Underwriting leaders at commercial carriers carefully monitor their portfolios and constantly define necessary adjustments to their underwriting strategies (e.g., re-balancing the product mix for some classes of risks, growing specific industry segments). That’s the relatively easy part. Translating and communicating high-level directions for ‘front line’ underwriters (i.e., underwriters assessing risks on individual accounts) to follow is typically where execution breaks down. Carriers with scale relying on large and decentralized networks of underwriters are even more exposed to this common execution challenge.
The art of articulating underwriting strategies is to translate high-level directions into actionable pieces of information that can be leveraged across the process of underwriting individual accounts. If done well, there is an opportunity to effectively guide every single intermediary step and decision in the underwriting process. The ultimate outcome is a perfectly executed underwriting strategy.
1. Prequalify risk
One of the first tasks front line underwriters do each day is to sift through a long list of new business submissions. The list is typically much longer than they can handle and they have to decide which ones they will work on for the day. Depending on the line of business, type of account, and associated productivity standards, underwriters may be able to work on only one submission, so they have to choose wisely. Considering the many factors that come into play as they pre-qualify submissions. Underwriters have to very quickly to identify which submissions fir their carrier’s underwriting appetite, where they are competitive, and where the probability of closing the deal is high.
What submission(s) should I focus on today?
- What is in my appetite? → Appetite Guides
- Where am I competitive? → Priority Risk Classes
2. Supplement & assess risk
Once a risk has been pre-qualified, a thorough and potentially time-consuming investigation, which can be prone to oversight errors typically begins. At this stage, it is critical to identify and focus on the right pieces of information, not to waste time on gathering irrelevant information, or miss important considerations.
What information should I consider to underwrite this risk?
- What questions should I ask myself? What additional information should I ask the producer to provide? → Supplemental Application
- Should I perform a physical inspection? → Risk Control Guidelines
- What are the verified exposures and controls? → Risk Control Report
- What is the exposure? Is this the right risk? → Underwriting Guidelines, Worksheets to Quantify Exposure
- How should terms and conditions be adjusted? → List of Exclusion Endorsements
- What is our capacity to take on this risk? → High Concentration Areas
- Should I purchase facultative reinsurance? → Reinsurance Guidelines
3. Price risk
Pricing is a balancing act between growth and profitability. While it is critical to charge enough premium to cover losses and expenses, pricing must also be competitive enough to win the business. In order to meet growth and profitability targets, the underwriting strategy must build out a pricing framework that addresses the following questions:
- What premium should I include in the quote?
- How much should I deviate from technical price based on the quality of risk? → Predictive Models
- What company placements, credits, and debits can I apply to get to the right price? → UW Guidelines
4. Negotiate deal
Underwriters often need to negotiate with producers. It is at this stage that underwriters have an opportunity to truly demonstrate their industry and line of business expertise by describing how the proposed solution meets the insured’s needs. Highlighting competitive differentiators such as unique coverage and services (e.g., risk control, claims) can help an underwriter sell a higher quoted premium. Alternatively, applying higher deductibles or reduced limits can allow an underwriter to reduce exposure in order to meet a client’s premium demand. Once again, key elements of a comprehensive and well-articulated underwriting strategy can help underwriters prepare for these difficult discussions.
How do I convince the producer to accept the deal?
- To what extent does the proposed solution meet the insured’s needs? → Insured needs analysis
- How competitive are our products and services? → Competitive Differentiators
Carriers can face several pitfalls when articulating their underwriting strategy:
- Large gaps force underwriters to apply unsupported judgment.
- Strategies are too uniform, missing important nuances, or too inconsistent, hindering efficiency and scalability.
- Strategies conflict across functions, yielding inconsistent underwriting outcomes.
- Underwriting strategies are not directly applicable to customers, creating an inconsistent market offering.
Carriers can avoid these pitfalls by ensuring their underwriting strategy is 1) comprehensive, 2) tailored, 3) integrated, and 4) market ready.
1) Comprehensive underwriting strategy
Articulating a comprehensive underwriting strategy facilitates informed and consistent underwriting decision-making. This is especially beneficial to inexperienced underwriters who are learning which considerations they need to weigh when underwriting an account. While experienced underwriters understand how to evaluate risks, they still depend on a well-defined strategy to understand the carrier’s appetite, where the carrier is willing to take bigger risks, and where the carrier has the strongest competitive advantage in terms of product solutions, risk control, and claims. While underwriters still apply specialized knowledge and experience while judging risks, developing a comprehensive foundation reinforces organizational alignment and quality underwriting.
A comprehensive underwriting strategy addresses five core areas that need to be defined for every business unit and/or line of business.
It is important to capture this information in a consistent format from different customers, products, and functions. Consistency creates efficiencies by minimizing retraining/cross-training time, simplifying multi-line/cross-customer accounts, and simplifying technology and tool design. Take the example of a technology company that also manufactures the hardware used with its products. Technology and manufacturing underwriters will be able to compare, contrast, and balance each individual’s underwriting strategy if they both express their strategies consistently. Both underwriters should be able to quickly identify the other’s appetite, products, and key exposures, which will help achieve consensus sooner and more consistently.
Articulating a comprehensive underwriting strategy in a consistent format allows underwriters to understand their role in executing the organization’s goals, core concepts and considerations when evaluating a risk, how the carrier is distinctly positioned for success, and how to correctly execute the underwriting process.
2) Tailored underwriting strategy
Creating and maintaining comprehensive underwriting strategies can be time-consuming and expensive. Fully articulating the underwriting strategy for one industry sector may require a team of senior underwriters to put pen to paper for several weeks, if not months. This work usually comes at the expense of other critical activities (e.g., prospecting new accounts).
While consistency is important, it is critical not to try to force an underwriting strategy into a mold that does not fit. The right approach is allowing different levels of granularity that reflect the specialized needs of each area, but delivers the underwriting strategy in a consistent format.
3) Integrated underwriting strategy
An integrated strategy should reflect the priorities and strategic actions of several functional areas; it should incorporate product, customer, risk control, claims, and point of distribution. Underwriters struggle to balance functional considerations if they are not fully integrated. Articulating an integrated underwriting strategy means demonstrating how each function fits together to propel overall strategic direction, and ensuring that all content, pricing tools, processes, and pipelines align.
If the goal is to grow media accounts, then product initiative A will improve the media liability product, distribution initiative B will target brokers that specialize in media accounts, and risk control initiative C will focus on implementing controls to protect media companies from data breaches. All of these initiatives need to work in unison, and should be clearly articulated so that underwriters understand how each fits into the ultimate goal of growing media accounts. Additionally, all supporting content and tools need to be consistent so underwriters arrive at the same conclusion regardless of which resources they use.
As strategies change over time, it is critical to clarify how these changes affect current guidelines. To continue the above example, underwriters need to understand how to grow media accounts while simultaneously limiting CAT exposure to the California property book. Failing to clarify how both fit together may cause some underwriters to ignore the CAT exposure, and others to refuse profitable media accounts. Clarifying how the two strategies come together helps underwriters know exactly where to target and when to limit.
4) Market-ready underwriting strategy
Underwriters will communicate their appetite and product solutions to the market the same way it is communicated to them internally. Thus, carriers need to articulate market-ready strategies to their underwriters in order to go to market consistently.
- Producer mindset: Carriers should focus on what they want to write, rather than communicating restrictions. Positive and consistent communication in both marketing and underwriting will help producers to think of a carrier when they receive desired business. Since carriers want underwriters to communicate positively to producers, carriers need to articulate their strategy positively to underwriters.
- Customer mindset: Underwriters also need to explain why a specific coverage fits the needs of different customers with diverse needs. Communications should be customer-centric. For example, if a carrier offers production recall, a food producer may be cost-sensitive, and value coverage that protects them against high recall costs. On the other hand, an automotive manufacturer may be more concerned with brand image, and value coverage including public and media relations in the event of a recall. Both of these features may be part of the same coverage, but if there is no explanation of how the coverage filled different customer’s needs, underwriters will not connect with each customer individually.
By enabling flawless execution and aligning the underwriting community on a common set of practices, well-defined underwriting strategies ultimately lead to higher underwriting performance. With clear underwriting guidelines and adequate monitoring mechanisms in place (e.g., portfolio management, underwriting audits), underwriting leaders can more easily scale back from individual transactions and trust that their underwriters make sound underwriting decisions. This, in turn, improves the confidence of individual underwriters who better understand what needs to get done and less frequently have to say to their producers: “I am not sure about that … let me check with my manager and I will get back to you.” Increased confidence then leads to faster decisions (ease of doing business). Producers perceive a higher degree of expertise (specialization), all of which lead to superior underwriting performance.