Automation Comes To E&S Market, Finally

Automation Comes To E&S Market, Finally

By David C. Dobson

Since the mid-1980s, when the excess and surplus lines market first experienced significant growth, it has developed a distinguished reputation for introducing new and cutting-edge products to meet the needs of unique risks.

Today, with a significant growth in excess and surplus lines opportunities, carriers must shift their creative focus toward technological advances to improve their process capabilities.

This article illustrates how excess and surplus lines carriers and managing general underwriters are impacted by current market conditions and explains how they can leverage technology to automate inefficient and redundant processes, reaping benefits for their firms and their customers.

As in the mid-80s, todays hard market conditions have led to sizeable growth opportunities in what is now an estimated $10 billion-plus excess and surplus lines market. Historical underwriting performance, the tragic events of September 11, and recent realization of prior-year reserving inadequacies have left standard markets again trimming their portfolios of non-core books of business.

While the increase in excess and surplus lines premium provides excellent growth opportunities, current market dynamics have placed tremendous pressure on managing general underwriters to successfully manage the quote proposal, policy issuance and back-end reporting processes.

Estimates by various industry sources indicate the excess and surplus lines market grew by more than 30 percent in 2001 and 2002. While much of this can be attributed to pure rate increase, submission volume has also elevated substantially.

Its this increase in volume that causes difficulty for managing general underwriters as they face the challenge of managing new books of business with little, if any, increase in resources.

Many hire additional staff. While this is a somewhat effective solution from a volume standpoint, hiring additional resources takes time and can often cause companies to miss early market opportunities.

Managing general underwriters face the added strain of dealing with the redundant and inefficient process requirements associated with pricing, quoting, issuing, billing and handling claims associated with increased policy counts. Each of these process steps typically involves a unique system requiring the managing general underwriters to key duplicate entries in up to four or five different databases, as they are often not linked. According to A.M. Best, “A past study of NAPSLO member insurance companies, wholesale brokers and independent retail agents concluded that the distribution process contains many redundancies and inefficiencies, which contributed to higher product costs.”

The 1999 study Best referred to, commissioned by the National Association of Professional Surplus Lines Offices and prepared by KPMG, found that a philosophical approach to technology that was “conservative” and “risk averse” for the surplus lines segment. The KPMG study also found that there was a 7 to 8 point spread between industry expense ratios and those of NAPSLO companies, with the NAPSLO companies showing greater inefficiency. (See NU, Feb. 12, 1999.)

On average, we estimate it takes managing general underwriters 30 days or more to quote and issue a policy, assuming underwriting referrals are not required.

Finally, for a managing general underwriter to manage its business, it must often rely on the data reporting capabilities of its insurance carrier. Standard reports are typically issued to the managing general underwriters on a recurring basis with customized reports available upon request (and often requiring somewhat lengthy production times).

An inherent problem in this process is the lack of available data when the managing general underwriter wants it and in the desired format. For those managing general underwriters bogged down with a recent increase in potential deal volume, evenings and weekends frequently become the only available time for monitoring policy performance. Unfortunately, this is often a time when resources are simply not available to run data reports.

For years, the personal lines market has successfully utilized automated underwriting platforms and, more recently, some carriers have begun using advanced technologies to automate components of the commercial lines policy issuance process. Until recently, the excess and surplus lines market has remained somewhat sluggish in its transformation due in part to various industry barriers.

By automating the quoting, policy issuance and back-end reporting processes, excess and surplus lines carriers are enabling managing general underwriters to ramp up production in a hard market or slow down production in soft market conditions, with less need to increase or decrease human capital to react to market conditions.

Automation (or digitization–the act of automating or using technology so the process is completed using a system and non-manual processes), doesnt just allow the managing general underwriter to operate more efficiently through reduced overhead costs. It also offers tighter controllership to the carrier, greater regulatory compliance, superior data analytics capabilities, and the ability to respond almost instantaneously to various market conditions.

In our experience, systems requirements can be reduced from four or five different databases to one or two. Managing general underwriters are able to eliminate their rating systems, quote proposal systems and policy issuance systems with the use of a single system.

Linking the various systems with direct data feeds eliminates the need for duplicate entry. This can reduce new business quote timeliness from a few days to an average of one.

Even more beneficial is the impact on policy issuance timeliness.

On average, the use of this type of technology can allow managing general underwriters to quote and issue a policy in approximately 14 days as opposed to 30 days or more.

Another benefit of a digitized platform is increased turnaround time for underwriting referrals. Currently, the managing general underwriter is required to obtain all necessary documents, consolidate them into a single report, and fax the packet to the appropriate underwriter for review.

With the use of a digitized platform, underwriting referrals can be automatically flagged in the system. This gives the managing general underwriter an opportunity to enter any comments it may have. Referrals can then be electronically transferred to the appropriate underwriter for review. The entire process can take an average of 24 hours from referral submission to underwriter feedback without requiring much effort from the managing general underwriter.

The final and potentially greatest benefit of utilizing a digital platform is the wealth of data analytics capabilities derived from a streamlined underwriting process. By providing a wing-to-wing (beginning-to-end) platform, bringing together data from the managing general underwriters processes with actual information on policy performance, a wealth of data is consolidated. This allows the managing general underwriter to access this data via a secured Internet portal 24 hours a day/7 days a week to view real-time performance metrics.

Data reporting capabilities can also include report builder tools and export functions, allowing the managing general underwriter the ability to access what they want, when they want it, in the format they want it in.

While many managing general underwriters are currently faced with the challenge of handling increased deal volume, the use of advanced technology will ultimately ease these challenges and change the way they operate. This in turn will enable them to more efficiently manage their portfolios and respond to market conditions.

David C. Dobson is marketing leader for P&C Select Group at GE Commercial Insurance.

Reproduced from National Underwriter Edition, May 19, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.