Building a Digital Edge

Automation gains are increasing leverage in the underwriting space.

The trend doesn't necessarily have a snappy catch phrase, at least not one that's known to Bill Madison.

As a growing abundance of data arms carriers with deepening pools of market intelligence, underwriters are calculating ways to gain a digital edge.

Madison, senior vice president and general manager, Insurance, for LexisNexis Risk Solutions, said a huge technology play on the personal lines side involves optimizing the ability to execute on datadriven analysis.

This is happening at a moregranular level in hopes of sharpening predicted outcomes and gaining a better understanding of what the insurance buyer really wants, Madison said.

"And then, more importantly, what the consumer really needs," Madison added.

Madison said the ability to execute on data may potentially set carriers apart. But he also said carriers are trying to merge the preexisting silos that tend to segregate different operational aspects of a customer's involvement, such as the marketing, underwriting or even claims segments.

An ability to analyze customer experiences across an entire continuum and fold that knowledge back into the initial underwriting process represents what some view as the next dimension. The subsequent objective involves harnessing data to create a more intuitive, client-facing side as that back-office realm trolls through granular levels of information.

Allstate reset the value on this type of proposition in May, when it agreed to pay upward of $ 1 billion in its strategic acquisition of Esurance, an auto insurer focused on technology-sawy consumers who shop online; and Answer Financial, an agency that provides auto, property and motorcycle coverage from 20 carriers.

As underwriters gain the ability to transcend decision-making about an individual policyholder's place in the market, they have the potential to more quickly connect that individual with a blueprint of coverage based on what similar customers have purchased. There is also the opportunity to upsell and cross-sell.

"They gain a deeper understanding of the consumer all the way through," Madison said. "So the quality of the data sets in the marketplace today enables the insurance carrier to make high-quality decisions throughout this transaction."

Madison said carriers not only face the challenge of building this long-term approach with the near term in mind, but doing so in a simplistic way that enables speed of execution.

The straight-through processing approach, which minimizes the level of human touch in a policy's life cycle, would get a steroids-like boost as the calibration of data advances, Madison said.

He underscored the importance of simplicity.

"It's so very important not to overengineer it, to learn from those simple transactions going through, and to start to evolve toward the endgame that you originally envisioned," Madison said.

While the level of automation in personal lines underwriting is years ahead of the commercial side, there are indications that carriers are growing increasingly interested in targeting businesses with a more automated approach.

Karen Pauli, of Tower Group, said her company's recent research into the area indicated that small business and business owner policytype coverages are now the target of automation, particularly among the carriers with personal-lines acumen. She cited a high degree of correlation between personal lines and this segment of the commercial sector.

"We talked to a number of carriers who had taken everything they know about analytics and business intelligence and business process management, and pulled it straight over to small commercial," Pauli said.

Hiscox USA is one carrier that has targeted small business directly with coverage for errors-and-omissions, commercial general liability and business owners policies.

Premiums range upward from $500, and roughly 80% of those customers have not bought insurance before.

According to a January 2011 survey of 500 small-business owners and managers, 53% said it was important to have business insurance policies with insurers that they considered tech-sawy. While nearly one-third don't consider any insurer to be tech-sawy, 81% still prefer to buy through an agent according to the poll by Employers Holdings Inc., a Nevada-based workers' compensation writer.

A More Level Playing Field

Pauli also cited strong trends among midsize carriers in incorporating technology suites from outside vendors into their business model. A key advantage to this approach is that it provides an endto-end solution as opposed to building out separate components of an existing system.

More importantly, Pauli said, it has leveled the playing field in the minds of some midsize carriers.

"This is one thing our research showed very strongly," Pauli said. "There are a number of midmarket carriers who see themselves in direct competition with the top 10 or 12 carriers. They feel that technology is going to be what allows them to compete."

Pauli said commercial-side automation is present at some large and jumbo carriers, but that underwriting still is considered more art than science when it comes to mid- and large-market commercial lines.

She said the exception is around specialty commercial lines, given the respective carrier's propensity to have a deep understanding of a particular segment and its risk characteristics.

"Specialty lines is definitely a place to automate," Pauli said. "You have vendors that have actually gone into the marketplace with some suites, some end-to-end solutions for specialty lines."

Frank Petersmark, CIO advocate at the architectural consultancy X by 2, said the push among commercial lines carriers for more automation has played out in the past five years as some sought to improve core business process management in the soft market.

He said the initial focus fell toward cost-saving issues than enue generation. The complexity underwriting rendered it a ary priority as attention focused on "lower hanging fruit," such as claims management.

Petersmark said commercial carriers are striving toward an underwriting work station that not only collates streams of internal and external information, but ultimately incorporates strong data analytics and achieves process efficiency and higher degrees of automation.

In his past role as the chief information officer at Amerisure, Petersmark said the mutual insurer created a self-service portal for agent inquiries. Management then promptly realized that it needed to expand the online access-point to receive information from agents on existing policyholders.

"Some policy processing platform players that are out there are starting to think about or add functionality that can be extended directly to agents or other sources of underwriting intelligence or information," Petersmark said.

"The beauty ofthat is it can flow automatically right into a carrier's policy processing platform.

Challenges for Vendors

Petersmark said younger, techsawy underwriters will come to expect these capabilities. Another challenge will involve determining the level and amount of decisionmaking to automate under such a platform. Petersmark said every company's sweet spot is a little different, as well as its risk appetite.

"Carriers will come to that on their own, which frankly will make it a bit of a challenge if you're a vendor in that space," Petersmark said. "You've got to think your way through how to make a platform that's configurable enough and flexible enough to allow carriers to customize a bit so that it's right for them."

Striking the right balance is something that FirstBest Systems Inc. helps commercial carriers to achieve.

Meira Primes, vice president of marketing for the Bedford, Mass.based software vendor, said a carrier's ability to configure its risk appetite, underwriting rules and percentages of automation and straight-through processing into an overall solution is key.

But, she said, there is also a service factor that comes into play.

"It's important for them to be branded uniquely to their agents," Primes said.

Primes said agents are becoming accustomed to getting what she described as a 21st-century response from carriers that takes minutes, if not seconds, as opposed to days or even weeks.

Conversely, she said, the right underwriting configuration can help that carrier achieve not just a new quantity of business, but also higher quality in terms of the business that it wants to write.

This aspect further fuels the level of collaboration between the agent and broker, something that Primes said can bolster that front office dynamic and indirectly drive revenue.

"The agent wants to look good in front of the customer. Having visibility into the status of submissions ensures that they don't feel like they are being left in the dark," Primes said. "The agent wants to be a trusted adviser to their customers and when the carrier can provide them with these types of intuitive and collaborative solutions, it makes the agent look good in front of their customers and helps build their business."

Virtual Business

According to a survey of 500 smallbusiness owners and managers by Employers, a Nevada-based monoline provider of workers' compensation, 53% of respondents feel it's important to have business insurance policies with a carrier they consider techsawy. What other online services are important for insurance companies to provide small-business policyholders?

* 59% said online customer service is important.

* 50% desire online insurance quotes.

* 55% want the ability to manage policies online.

Source: Employers Holdings Inc., January 201 1

Key Points

* The Trend: Carriers are trying to gain a digital edge through improved data analytics.

* Behind the Trend: A key challenge involves finding the right balance of automated processes.

* Watch For: More automation in commercial lines underwriting.

Underwriters "gain a deeper understanding the consumer. ...The quality of the data sets in the marketplace today enables the insurance carrier to make high-quality decisions."

- Bill Madison, LexisNexis Risk Solutions

"A number of midmarket carriers who see themselves in direct competition with the top 10 or 12 carriers feel that technology is going to be what allows them to compete."

- Karen Pauli, Tower Group