Excess and surplus lines underwriters and managing generalagents who deal in specialty lines can and should take advantage ofadvanced technology to help them manage risk, for two simplereasons.

First, specialty lines markets can now benefit from thetechnologies their colleagues have used successfully in standardlines for a decade or more because the technology has gottenbetter.

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

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

When it comes to specialty lines, however, technology is moreabout decision support than decision automation, and that's a veryimportant difference.

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

o Underwriting processes are different.

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

o Products are not commodity products.

Conventional wisdom has been that technology is more appropriateto support commodity products and homogeneous risk assessment inunderwriting, such as personal insurance or small commercialinsurance.

However, new advancements have made technology much moreflexible and easily adaptable to the unique nature of the specialtylines market.

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

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

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

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

For example, based on answers about subsidiary operations, thesystem might automatically generate additional questions to furtherexamine potential residual exposures that could present unexpectedliabilities for the insured--very much as the most seasonedunderwriter would.

Of course, successful, profitable outcomes are dependent onmaking decisions based on the right rules. And technology today ishelping to capture the wisdom and knowledge of an organization'sbest underwriting talent--underwriters that have mastered the artof specialty underwriting with successful track records year afteryear, many of whom are preparing to retire and leave thebusiness.

Technology codifies and institutionalizes those best practicerules by examining the questions the best underwriters ask aboutthe risks, how they think about the answers, what answerspromulgate additional questions, and what that branching tree ofquestions looks like.

Taking the previous residual exposure example, the system mightsuggest an approach to mitigate the exposure through sublimits orcoverage exclusions. With this technology support, every front-lineunderwriter benefits from the experience in creative problemsolving of the organization's best underwriters.

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

Historically, technology has hard-coded those rules, so everytime you want to make a change, you have to programmatically modifythe system, which can take months due to resource capacity issuesand rigid system release protocols.

Today, rules are externalized so business users can readilycreate and modify them. Rules are extracted and designed byquantifying the experiences of the most successful underwriters interms of both statistical experience (actual loss costs on the bookof business) and heuristic knowledge.

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

Case in point: A major carrier that handles specialty linesreduced its loss ratio by 10 points in less than a year by virtueof having a more disciplined approach to underwriting supported bytechnology.

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

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

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

Insurers are successfully using technology, not just for theno-touch underwriting models in personal and small-commerciallines, but also to support the distinctive needs and art form oftheir specialty lines underwriting.