Strategy Needed When Changing Brokers

Understanding Insurer Data Requirements

Risk management has always been a data-driven discipline. Insurance purchasing, risk information and claims management require volumes of data. The computer has made it possible for risk managers to accumulate vital information and new programs have driven increasingly sophisticated aggregation and analysis. But have these technological advances made the risk manager's work any easier?

A risk manager often finds that the more information that is gathered, the more is needed. As a result, workloads are increasing. A common cry is All of this data, but no real information.

That is the heart of the issue. The value of data is derived not from the volume of inputs, but from the insight they provide.

One of the key customers for information is the insurance industry. Some may feel that insurance underwriters have an insatiable appetite and an ever-changing palate. One year they want one type of information and the next year they ask for something totally different. During the soft markets they ask for little data at all. How do we continue to feed this beast?

It may help to understand the basis for this need and what insurers actually do with the information provided.

The underwriting process increasingly depends on detailed, current data to drive decisions.

Property exposure evaluations are based not only on physical attributes of the structure itself, but the exposure to natural catastrophes in the region.

Casualty or whole account underwriting is often loss rated, so detailed profiles of both individual and aggregated losses are critical.

Sophisticated models help underwriters evaluate exposures and develop a price appropriate to the perceived risk. These steps, with varying degrees of discipline, are followed by virtually every insurer as they assess individual accounts.

The next step for insurers is to review the total portfolio they have at risk. How does the individual risk being evaluated affect the insurer's total book?

While the single location being quoted may be well within the underwriting guidelines of a company, the addition of that risk will have some type of impact on the overall portfolio.

Does it put the total property values at risk to a common hurricane or earthquake over an acceptable corporate retention? If the marginal impact of the additional account puts corporate assets at risk, the new account must be either declined or reinsured separately.

The underwriters must constantly be aware of the corporate portfolio in addition to their own. Detailed information will help them get a better perspective on accumulations.

If insurers can get street level information on risks, they can more accurately assess if a location is truly subject to the same catastrophe as other accounts in the corporate portfolio. If locations are only at the state or ZIP code level, many underwriters/companies will feel they have no choice but to make the most conservative assumptions.

Sept. 11, 2001, changed many things in the United States. The personal losses the insurance industry suffered are always foremost in our minds. The financial losses also have had a lasting effect and have changed the way the industry does business.

While natural catastrophes have been tracked and modeled for years, we realized on Sept. 11 that this wasnt enough. Property values are no longer the key measure of aggregate exposures. Companies must be much more aware of their human accumulations whether they arise from workers' compensation or life and health portfolios. This is a challenging issue.

Workers' comp has always been rated based on payroll and the type of work being performed. Since payments are based on benefit codes that vary by state, separate rates applied for each state where a company had exposure.

Many insurance companies rated workers' comp at a state level, but coded all business to the location of the corporate headquarters. No one tried to track where employees were physically located.

Comp insurers are now not only asking where employees work, but how many are concentrated in a specific location. This helps the company manage concentrations of exposure. If employees are highly concentrated, the insured will probably also be asked how many shifts are worked. In other words, is there an inherent mitigant to the exposure risk?

Insurers also need to know the street address where employees worknot just the state. This helps them judge accumulations with other accounts they insure and also proximity to buildings that may be possible targets for terrorist attacks.

If there is an exposure concentration or locations that may be vulnerable to terrorism, be prepared to provide construction data on the building itself. Yes, youll be asked about property exposures when youre placing your workers' comp coverage!

The information requested by insurers is not only more comprehensive, but the data is more closely scrutinized. The same technology that simplifies accumulation of the information also makes it easier to verify and correlate with data given in prior years. Since many large accounts are loss rated, the claims data is carefully reviewed to assess reporting patterns and timeliness of reserve postings.

The accuracy of reserves is another important issue. Technology makes it easier to track the life cycle of a claim and the patterns that emerge in an account are revealing. When there are inconsistencies, the risk manager must explain themwhich can often be as simple as pointing out a business acquisition or divestiture, or as complex as a change in claim philosophy.

Underwriters will probably be asking for more detailed information at renewal this year. Recent losses in the industry have made everyone more sensitive to portfolio accumulation issues.

The increases in claim frequency and severity require close analysis of claims from a particular account. Medical inflation and tort issues are often extremely sensitive to geography, so locations of risk exposures are key.

New issues and new modeling technology demand detailed data. The more accurate and detailed the information provided, the more closely the premium reflects the insurer's true risk.

The amount of data a risk manager has is only useful to the degree that it can be turned into information useful to all parties. Data must first be used to drive positive change within your own organization.

So what is your data saying? Do you have a workers' comp claims problem within a specific area of your plant or a liability issue with a certain product? Are you finding that your auto losses show a pattern based on number of years experience or vehicle type?

Your own information often tells you where you need to take action, if youre able to accurately read the data.

To better interpret the data, it's helpful to develop tools to manage accumulated bits of data into actionable information. Within General Electric, we use tools that are part of Six Sigma methodology.

Six Sigma has become the framework we use to identify, prioritize and resolve issues revealed by the data. Not only does it give us a process for resolving problems, it facilitates implementation of the solution.

When everyone can clearly see the issue, the solution is revealed by the data itself. The implementation plan is rigorously tracked and results are shown in the numbers. If the data shows the issue still isnt resolved, the problem is reviewed again and a new solution is proposed and tested.

Whether you use Six Sigma or another approach, the ability to demonstrate a systematic resolution of problems is very important. Your renewal submission can become a showcase of data-driven actions taken to lower the risks of your business.

Its important to demonstrate a consistent pattern of identifying and resolving issues. Underwriters dont expect a perfect accountlosses can arise from previously unknown dangers.

What underwriters do look for is a reflection of actions taken in response to identified problems. A business loss history is the ultimate reflection of action taken, or not taken, at an earlier point in time. Help the underwriter see the aggressive intervention youve taken to avoid losses.

When insurance companies ask for data, always keep in mind that they are really searching for information. Your submission needs to provide information that will accurately reflect your exposures and your experience. Even in a hard market, accounts are differentiated and data is the best way to demonstrate what you, the risk manager, have done to improve your account.

Highlight past actions and results, then show the approaches youve taken to address the insurer's concerns about life safety issues and portfolio accumulation.

While technology is vital to the gathering of data, it must also help you convert pure data into information that can become the basis for action.

Risk managers and their businesses are judged by the actions taken once the data is analyzed. A good insurance submission reflects an understanding of your business and the issues that concern insurers. Working together to get the right data will help drive a positive experience for both you and your carrier.

Jean Stalcup is senior vice president at GE Employers Reinsurance Corp. in Overland Park, Kan.

Reproduced from National Underwriter Edition, July 7, 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.