Embedding underwriting strategies in day-to-day decisions

Carriers use a variety of mechanisms to support underwriters in executing deals that go against the underwriting strategy. Some common elements that leading commercial lines carriers use include:

• Clear processes for information gathering, risk assessment, rating and quoting, including corresponding documentation (e.g., job aids, process flows, checklists)
• Underwriting guidelines by Product, Industry, Geography, Distribution Channel
• Letters of authority and  clear escalation paths
• Access to internal and external expertise (e.g., A.M. Best Underwriting Guides, industry trends, internal reference material, contact lists)
• Proprietary risk selection and pricing tools
• Business rules, predictive models, analytics (make sense of company experience, trends, & third party data)

The choice of which tools and processes are needed to embed the underwriting strategy in day-to-day decisions is dependent on the volume and complexity of submissions, the degree of underwriter expertise at the desk-level, and the maturity of the product or industry, among other things. That said, we have found that the following key considerations are critical in designing these mechanisms:

• Make it easy. Design a streamlined underwriting process that prompts for the use of the appropriate tools, checklists, and reference material.  Link any new resources to this process by updating process guides, requiring inputs based on the findings in the new resources, and/or designing user-friendly underwriting platforms that seamlessly incorporate new tools. Lastly, drive adoption through a training and communication plan that highlights the expected benefits and efficiency gains for the underwriter and details how any new resources should be used. In other words, make it hard to underwrite any other way.
• Make it actionable. Provide clear guidance on how to use information in underwriting decisions.  Do not overwhelm the underwriter with unnecessary information, or else the important content will get buried and likely ignored.  For example, underwriting guidelines should clarify what areas are non-negotiable (e.g., writing general liability for a nuclear power plant) versus what guidelines are subject to other considerations (e.g., a building height restriction for Property).
• Explain the "why." Clarify how underwriting guidance fits with the overall strategy through training, communications, and access to experts. This will help underwriters identify and justify exceptions to the rule. For example, carriers that have effectively implemented modeling into the underwriting process not only include a model score that directs the underwriter's risk selection and pricing, but also include detailed reasons on what account characteristics were considered and how they impacted the result. This allows the underwriter to account for inaccurate data inputs or factors not considered in the model. As an added bonus, it also empowers the underwriter to more intelligently explain his/her underwriting decision to the producer and client, strengthening the customer relationship and showcasing underwriting expertise.
• Build in flexibility. Underwriting is not black and white, so the tools and processes to support underwriters should not be either. Be clear on what standards are non-negotiable to limit time spent on un-writeable accounts. Where there are gray areas, provide a range of acceptable options based on key information allowing underwriters to choose accordingly based on the account or situation. 

To drive consistent execution, underwriting processes, tools, and resources must be effectively used throughout the organization.  Leading carriers do the following to ensure adoption and effectiveness over time:

• Enforce use of resources.  Enforcement needs to be thoughtful and gradual to ensure that underwriters buy into any new resources, and that the tools or processes are tested and adapted before rigid restrictions are put in place. Once resources are adopted, use underwriting audits, metrics, and underwriter feedback to ensure that the provided tools and processes are being used consistently and correctly across the organization.
• Document cases where underwriters go against the recommendations. Set clear expectations for approvals and documentation required when underwriters deviate from the guidelines, tools, or process.Build in mechanisms to track how often this happens and why in order to continuously refine the process/ tools and share any best practices or additional expertise across the organization. Given that the standard protocols are followed, underwriters should be encouraged and rewarded for challenging the tools and process in order to reinforce critical thinking when assessing risk.
• Adapt.  Continually review and assess the mechanisms used to embed underwriting strategy into day-to-day decisions. Changes to the underwriting strategy must be translated to the processes, data, content, and tools used to underwrite in order to impact execution. On the other hand, front-line underwriters are likely to be the first to recognize cases where the provided resources and guidelines no longer meet their needs or the needs of the market.  Listening to the front line and identifying patterns may be the quickest way to adapt to the market and continually stay ahead.

Leading carriers understand that an underwriting strategy must be embedded into the day-to-day underwriting process in order for their organization to execute it consistently and effectively. While this can happen in many ways, it is critical to monitor adoption and effectiveness of new and existing processes, tools and resources to confirm that they continue to support underwriters in making decisions in line with the insurer's strategy.

Joe Calandro, Jr., is a managing director with Strategy&, part of the PwC Network. Calandro has broad experience, in the U.S. and globally, across the disciplines of strategy, analytics, M&A, risk management, underwriting, and claims.