Balancing transactional engagement and portfolio management

Standard mechanisms:

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II. Determining Approach

A non-integrated monitoring approach is often evidenced by the following limitations:

• No platform for capturing and reviewing submission data across business areas
• Metrics being reviewed on an ad hoc basis, with no definition of critical data points to consistently track
• Distinct audit processes across the organization, with no link to professional development
• Limited or no repercussions for breaching underwriting authority levels
• Monitoring insights not being used to reinforce and/or inform the underwriting strategy

Addressing these items requires carriers to consider the structure they want to put in place to monitor decisions and performance across business areas. While consistency across the enterprise is required to a certain extent, certain groups may be more established than others or have different requirements (e.g., more stringent documentation & audits, more referrals). The success of an integrated monitoring approach will hinge on the appropriate balance between being involved in the majority of deals (i.e., transactional engagement) and overseeing the book in aggregate (i.e., portfolio monitoring). Getting this balance right is critical; too loose a hold can significantly impede an organization's ability to manage risk, while too tight a hold can decrease morale and create an expensive, inefficient operating model.

Key considerations

• Available systems – The ability to monitor decisions, performance, and processes in aggregate will depend on how the relevant data points are stored. For example, if a group's referrals are submitted on a standard technology system, then large quantities of data can potentially be analyzed with automated reports. Groups that do not handle deals on a single platform may require more manual analysis of metrics or perhaps even a purely audit-based approach.

• Product maturity – Newer products may require tighter controls due to less expertise at the desk level, limited guidelines, and minimal historical experience on which to base the models. As products mature, leadership will have less need to be "in the weeds" on individual deals and be able to spend more time on strategic initiatives.

• Underwriting expertise – Less experienced staff may not be given the latitude to make decisions on individual deals. On the other hand, if the staff composition is more seasoned or has demonstrated greater skills, more decisions can likely be made at the desk level with very few deals being referred to underwriting leaders.

III. Coordinating actions

Regardless of what approach an insurer takes to monitoring, it is important that it coordinates all of its monitoring procedures. Each mechanism on its own can yield useful insights, but independent management of each mechanism will provide less visibility over the entire underwriting process and impede the determination of the actual root causes of key issues.

Carriers should ensure that they are:

• Aligning efforts – It helps to know what metrics are already in place so that you avoid constantly reinventing the wheel. Collaboration can help to define overall monitoring targets and filter out redundant mechanisms. For example, a carrier could conduct regular checkpoints among stakeholder groups or assign one person as the owner of all monitoring initiatives.

• Adapting approaches – All mechanisms should remain dynamic with regard to internal changes and external forces, and conclusions drawn from one mechanism should inform the other set. For example, shifts in the market or issues that consistently pop up in formal audits may prompt the measurement of new process metrics.

• Applying insights – Analysis must not occur in a vacuum. Data from the full suite of monitoring mechanisms should be leveraged to identify opportunities for targeted improvements. For example, carriers may discover new training needs based on the combined analysis of audit results and performance metrics.

Having a holistic view of all monitoring data provides carriers with a better understanding of the behaviors they want to drive and empowers them to focus their attentions on the areas of greatest operational need.

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IV. Maintaining confidence

Monitoring can sometimes produce an unintended backlash from a carrier's underwriting staff, particularly when they perceive:

• "Too many mechanisms" – An appropriate number of compliance mechanisms is necessary to manage risk, however there is also the risk of laying down too many restrictions. Thirty referral triggers may be fine for one Line of Business, but what happens when that is the norm for all 10 lines an underwriter works with? Do there need to be separate trigger limits for shared limit amounts, individual physician limit amounts, umbrella limit amounts, combined limit amounts, the overall number of physicians, etc.? Too much oversight does not point to a high level of trust and may cripple underwriter confidence and development.

• "Too much emphasis on each account decision" – There is a risk of placing too much compliance focus on every individual account. For example, having underwriting leadership review each deal can impede the ability to complete accounts efficiently, particularly when that involves what underwriters perceive as unnecessary procedural items (i.e., "I always refer this ratio and it is always approved").

• "Too many surprises" – If, as an example, leadership wanted to require underwriters to do additional calculations for claims frequency & severity on each account, and the opinions of impacted underwriters were not sought out prior to their rollout, the changes would likely be perceived as an imposition.

Getting buy-in from underwriting staff is critical to maintaining morale. Unsolicited changes can easily prompt responses akin to "why are you rolling this out? I don't like this. This will hurt my business." Carriers implementing monitoring procedures need to ensure that the appropriate stakeholder groups understand the business rationale for the compliance requirement, whether it's a strategic imperative or more of a procedural consideration. This extends both to understanding which members of the underwriting staff (e.g., branch managers) to with whom to coordinate activity and what other parts of the organization from which to solicit feedback (such as claims, IT, or risk control).

These interactions can also provide a feedback mechanism on how successfully the underwriting strategy is being operationalized. Desk-level underwriters are the most immediately impacted by shifts in the market and thus will react strongly to elements that they feel adversely affect their pipeline. They may also push back against targets they perceive as artificial or unfair (e.g., account tiering requirements forcing them to decline quality accounts). Additionally, more senior underwriters may have critical product expertise that can inform what metrics a carrier should be measuring. These are all valuable points for carriers to understand when determining how to effectively embed their strategies or alter parts of their go-to-market approaches, yet too often this knowledge is not leveraged or even pursued. Capturing these insights enables carriers to better articulate content to their underwriters and be more agile in executing on their strategies.

Closing

Carriers should treat the monitoring of account performance, process usage, and underwriting decisions not as a set of separate actions but instead as an interlocked system of checks and balances. This means they need to find the appropriate balance of transactional involvement and portfolio management for each business unit. It necessitates aligning the various compliance tools and approaches across the underwriting organization. And it requires monitoring processes robust enough to control and inform new underwriters, yet not so cumbersome as to impede the experienced underwriter. These practices are critical to getting underwriting strategy disseminated throughout the organization and applying a more data-driven lens to inform and improve operations.

Related: Underwriting from strategy to execution