448-2301
InsBridge, Inc.
Plano, Tex.
972-516-4218
INSTEC
Naperville, Ill.
630-955-9200
Insurance Data Processing
Wyncote, Pa.
267-620-2388
Insurance Information Exchange
College Station, Tex.
800-683-8553
Insurance Services Office
Jersey City, N.J.
800-888-4476
InsureWorx, Inc.
Emeryville, Calif.
800-785-4526
Insurity
Hartford, Conn.
860-616-7452
InSystems
Markham, Ont.
905-513-1400
ISCS, Inc.
San Jose, Calif.
888-901-4727
Marshall & Swift/Boeckh
New Berlin, Wis.
800-285-1288
Millennium Information Services
Itasca, Ill.
630-285-8282
NaviSys
Edison, N.J.
800-775-3592
P&C Insurance Systems, Inc.
New York, N.Y.
212-425-9200
Peak Performance Solutions, Inc.
Hoboken, N.J.
201-792-7743
Pegasystems
Cambridge, Mass.
617-374-9600
Portellus
Irvine, Calif.
949-250-9600
PremiumWare
Arlington, Tex.
817-784-9599
Ravello Solutions
Atlanta, Ga.
770-508-1479
Results International Systems
Worthington, Ohio
800-875-2126
Robert E. Nolan Co.
Dallas, Tex.
972-248-3727
Sapiens
Cary, N.C.
919-405-1500
Senior Market Sales, Inc.
Omaha, Neb.
402-397-3311
SimpleSolve, Inc.
Princeton, N.J.
609-452-2323
Software AG, Inc.
Reston, Va.
703-860-5050
SOLCORP
Toronto, Ont.
416-673-9900
SpeedBuilder Systems
Columbia, S.C.
803-647-9532
Steel Card
Santa Barbara, Calif.
800-553-9961
Systems Task Group
New York, N.Y.
646-674-1391
Tata Consultancy Services
Naperville, Ill.
630-505-1900
Trilogy
Austin, Tex.
512-874-3100
Tritech Financial Systems
Toronto, Ont.
416-621-2020
Tropics Software Technologies
Sarasota, Fla.
888-925-1234
Valen Technologies
Denver, Colo.
720-570-3333
Xactware, Inc.
Orem, Utah
800-424-9228
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