To achieve desired profitable growth, commercial insurance carriers strive to develop best-in-class underwriters who demonstrate a broad range of skill sets, including the ability to take on sales, marketing and analytical responsibilities. Highly successful carriers embrace a "best athlete" model and continue to expand the role of their underwriters. They prefer underwriters with an entrepreneurial mindset, place them at the center of transactions and reward them appropriately.

However, while some underwriters may have the entrepreneurial prowess to develop a large network of loyal producers and identify innovative endorsements, the majority must focus on improving their fundamental underwriting skills to select and price risk in alignment with their carrier's underwriting strategy. This is even more critical for geographically distributed carriers (i.e., broad distribution footprint and decentralized underwriting units) that must ensure high quality and consistent underwriting practices among a very diverse community of underwriters (some of whom may come from competitors and be tempted to underwrite according to their previous employer's strategy and underwriting guidelines).

What typically constitutes fundamental underwriting performance for an individual commercial underwriter?

  • Select risk that meets the carrier's underwriting appetite and strategic goals.
  • Know how to ask the right questions and evaluate risk.
  • Leverage available tools and models (e.g., how to price/rate an account).
  • Use judgment in conjunction with risk selection guidelines and pricing indications.

In order for underwriters of all levels to do their jobs consistently, it is critical for carriers to clearly define and communicate their underwriting strategy. Even the most senior underwriters need clear directions on the organization's risk appetite and approach to risk selection and pricing. As industry and/or product specialization has become a key competitive lever for carriers to differentiate themselves, there is an increased need – even for senior underwriters – to specialize in a given industry and stay on top of emerging risks in rapidly changing markets (e.g., cloud computing, cyber risks). For inexperienced underwriters, straightforward guidance on the processes, tools, and considerations to make at each step of the underwriting process is fundamental to learning and doing their job.

An underwriting organization makes individual account decisions. Collectively, these decisions make up a carrier's book of business, and ideally capture the essence of the carrier's underwriting strategy. To enable their underwriters to make the best underwriting decisions, carriers must arm them with the company's leading practices and expertise. A carrier needs to articulate an actionable strategy that front line underwriters can easily understand and execute. Mechanisms must be in place to ensure the strategy is embedded in the underwriting process and informs key decisions on individual transactions. Lastly, there must be clearly defined accountability for monitoring the portfolio and adjusting the underwriting strategy or execution approach.

  • Articulate: Disseminate a strategy that the entire organization can integrate and clearly understand.
  • Embed: Plan, design and implement the processes, tools and resources that carry the strategy through to day-to-day underwriting activities.
  • Monitor: Measure how well underwriters are executing against the strategy in order to consistently identify potential problems and successes, as well as enable the insurer to continuously improve both the strategy and the execution approach.

Underpinning the efforts to articulate, embed and monitor the underwriting strategy is a performance-driven culture that enables the development of strong underwriting talent. It is critical for all talent management mechanisms (e.g., training, coaching and development, measuring individual performance, incentives) to effectively enable and reward flawless execution of the underwriting strategy.

Articulate

The first step in arming underwriters for success is clearly defining the underwriting strategy. High-level business goals must be translated into an executable underwriting strategy that front-line underwriters can easily act on.

The underwriting strategy must be detailed enough and provide tangible directions to underwriters when assessing accounts without being so prescriptive that it hampers underwriting judgment. Especially in middle and large market segments, it is important for underwriters to be able to make assessments on a case-by-case basis. However, the strategy needs to outline how to treat any grey areas, and highlight key considerations and guiding decisions without providing restrictive answers.

Commercial carriers sometimes fail to take the extra step to detail their business strategy into tangible resources that underwriters can use to make day-to-day underwriting decisions. Failing to recognize the importance in fleshing out high-level strategic directions prevents underwriters from accurately and consistently executing on the strategy.

After the underwriting strategy has been articulated at a level of detail that is actionable and applicable to individual transactions, a carrier then must establish mechanisms to ensure that personnel consistently follow all relevant guidelines.

Embed

Underwriting guidelines, risk selection tools, pricing models, and escalation processes aim to embed the insurer's underwriting strategy into day-to-day account decisions. However, underwriters also must have sufficient training to critically analyze accounts and use their judgment in conjunction with these tools and processes. This will promote collection, analysis and appropriate use of the right information in underwriting decisions. Encouraging underwriters to use the tools and processes to support their decisions, rather than using the tools and processes to replace their analysis, is an important and critical concept that carriers must not overlook.

A common pitfall we've seen when embedding strategy is overly stringent guidelines and processes that diminish underwriter analysis and judgment and ultimately result in lost opportunities. In some cases, underwriters rely too heavily on the processes and tools, losing sight of why the guidelines were created. An underwriter may immediately dismiss potential new business due to a minor characteristic that render the account "out of appetite" even though it is high quality as a whole. In other situations, heads-down adherence to the "process" may lead the underwriter to overlook key information or fail to investigate discrepancies that would change their risk selection or pricing decision. This has a direct effect on opportunities for growth and profitability and may be solved in part by encouraging critical analysis and providing guidance on potential exceptions throughout the underwriting process.

Once a carrier defines and implements a tailored approach to embed the strategy in the desk-level decision-making process, it also must monitor and maintain these processes, tools and resources to ensure effective execution and alignment with underwriting strategy.

Monitor

The primary goal of monitoring transactional decisions and their impact on the overall portfolio is to identify necessary adjustments to the underwriting strategy itself and how it is executed. Monitoring mechanisms need to focus on individual underwriter decisions as well as the approach, processes and tools that contribute to underwriter behaviors. Monitoring needs to occur at the following levels:

  • Performance of the Book – Are we reaching our company goals? How is our book mix?
  • Effectiveness of processes and tools – Is our strategy well-articulated and embedded? Are underwriters adapting to the processes and tools? Are there best practices we should implement across the organization?
  • Individual underwriter performance – How are underwriters performing? Are underwriters following compliance protocols? Are we rewarding, or alternately taking steps to correct, underwriters for their behaviors?

Commercial carriers sometimes struggle to strike a good balance between transactional engagement (e.g., amount of monitoring on individual deals) and portfolio management (e.g., monitoring the aggregate book of business).  For example, a lack of clear underwriting guidelines typically leads to more involvement from underwriting leadership in transactions. This may reduce efficiency and impose too tight a hold on underwriters, which may adversely impact underwriter confidence and morale.

While there are many approaches a carrier may take to monitor underwriting decisions and the portfolio, it is important to coordinate each approach in order to determine the root cause of any issues. Carriers may use the findings to adapt underwriter behavior, the tools, processes, and resources that help guide underwriters, and the overall underwriting strategy.

Talent/ Performance

A performance-driven culture that enables development, recognition and achievement across an organization's underwriting talent pool supports the efforts to articulate, embed and monitor underwriting strategy. Publicizing development opportunities, performance expectations and career paths empower an underwriting community as it executes the organization's underwriting strategy.  

We've seen carriers struggle to clearly define performance expectations and competencies that enable career progression. By not defining these expectations, carriers leave underwriters in the dark as to what is expected of them in a given role and the potential paths one could take thereafter. Providing underwriters with appropriate technical and soft skills, articulating how performance related to these skills tie into recognition and eventually evolve into career paths, give underwriters the clarity and motivation they need to perform their jobs effectively.

Closing

As baby boomers retire and the insurance industry has more and more jobs to fill, the emphasis on developing underwriting talent becomes more prominent and critical to a carrier's long-term success.

Accordingly, it is important for commercial carriers to increase their efforts to translate the expertise that currently exists within their underwriting organizations into clear and well-structured underwriting strategies. With younger, inexperienced staff, it is critical to spend extra time and energy ensuring that all underwriters have the necessary foundation to perform and write business in alignment with the underwriting strategy. The ability to clearly define underwriting strategy, translate, embed and monitor that strategy in everyday underwriting decisions provides underwriters the ability to make the right underwriting decisions. Carriers that recognize the importance of flawless underwriting strategy execution may set themselves up for greater success derived from superior and sustainable underwriting performance. Once they master this, they then can focus on training their underwriters to be better sales representatives or entrepreneurs.

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