Faster, better, cheaper.

That was the approach to development pioneered by former NASAdirector Daniel Saul Goldin in 1992, and it became a mantra oforganizations across many industries. Over the past 20 years, thatapproach has seen both success and failure. Its failures have ledto controversy, and even some ridicule. ("Faster, better, cheaper:pick any two.")

Yet despite the challenges of successfully achieving thistrifecta of performance, insurers are targeting faster, better, andcheaper in their drive for underwriting efficiency.

"In their underwriting initiatives, insurers are focused ondriving speed to market, making it easy to do business with them,and reducing overhead and cost," says Deb Smallwood, founder,Strategy Meets Action (SMA).

According to SMA research, 88 percent of insurers are investingin some type of underwriting transformation initiative. In itsbenchmarking studies, Ward Group found that near half of companiesreported that they were likely to replace their entire underwritingsystem.

PERSONAL VS. COMMERCIAL

Although the details of the underwriting process varysignificantly between personal and commercial lines, both lines ofbusiness share common efficiency objectives.

"Reducing the time from receipt of application to booking ofpremium is still a big goal for both personal and commerciallines," says Frank Petersmark, CIO advocate with architectureconsultancy X by 2. "Also, both verticals are focused on reducingthe cost of underwriting. That's a nice way of saying, 'if we havefewer people touching an application, it will help us reducecosts.'"

"Carriers are focused on making it easier for producers tosubmit business, expand the broker channel, and to accept businessfrom multiple channels as part of the same underwriting process,"Smallwood says.

But achieving those objectives involves different journeyswithin different sectors. "In personal lines it's all aboutlow-touch, no-touch STP (straight-through processing)," Smallwoodsays. "On the commercial side, companies are doing it [STP] forsmall risks, but when you get into larger more complex risks,[efficiency] becomes about streamlining the process, reducinghandoffs, and using automation to guide the decision-making processand create a platform for collaboration."

According to Ward Group, high performers in personal lines hadSTP rates nine points higher in auto and seven points higher inhomeowners, as well as an underwriting expense ratio nine pointslower than at average companies. Top performing companies alsoupdate their technology more frequently.

"Even though high performing companies had newer policy adminsystems than others, they were more likely to be consideringreplacement than other companies," says Jeff Rieder, partner, WardGroup.

A policy admin replacement project is at the heart of improvedunderwriting efficiency at The Dominion of Canada, which writespersonal and commercial P&C. Under the company's previouspolicy admin system, every new business submission had to go to anunderwriter review desk.

"We had a lot of manual work where paper was flowing betweenagents and ourselves. Paper was really serving as the front end forthe underwriting process," says Steve Whitelaw, senior vicepresident, business solutions, The Dominion.

"Once the paper was input, there was workflow automation, butthe workflows were determined by the system and were not easilyconfigurable," he adds. "Where there were processes that couldn'tbe handled by automation, such as exception-based referrals, weneeded to handle them completely outside the workflow, whichintroduced risk in the process and the requirement to have controlsaround that process."

The Dominion's replacement project involves consolidating threedifferent systems—two for personal lines and one for commercial—toOneShield's Dragon platform. Multiple application systems used bybrokers will also be consolidated into a single front end forelectronic policy submission.

"We wanted a solution that would meet the needs for both ourbrokers as well as our internal staff," says Derek Oke, seniorinformation technology architect, The Dominion.

The insurer began the project with its Chieftan line of autobusiness, a simplified product sold exclusively in Ontario. TheDominion targeted and achieved a 50 percent pass-through rate atimplementation, but plans to dial up that percentage.

"We can set different authority levels by brokers. Some brokerspass through higher percentages than others. We'll increase thosepercentages as brokers get more familiar with the system and we canassess the experience of their business," Oke says.

MORE THAN STP

Although STP is a primary efficiency goal in personal lines,it's not the only objective. "STP is just one level of automation,"Smallwood says. "Carriers are realizing more and more how to useautomation to make it easier for underwriters to assess risk,facilitate information gathering, and make the decision processmore accurate and consistent."

On business that Dominion underwriters still need to manuallyassess, the Dragon project has helped the company reduce turn-timeby 80 percent, primarily because the new platform handles changesin real-time rather than overnight batch. Previously, each changecould only be handled individually and in sequence, meaning thatthe number of days a request would take to process was directlytied to the number of changes being implemented.

"Today, the majority of time delays on applications that requireunderwriting review are due to waiting on information from thebroker," Oke says. "The new system reduced the communication andfollow-up time significantly."

Whitelaw credits increased efficiency and ease of use forbrokers with a "significant" increase in new business. Also, movingfrom a combination of multiple front-ends and paper-basedsubmission processes to a single, web-based system has made lifeeasier on the underwriting department.

"We have all our business in one system, not a distributedsystem, and we consolidated data on the back end. We can prioritizetasks, and the new interface lets underwriters enter the system andsee what is waiting for them to do," Whitelaw says.

The insurer has also gained new management insight into theunderwriting process. "Before, it was hard to even measureproductivity among our staff. Now we know when apps are submitted,where they are, and how long they've been there. We can get muchbetter metrics on changes that are taking a while, how fast we aregetting back to our brokers, and other statistics that had beenmanually compiled before," says Oke.

The Dominion also targeted control and compliance objectives.For instance, the insurer must comply with a Canadian requirementto issue a policy document within 14 days of request and reportthat information to the Ministry of Transportation, which maintainsa database for the country's mandatory insurance requirements.

Under the previous manual process, backlogs in paper processingcould cause that date to be missed. Now, incoming requests are timestamped and prioritized, and automated controls and metrics havebeen established around policy document production tasks. Addingand automating these controls has helped The Dominion staycompliant and manage reputational risk.

"If a driver gets pulled over for a violation, the officerchecks the insurance database. If the record isn't updated, thedriver isn't allowed to drive. If that happened because a requestwasn't handled promptly on our end, our reputation suffers,"Whitelaw says.

The next steps in the project are to roll the Dragon system tothe rest of The Dominion's personal auto business, which represents46 percent of the company's premium volume. By early 2013, theinsurer plans to have the system rolled into commercial lines,starting with its program managed business.

COMMERCIAL LINES

Straight-through efficiency has been a more elusive goal incommercial lines. "For smaller commercial policies andbusiness-owner policies, it [STP] is getting there. Never saynever, but I think we'll be hard pressed in the near future [toreach the point] when mid-size or large accounts will beunderwritten straight though, no touch," says Petersmark.

"In commercial lines you move quickly to a more complexproduct," Whitelaw says. "There are some efficiencies in personallines that we just won't be able to get on the commercial sidebecause it doesn't lend itself to automated workflows. But withthat said, the rules engines within the Dragon system will allow usto manage the normal flow versus the exception flow more tightly aswe look for the opportunities to automate more."

Technology initiatives to improve underwriting efficiency incommercial lines are focusing heavily on consolidating information,facilitating collaboration, and providing decision and pricingsupport.

"Rather than having an underwriter go out to different websitesand pull in information, underwriting automation does thatautomatically, presents it to the underwriter, and helps the entireprocess be more accurate and consistent," Smallwood says."Commercial carriers are also looking outside the policy adminsystem itself to leverage various underwriting tools."

In its move to improve underwriting efficiency, PreferredConcepts focused first on excess liability in its umbrella line."In small umbrella, it's all about speed to market and efficiency,"says Christopher Treanor, president, Preferred Concepts. "You can'tspend a lot of time underwriting a $5 million umbrella."

Two years ago, the insurer looked to upgrade its underwritingplatform that Treanor describes as "antiquated and creaky."Difficult for underwriters to use and lacking a web interface forretail agents, the system did not handle exception processing well,resulting in applications being rejected by the system only afterthe agent had first spent time entering all the applicationinformation.

As an MGA, Preferred Concepts sought an underwriting platformthat would address these limitations while also enabling better andfaster collaboration among its own staff, its carriers, and retailagents in the underwriting process.

"We wanted to take advantage of a more contemporarytechnology—to use screen sharing to see what our customers [retailagents] were doing on their screens, and to use things like livechat to have an interactive conversation with both our customersand carriers," Treanor explains.

Preferred Concepts chose to replace its legacy system forumbrella with the FirstBest UMS underwriting system. "A key featureof UMS was the ability to create a dynamic conversation loopbetween the retail agent and insurer, where we can communicate toeach when need be, in real time, and in a way that shortens ourcycle time and allows us to make decisions more quickly," Treanorsays.

The system has also provided a front end that consolidatesinformation essential to the underwriting process—loss data,exposure data, and external information. "You could get that databefore, but you had to go to five different places to get it. Wewanted to be able to give our underwriters information at theirfingertips and in a single place," says Treanor.

In addition to targeting its efficiency goals, PreferredConcepts has improved the underwriter-agent relationship. "Foragents, the UMS system is more transparent," says Georgi Munger,vice president.

After agents enter application information,they can see which underwriter the account is assigned to, followup on any requests for information, upload documents such as lossruns received from other insurers, and access additionalinformation that is added to the underwriting file.

"It's a more organized and efficient way for both underwritersand agents to look at their accounts, collaborate, and manage booksof business," Munger says. Collaboration, information-sharing, andrules-based decision support also lead to consistency in theunderwriting process, which Ward Group's Rieder believes is a goalthat rivals efficiency in importance among commercial insurers.

"In commercial lines, there is a strong focus on consistency inboth risk selection and pricing. Carriers and agents alike want tobe sure that two underwriters looking at the same risk come up withthe same price," he explains.

Preferred Concepts has also achieved efficiency gains in areasbeyond the direct underwriting of accounts. For instance, becausePreferred underwrites on behalf of carriers, those carriersregularly audit Preferred's underwriting files.

"In the old days, we would have to physically pull files for theaudit. Our carriers would come on site, and they would sit andaudit those files," Treanor says. "Now, the entire process can behandled online because they have access to all the same informationwe have. They can look at business whenever they need to and watchus in real time."

THE MESS IN THE BASEMENT

Some significant gains insurers have made in underwritingefficiency have come from the development and maturation ofexternal data sources used for underwriting analysis, predictiveanalytics and modeling, and the integration of these sources withcarriers' policy systems for prefill to trim manual data entry.

"Ten years ago when we started to do STP for auto, the sourcesweren't as robust or refined. Now all the MVRs, data fields,accident reports, and so on are readily available," saysSmallwood.

The biggest remaining impediments to making efficiency gainscome from the systems within carriers' own data centers.

"Some carriers still have this mess in the basement," Petersmarksays. "The underwriting technology is out there, but it's often thecase that over time, carriers have created many layers ofcomplexity in their environment. As a result, there's not a smoothway of getting actionable information to the underwriting front endto support automation or so that underwriters can use it. Some datais in the legacy systems, some is in middleware, and some isgenerated from different front ends that agents use to submitinformation."

Ward Group found that, on average, insurers need 2.5 systems toget a complete view of the customer and have 1.5 policy adminsystems that are 10.9 years old.

Cleaning up the mess starts with the business process ofidentifying the kind of information that is important tounderwriters and facilitates their selection and rating of aparticular risk. Then, the task becomes staging, promoting, orotherwise making that information readily accessible.

"That's easy to say, but hard for a lot of carriers to dobecause of the architectural challenges they face," Petersmarksays.

Carriers must also contend with significant cultural challengesto underwriting efficiency initiatives.

"Underwriting has been happening at companiesfor a long time and in a certain way. When you have experiencedunderwriters who are good at doing what they do, messing with thatprocess can incur their wrath," Petersmark says. "There isdefinitely a delicate balance—how do you accommodate those folks,or should you accommodate those folks?"

"Change management must include involving the underwritingdepartment to understand that by becoming more efficient,eliminating redundant tasks, and automating manual back-and-forthprocesses, it will increase their effectiveness and allowunderwriters to focus on more complex risk," says Smallwood.

The Dominion addressed cultural change through initial andongoing communication and collaboration.

"From day one, we've been telling people this isn't an exerciseto lay off people, this was a way to make them more efficient,"Whitelaw says. "Also, by starting with a small line like Chieftain,underwriters can see how automation will impact other lines we moveinto. They can see how they will be able to spend more timemarketing to brokers, training brokers on our product, and buildingtheir book of business."

NOT JUST TECH

Technology is at the heart of underwriting efficiency, butRieder stresses that carriers must resist the effort to pave thecow path.

"A common problem we see is that when companies have redundantprocesses, they put technology on top of those processes ratherthan looking at what steps can be skipped," he says.

Automation at The Dominion went hand-in-hand with a processreengineering effort. In one example, The Dominion found that thestaff was re-entering information into the claims system that wasalready available in the policy system. The company created a newintegration between the two systems to automatically create apolicy record.

"We recognized there was redundant and nonproductive work peoplewere doing. It was our intent to eliminate that work and repurposethose people," Oke says.

"Our entire intake process itself was reengineered due to theelimination of paper in the process," he adds. "Because newbusiness now comes through electronically from the broker, it's awhole different workflow. We expect that by the time the system isfully deployed, we could repurpose up to eight full-time employeesdue to that efficiency alone."

ONGOING JOURNEY

Efficiency will continue to be top of mind for carriers in bothpersonal and commercial lines, driven by the need to bolster thebottom line and grow the top line.

"Insurers can become very creative in terms of product andpricing when they have automation tools that can help bring on newrisks with pricing precision. That's important because theinsurance product itself is really a commodity. What differentiatesan insurance company is the combination of product, price, andservice," says Smallwood.

"Automation has already become table stakes in personal lines,"she adds. "In commercial lines, if you don't have a platform inplace to support efficiency in risk assessment and pricing, youbetter start looking or you will soon be at a disadvantage."