Kimberly Harris-Ferrante believesthat in commercial lines underwriting automation initiatives,carriers should avoid trying to create "expert systems" thateliminate the underwriter. Instead, insurers should focus onproviding "systems for experts"—technology that enableshighly-skilled professionals to manage their workloads andtime.

"Don't just think about low- to no-touch processing. Think aboutthe ways you can automate behind the scenes, to help withproductivity and consistency of decision making, and create anaudit trail of how you made the decision so you can tweak theprocess over time," says Harris-Ferrante, vice president anddistinguished analyst at Gartner.

"View automation in terms of activities or steps within theend-to-end process of writing business," says Donald Light, senioranalyst, Celent. "By doing so, you could automate a handful ordozens of steps, including decisions, depending on the complexityof the risk."

Harris-Ferrante feels one of the most encouraging developmentsalong these lines in the last 12 months is the concept of casemanagement. "Case management is game-changing in complexunderwriting," she says. "Case management melds process automationand decision automation, incorporating business processmanagement-based systems to automate or guide decision making,predictive analytics, and collaboration, ideally baked into aworkstation that minimizes 'swivel time.'"

This development has driven awareness that there is need fortechnology to provide underwriting support to combat "informationoverload."

"Most of the insurers that we talk to simply have too muchinformation to digest," says Edward Gray, senior director ofcustomer solutions at FirstBest Systems. "There are too many stepsin the process, too many places to go look for data, and no time toget to them all."

Carriers need to look beyond processing speed in automationinitiatives, maintains Steve Discher, executive vice president atRobert E. Nolan. "Underwriters need the ability to performsophisticated analyses and take action by region, by agent, and soon, not just by product line," he says. "Building that type ofenvironment is the next phase in automation—having the underwritingworkstation tuned to profitability and the skills that go with it,bringing decision-making information together, and so on—not justspeed of service."

AUTOMATION GOALS

In addition to bringing information together, underwritingsystems are focusing on bringing people together in theunderwriting process. Collaboration is a key objective, allowingunderwriters to make better decisions by enabling connectivity tounderwriting colleagues, agents, and coworkers in other areas suchas claims and loss control.

"The first generation of underwriting systems focused on dataand analysis, whereas the new wave is around case management andcollaboration," says Harris-Ferrante. "You could have anunderwriter who needs to go back and talk to the agent to ask thema question about the risk, or you may have a younger underwriterwho needs to communicate with someone who is more skilled. Theunderwriting system becomes an electronic file folder for people tostore all the content required to make an underwriting decisionplus a collaboration platform for communication."

Collaboration was an objective of an underwriting automationinitiative at California-based ICW Group. The carrier writes anumber of commercial lines coverages, but targeted its workers'compensation business in a project to install FirstBest's UMSunderwriting workstation and agent portal.

Previously, underwriting at ICW Group wasanything but automated, with staff having to contend with redundantdata entry into four different legacy admin systems: one to recordthe application and "reserve" the market for an agent; one toperform predictive modeling and help underwriters determine anappropriate price for the risk's exposures; one to generate aproposal; and one to administer business that was written.Installing the FirstBest front end, in a project ICW branded"Snap," allowed the insurer to eliminate the duplicate entry ofdata by providing a common interface for all systems.

"Our primary objective was to become more efficient andscalable," says Paul Zamora, senior vice present of workers'compensation underwriting. "None of the systems we had communicatedwith each other, which caused duplicate data entry andinefficiency. We were in a situation where about 40 percent of thequote requests we received we simply couldn't get to because wedidn't have sufficient manpower."

In addition to providing an easier work environment andeliminating data entry redundancy, ICW also wanted to automateparts of the decision process and workflow and to provide aplatform for online collaboration, both internally and with agents."Snap is not just an underwriting tool—it's a communication andcollaboration platform," Zamora says.

The FirstBest platform supports two methods of collaboration:notes and instant chat. Underwriters indicate they are availablefor chat when they log in to the workstation. Notes can beinitiated by underwriters or agents either from within the Snapsystem or via email.

"Both methods are nice, but we do find agents actually prefernotes because they don't need to be logged into our portal in orderto use notes to collaborate. Instead, they can just use the emailsystem they already have available on their desk or in the field,"Zamora says.

ICW underwriters also use the notes feature for internalcollaboration. "Referrals are automatically routed by the system,and we can use 'private' notes that are not available to agents,"Zamora explains.

That functionality allows ICW to connect staff among variousoffices to obtain input and needed underwriting authority. "In onebranch, it's easy to collaborate by simply getting up and talkingto each other, but when you're dealing with staff in differentoffices it's not that easy," Zamora says. "In the old days,underwriters would have to scan PDFs and send documents to me. Nowwhen I get a referral I can see everything that's going on fromwithin Snap."

The platform also is used by extended underwriting staff, suchas loss control, to obtain account information. In the future, ICWplans to enable diary functionality to provide automated follow-upson safety recommendations and other items.

In addition to enabling better collaboration, Snap has deliveredICW decision support in the underwriting of complex workers'compensation risks. "Traditionally we had been vulnerable becauseof inconsistency in the decision-making process," Zamora says.Different underwriters would have different views on not only whataccounts were acceptable to write, but on what particular classcodes and modifiers to apply to determining pricing that wascompetitive, yet profitable.

"Based on the training level of eachunderwriter, an agent might get a different response from differentpeople," Zamora says. "We took the underwriting 'decision tree' fora large number of our class codes and went through them with ourunderwriting staff, determining what questions to ask andtranslating responses to those questions into a scorecard. Today, ajunior underwriter can make a decision just as good—and just asfast—as a senior underwriter. Now, we are as strong as ourstrongest underwriter."

The process of establishing that decision tree initiallyincluded mapping out information for almost 200 class codes. "Itwas a cumbersome process to sit down and make sure when we areasking a question, we contemplated parameters around not just allclass codes, but differences across all states in which we dobusiness," Zamora says. "On the other hand, one of the benefits ofthe pain of putting Snap into place was having to revisit all ourunderwriting rules to extract and document that knowledge."

That process is ongoing, with ICW conducting monthly meetings toincorporate additional class codes into the decision tree or modifythe rules around existing codes.

ICW measures the success of its automation initiative by severalmetrics, the first of which is the extent of system usage byagents. "We don't require agents to use the system, so the factthat the vast majority are using it means a lot," says Zamora. "Wegot to within 50 percent usage within a few months of rollout, andtoday over 70 percent of our applications coming through the doorare coming in through Snap. Agents are using it to bind and submitbusiness and to access quotes."

The second measure of impact is the increased amount of businessthat ICW has been able to process while maintaining profitability.Improved upload capability of NCCI, Workers' Compensation InsuranceRating Bureau of California (WCIRB), and ACORD application data haseliminated about 70 percent of the manual data entry previouslyrequired. Through a combination of reduced data entry, automatedworkflows, and decision support, ICW has grown its workers'compensation policy count by 80 percent despite a 14 percentreduction in staff requirements since deploying Snap in 2009.

STP

Although collaboration, workflow, and decision support are keyobjectives of today's underwriting automation projects, insurershaven't forgotten about the goal of STP for new business andrenewals.

"We hear about the need for straight-through processing from atleast 70 percent of the insurers we talk to," Graysays. 

Travelers Insurance was able to increase the STP rate onbusiness owners policies (BOP) in its TravelersExpress program fromjust 17 percent in 2007 to more than 80 percent today with anunderwriting automation initiative. Travelers chose IBM's WebSphereILOG jRules business rule management system (BRMS) within aservice-oriented architecture (SOA) to execute a multivariatepricing model and apply decisioning rules around underwritingacceptability and pricing.

Travelers created its own multivariate predictive model,leveraging its decades of experience writing small commercialpolicies. The model uses application information and data populatedfrom third-party sources, such as Dun and Bradstreet. Version 2.0of the TravelersExpress system is scheduled for late 2011 or early2012.

"Prior to the introduction of the predictivemodel, we had a traditional rating plan that relied on underwritersto manually apply credits based on their understanding of therisk," says John P. O'Connor, vice president and chiefproduct/platform officer of small commercial lines at Travelers."Today, we have established flexible, multivariate rating tosupport precision pricing and customer segmentation, consistentapplication of underwriting rules, and reduced manual touch pointson new and renewal processing."

Additionally, underwriters can focus on more complex risks andrewarding tasks and, because manual underwriting workloads havediminished, agents receive a faster response from underwriters onapplications that do not auto-issue. "When you wrap thesecapabilities together within a quote-to-issue solution, we havesignificantly improved agent satisfaction and ease of doingbusiness with Travelers," O'Connor says. Making theTravelersExpress system easier to use has also translated into anincrease in Travelers' sales force from 4,000 to approximately10,000 agents.

Extracting underwriting rules from legacy systems andunderwriting staff was a challenge, O'Connor says. "We had to findand validate our underwriting procedures, guidelines, and rules,then distill those into rules that could be automated andconsistently executed," he explains. "However, doing so has broughtus from underwriting as a craft to underwriting as a science."Travelers also created a new department within underwriting tomanage rules, perform analytics, and recommend refinements.

ICW has leveraged auto-underwriting capabilities of Snap toenter the arena of "small comp"—a workers' compensation market thecompany could not afford to compete in previously. "Agents answerquestions online, and the application will go down severalpaths—declination, proposal, or alternate proposals," Zamora says.Today, ICW writes about $20 million in small comp business.

"Automating small comp was a big challenge," Zamora says. "Itwas easy to determine all the information we needed to get fromagents, but it was difficult to determine the right amount ofinformation to get from agents within the five or ten minutes theywere willing to spend entering data online."

STP has already become table stakes in the highly commoditizedworld of personal lines. "If you're a personal auto insurer, youcan't survive without STP based on automated underwriting," Dischersays. "If you look at large- or medium-sized personal linescarriers, most have fully implemented an automated underwritingprocess for easy lines like auto. Property is a bit trickier,particularly with large losses throughout the U.S. causing carriersto want to conduct more inspections, so carriers will use automatedunderwriting to issue policies but then initiate workflows to orderinspections."

However, it has been harder to achieve STP in more complexcommercial lines. "Companies have not found, or not made asufficient investment to find, ways of scoring the totality of therisk in larger commercial insurance," Light says.

The problem is not a lack of data, but the lawof diminishing returns. "You could have dozens or hundreds ofvariables, each with several options, combinations, andpermutations," Light says. "You may not have enough loss history toassign an underwriting score with reliability. So while it's notimpossible to automate decision making for complex risks, it takesa lot of time and might not be worth it for risks you seeinfrequently."

"Currently we're focusing our efforts on the small commercialrisks," O'Connor says. "When we try to understand how rules comeinto play for larger pieces of business, it's a question of if youhave critical mass to have rules for particular segments."

Even if a company can't achieve full STP, there is value tousing an "automated underwriter" to at least provide the agent aquick "go/no-go" decision contingent on a more complete review byunderwriting staff.

"Early indication of appetite is very valuable," Light says."Identifying the 'deal killers' at the start of a submission, orusing a quick-quote functionality to determine if a carrier islikely to be in the ballpark, is a tremendous benefit toagents."

PUSHBACK AND PROGRESS

No technology initiative is without its challenges, and thefirst obstacle to the deployment of underwriting automation iscaused by how carriers have traditionally viewed the technology.Harris-Ferrante says that carriers' longstanding belief thatunderwriting automation was primarily a tool to replaceunderwriting staff and the traditional coupling of underwritingfunctionality within the policy administration system has limitedtheir view of what they could do with the technology in commerciallines and slowed adoption of stand-alone underwritingsolutions.

However, this has begun to change. "Initially, commercialcarriers argued their business was too complicated to leverageautomation," she says. "Today, they've woken up to the fact thereare tools and technology that provide 'systems for experts' thatcan establish competitive advantage."

Change management is also an issue for companies deployingunderwriting automation solutions, according to Discher.

"Organizations that have been used to doing underwriting in thetraditional way have a difficult time pulling any responsibilitiesout of the underwriters' hands, even if data proves the results,"he says. "There is definitely management involvement needed in theprocess, because some underwriters are simply not going to want tolet go of any processes whatsoever."

ICW faced this challenge from both internal and external staff."Even though we had to deal with four systems before, which wasvery cumbersome, and even though the new system was morestreamlined, it took a while for people to get used to the new wayof working," Zamora says. ICW addressed the issue by involvingusers in the change process and by continuing to demonstrate thebenefits of the system once deployed.

This is a sound approach, Discher says. "Carriers need to engagethe underwriting group to help validate the benefit of the systembefore, during, and after installation. They need to provideconfidence to the underwriting ranks that they are getting to abetter place with automation. They need to demonstrate that if the'black box' can do the lion's share of processing for simpleaccounts and administrative tasks, underwriters will be able toapply their skills to more complex and rewarding tasks," hesays.

"Have focus groups and sessions around the development andimpact of automated underwriting," Discher adds. "Take a before andafter review of blocks of business that were manually processedversus those that involved automation. Look at the results and putall the data on the table."

A danger to avoid is the possibility ofincreasing the underwriters' workload when new underwriting toolsare deployed. Because automation systems use rules to guidedecision-making, the underwriting process must be captured tocreate rules, and those rules must continually be refined throughboth auto-learning and through documentation of underwritingdecisions taken on complex cases.

"Insurers are increasingly using new sources of information toassist in underwriting decisioning, resulting in slowing downunderwriting decision time," Harris-Ferrante observes. "The use ofmodern underwriting systems can assist in underwritingproductivity, as well as document and centralize the underwritingrules so there is improved consistency across decisions and a trailof how decisions were made."

Carriers may also contend with the issue of system overlap whenexploring technology designed to deliver automation to theunderwriting process.

"Today, most of the policy administration and management vendorsdo not offer best-in-class underwriting capabilities suitable forcommercial lines, which is a gap that needs to be addressed," saysHarris-Ferrante. "At the end of the day, insurers have no optionbut to look for multiple applications if they're interested inpolicy support and underwriting strength."

CONTINUED MOMENTUM

Although it may have a different look and feel among variouslines of P&C, underwriting automation is the real deal.

"It [underwriting automaton] is here and now and it can create atremendous impact," Discher says. "The technology is mature enough,the data is mature enough, and there are a lot of exciting thingsgoing on in the industry. The only question is how you are going toimplement it."

Going forward, Harris-Ferrante expects to see moredomain-specific customization of underwriting automationtechnology.

"Large, tier-one insurers will require less insurance-specificbusiness processes and rules off-the-shelf in underwritingsolutions, whereas mid-market insurers will need more prebuiltunderwriting intellectual property delivered from the vendor. A fewof the case management vendors are already taking this route,building out insurance frameworks or templates that can beleveraged during implementation to give insurers a starting pointfor building out the rules and workflow," she says.

For their part, insurers will increase their understanding ofwhat underwriting automation should mean and how that meaningchanges by line of business and case complexity.

"Underwriters are one of the most critical assets within thecommercial insurance organization," Harris-Ferrante says. "Toolsare needed to help make them more productive and allow them toleverage their skills in the most effective way. That is one wayinsurers can help meet underwriting profitability goals goingforward."