Many property and casualty (P&C) insurance companies areheavily siloed. Over time, this has resulted in cross-functionalinefficiencies between and across underwriting, claims, cededreinsurance, actuarial, and finance. In the past, investmentreturns may have covered the costs associated with theseinefficiencies, but this is no longer possible given today'shistorically low interest rates. Couple this development with thesurge of information that is available today and the importance ofunderwriting efficiently at an "information advantage" becomesclear.

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Current state

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Many P&C insurers are in the process of transforming, orhave transformed, their policy administration, claims, billing, andfinancial systems, as well as their related data environments andoperational processes. While there are economic and technologicalreasons for these transformations (e.g., record levels ofpolicyholders' surplus across the industry, new and more robusttechnologies, etc.), the primary driver appears to be strategic:many P&C insurers realize that more insightful approaches todeploying capital in the highly cyclical marketplace will help themto more efficiently achieve their profit and growth goals whilemitigating risks (including soft market-related risks).

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It is somewhat surprising that it has taken so long for thecurrent level of transformations to occur because, in many ways,insurers are "information factories" that absorb and analyzevarious forms of information to profitably assume risk overtime.

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One possible explanation for the delay could be organizationaldynamics; many insurers have focused on various levels offunctional, business unit and support initiatives to gain targetedefficiencies from activities such as:

  • Claims leakage analysis;
  • Ceded reinsurance leakage analysis;
  • Finance transformation projects;
  • IT re-architecture, reengineering and/or outsourcing;
  • Predictive modeling to improve pricing and distributionmanagement;
  • Legal, auto property and medical billings review forreasonableness; and
  • Pricing models, underwriting workbench tools and policyadministration system transformations.

Focused functional projects like these have resulted in certainlevels of efficiency, but such specialized expertise has alsoresulted in a certain level of enterprise-wideinefficiency. In other words, enterprise-wide efficiency hassuffered due to process, system and organizationalgaps/misalignments generated from all of the various focusedfunctional, business unit and support improvements that have takenplace. This dynamic is becoming more problematic given how quicklymarket opportunities seem to change, and rates soften.

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Recommendation

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A more holistic approach to core system and businesstransformation is necessary, one that explicitly focuses onestablishing cross-functional linkages to enable moreinformed and efficient underwriting.

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Issues to consider when implementing an approach like thisinclude:

  • Clearly expressing cross-functional goals and strategies thatare intended to result in more focused and efficientunderwriting;
  • Explicitly developing end-to-end processes and informationfeedback loops to inform risk selection and distribution managementin a more timely manner; and
  • Developing cross-functional information and operationalstrategies based on the needs, uses, data requirements, functionalprocesses, and organizational dependencies across the entireinsurance value chain.

How to proceed

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Insurers should take cross-functional views of their operatingmodels with the goal of removing enterprise-wide efficiencybarriers and enabling cross-functional information flows.This process could begin, for example, a review of unprofitableproducts, customer segments, agents/brokers, and lines of businessfor end-to-end breakdowns such as knowledge gaps, operationalinefficiencies, data inefficiencies, incentive issues, etc.

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Next, insurers should quantify the market, policyholder,agent/broker, product, operational, and financial impacts ofidentified cross-functional breakdowns or areas of concern.

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Upon analyzing the above, the company should develop a holisticunderwriting profit-oriented roadmap. The creation of the roadmapshould be guided by questions such as:

  • How do we enable more efficient and focused risk selection byenhancing our cross-functional flows from one end of the valuechain to the other?
  • What information enhancements are available if we improve dataextraction, data quality and preparation efficiencies?

The company then can identify and prioritize solutions tocomprehensively resolve any product, segment, distribution and lineof business inefficiency issue.

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Francois Ramette is a Director in the PwC Advisory Insurancepractice with ten years of management consulting experience withFortune 100 insurance, telecommunications, and high-techcompanies. Joe Calandro is a 25-year insurance industryveteran. He has broad experience, in both the U.S. andinternationally, across the disciplines of strategic and enterpriserisk management, underwriting, claims and M&A. RichardPankhurst is a 20-year insurance industry veteran. He has extensiveprofessional services experience, focusing on P&C insuranceoperations strategy and transformation, insurance sales anddistribution and enterprise performance management

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