Excess and surplus lines underwriters and managing general agents who deal in specialty lines can and should take advantage of advanced technology to help them manage risk, for two simple reasons.

First, specialty lines markets can now benefit from the technologies their colleagues have used successfully in standard lines for a decade or more because the technology has gotten better.

Second, they will need to benefit from these supportive technologies in order to grow profitably as the industry appears to be heading into a softening market cycle.

If you look at the past 200 years of underwriting, it's been more of an art than a science. What has happened over the past five-to-seven years for small commercial lines is that technology has been able to automate certain aspects of standard products decision-making and make it more of a science than an art.

When it comes to specialty lines, however, technology is more about decision support than decision automation, and that's a very important difference.

There's a perception that technology has less of a role to play with specialty lines than it does with standard lines, and that perception is the result of two things:

o Underwriting processes are different.

The diverse nature of the products and the underwriting processes across specialty lines seems to challenge the "one-size-fits-all," out-of-the-box technology that has worked for standard lines. Specialty lines require different skills from an underwriter, they have different rules, and their processes are different. All of this is true.

o Products are not commodity products.

Conventional wisdom has been that technology is more appropriate to support commodity products and homogeneous risk assessment in underwriting, such as personal insurance or small commercial insurance.

However, new advancements have made technology much more flexible and easily adaptable to the unique nature of the specialty lines market.

For example, suppose you are an E&S underwriter and get an application for a quote for a professional liability line. Technology can now be used to support the complete underwriting process, from the data captured to assess that risk through to final underwriting disposition.

Technology also suggests what other information you need to order, such as financial data or risk analysis data (like an onsite risk consultation) or whether the risk needs to be referred for approval.

Essentially, technology automates your best practice tasks and suggests what you should be doing, when you should be doing it, and what tools or information are needed.

Some forward-thinking specialty underwriters are also using tech to run rules that suggest what questions should be asked and what data should be gathered in addition to the information you have gotten in order to better assess and price the risk.

For example, based on answers about subsidiary operations, the system might automatically generate additional questions to further examine potential residual exposures that could present unexpected liabilities for the insured--very much as the most seasoned underwriter would.

Of course, successful, profitable outcomes are dependent on making decisions based on the right rules. And technology today is helping to capture the wisdom and knowledge of an organization's best underwriting talent--underwriters that have mastered the art of specialty underwriting with successful track records year after year, many of whom are preparing to retire and leave the business.

Technology codifies and institutionalizes those best practice rules by examining the questions the best underwriters ask about the risks, how they think about the answers, what answers promulgate additional questions, and what that branching tree of questions looks like.

Taking the previous residual exposure example, the system might suggest an approach to mitigate the exposure through sublimits or coverage exclusions. With this technology support, every front-line underwriter benefits from the experience in creative problem solving of the organization's best underwriters.

And with innovative new technology, it is now possible to change or modify the rules, as conditions themselves change in the specialty lines market, on the fly.

Historically, technology has hard-coded those rules, so every time you want to make a change, you have to programmatically modify the system, which can take months due to resource capacity issues and rigid system release protocols.

Today, rules are externalized so business users can readily create and modify them. Rules are extracted and designed by quantifying the experiences of the most successful underwriters in terms of both statistical experience (actual loss costs on the book of business) and heuristic knowledge.

Then a centralized group of rules' administrators actually configure the rules in a business rules workstation, in as fast as five-to-30 minutes, and can have them live and working in the underwriting environment for the very next risks that the underwriters see come across their desks.

Case in point: A major carrier that handles specialty lines reduced its loss ratio by 10 points in less than a year by virtue of having a more disciplined approach to underwriting supported by technology.

The carrier did it by using a rules-driven approach to guide the underwriter through the right questions and analysis process for more consistent risk exposure identification and evaluation. This not only helped underwriters make good decisions on what to quote--and, just as important, what not to quote--but also helped consistently generate the best decisions on risk acceptance, pricing and terms.

In another example, because of technology and the ability to prioritize and automate tasks, underwriters for a major carrier have been able to double their leverage ratios. So instead of handling $3 million in written premium per underwriter, the technology freed them up so they could actually handle a $6 million book.

Technology has historically been viewed as a threat to the art of underwriting. However, with advancements in the use of technology, there is a greater awareness that tech doesn't replace underwriters for specialty lines--it empowers them, it guides them, it institutionalizes best practices as veterans retire, and passes their wisdom onto the next generation of underwriters.

Insurers are successfully using technology, not just for the no-touch underwriting models in personal and small-commercial lines, but also to support the distinctive needs and art form of their specialty lines underwriting.

Special Reports /

Improved Tech Targets Unique E&S Risks

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