Plan, Build, Run

Selective Insurance Group's IT organization supports the carrier's high-tech/high-touch approach to distributor relationships with judicious planning and a focus on execution.

Selective Insurance Group's motto - "Response is everything" - appears on its Web site, Selective.com, right below the company logo, not once but twice, the second time more visible than the first. This could be read as an inadvertent duplication, but given the Branchville, N.J.-based regional P&C carrier's unequivocal devotion to distributor relationships, it's more likely deliberate emphasis, as if to say, "Seriously, we mean it."

Over the past decade Selective ($1.7 billion in 2008 total revenue) has pursued what it calls a "high-tech/high-touch" strategy designed to maximize the benefits of both realms, uniting dedication to old-fashioned service with aggressive investment in state-of-the-art technology, says Richard Connell, who joined Selective as CIO in 2000 and now serves as senior EVP and chief administrative officer. At Selective, he explains, the concept extends to adopting advanced technology on a fast-adopter basis and proactively addressing service demands through regular "producer councils," where Selective's leadership meets with its distributors, and also annual customer service representative user group meetings that are designed to proactively meet users' needs.

"At the end of the day, we want to be the carrier that our agency partners turn to because we have better relationships and more effective technology," says Connell. "We think we have a strong case to make to them as to why they should do business with us before somebody else."

Among the latest arguments in that case is Selective's Knowledge Management initiative, which introduced business analytics for evaluating book-of-business performance, predictive models to enable precise pricing and real-time scoring engines to help underwrite individual risks, Connell reports. The initiative, completed in 2008, is the foundation for ongoing work in developing what Connell describes as a core competency in predictive analytics.

The Knowledge Management initiative is the second step in a long-term strategic plan that began with a focus on ease of doing business in the first half-decade of Connell's tenure and opened the way to a strategy of "better access to better information to make better business decisions" during the past five years, he says. The way in which both objectives were pursued in turn - and are sustained together in ongoing initiatives - reflects Selective's methodical approach to IT: "Our technology mission statement is, 'Plan it right, build it right and then run it right,'" Connell relates.

One of Connell's first actions upon his arrival at Selective was to conduct a portfolio assessment to gauge how well systems were matched to business strategy. The review drove investment priorities, including a rebuild of the carrier's personal and commercial lines policy administration systems that ran through 2005.

Selective declines to share vendor names, but its investment decisions reflect a philosophy of "reuse before you buy; buy before you build," according to Connell. "For example, we bought the core rating engines for both personal and commercial lines but built the integration technology around them to do things such as integrate with our B2B software, or integrate to a browser-based front end to do quoting and policy issue," he explains. "The last resort is to build from scratch - which we're perfectly capable of doing."

Wherever a technology decision falls on the buy-build continuum, Selective's technology investments are subject to a three-tier management process, Connell notes. The top tier involves a review of proposals with regard to their relevance to business strategy. All investments then are considered within a holistic context of annual technology expenditures arranged according to priority. The third level involves the consideration of proposed technology on a business case-by-business case basis.

"We have a process where business leaders will make a case about where they want to go with a particular strategy, including a discussion of the technology investment that aligns to that," Connell says. "That forces us into a very disciplined way of evaluating where the investment will go and managing the payback."

Interfacing With Agents

Roughly parallel to the core systems rebuild, Selective began building the externally facing parts of its transactional systems, with the sponsorship of the underwriting and business services unit and under the direction of Brad Allen, SVP, enterprise application delivery services. The carrier built proprietary Web-based interfaces for commercial, personal and surety lines for agents who preferred working directly with Selective over the Internet, Allen reports. Following the Web-enablement of the policy systems for agents, Allen's organization built its xSELerate platform for distributors who preferred to work through their own agency management systems.

"The key competitive advantage that we look for through technology has been developing real-time quoting interfaces with our policy systems," Allen remarks. "We have built integration capabilities to allow the agents to start in their management systems, bridge their data over to our system, get real-time quotes presented back to their system and then stream the balance of the transaction to place the business with us."

Selective also has integrated with leading comparative rating vendors to supply real-time, bindable rates rather than prepackaged rates that typically change when agents actually try to book business with a carrier and provide more-detailed underwriting information. "The value to our agencies is that all our commercial and personal lines are enabled in this manner," Allen notes. "We present a single interface to our agencies, and we've given them the choice of either placing their business through our system or working within their preferred system, whether that be their agency management system or a comparative rating product that they use."

Selective's agent interface includes a layer that helps agents evaluate the relative merits of Selective's product offerings and adjudicate between them on the basis of product features, Connell elaborates. "We've also gotten into the area of being able to move business in bulk, to support a book roll, for example," he adds. "We have tools in place that allow us to take a look at a book of business with an agency and also move that business into our systems."

Knowledge Is Power

With the agent interface strategy underway, work on the Knowledge Management initiative began in 2004 under Rick Mohr, SVP, enterprise technology services, and in partnership with the underwriting and actuarial areas. "What we were tasked with was providing a reporting environment that improved greatly over what we were able to provide from the legacy environment," Mohr comments. "We attacked this on two main fronts - the first being to build a new data warehouse, starting with commercial lines, to enhance our ability to do book-of-business analytics."

That involved integration to source systems using XML feeds, undertaken in collaboration with Allen's team. "We also picked industry-leading tools in the areas of ETL [extract, transform, load] and Web-based reporting, as well as a standard database platform and a standard industry data model," Mohr adds. While planning an incremental delivery schedule, he says, care was taken to account for the end-state architecture once the final part of the initiative - which included personal bonds and analytics - was set to go into production in 2008.

The second prong of the initiative was the building and integration of predictive models in support of precision pricing for various lines of business, according to Mohr. While Selective uses predictive models in personal lines, the focus of the work, he explains, was to provide capabilities to support underwriting of individual accounts within commercial lines, which comprise 84 percent of the carrier's business.

Selective undertook the original development of predictive models with a consultant partner, but the insurer's objective from the start was to maintain the models in-house, according to Connell. "Today our actuarial department has a subunit with statisticians and actuaries responsible for the maintenance of the predictive models and is refreshing them with new data on occasion and, based on the performance of the model, recasting the models themselves," he explains. "Our internal people are now responsible for the ongoing progression of those predictive models on the commercial lines side, so we see that as a core competency for us down the road."

When the Knowledge Management initiative concluded (on time) in 2008, it provided Selective with a new source of decision support that moves on what Connell describes as a continuous improvement loop. "The source system imports information via XML feeds into our data warehouse," he says. "With that we produce our analytics environment, which offers a wealth of information to our underwriting and actuarial departments, and we also feed the information back into the transaction systems to provide decision support at the point of decision making."

Writing the Good Book

The initiative has given Selective the capacity to look at business on a risk-by-risk performance basis, Connell adds. "We have stratified our entire book of business using analytics and modeling, and we can look at lower-performing risks and challenge the renewal and new business underwriting teams to focus on that business and trim it off the books, if that's the right thing to do," he says. "From year to year we can tell how it's improving."

That improvement is qualified within the changing economical context and the insurance pricing cycle, Connell acknowledges. But, he believes, in the long run Selective's analytic capabilities will allow it to trim its underwritten risks into a higher-performing book of business - an outcome that the carrier's distributors likely will appreciate.

"Working with their field underwriter partner, [distributors] can see how the risks they are writing and renewing are performing, and how they are likely to perform in the future," Connell relates. "I think they appreciate that, and they appreciate that we can now price on a more precise basis. At the end of the day, if we have a more profitable book of business, so will they."

Selective's information-focused improvements are mutually reinforcing with its continuing emphasis on ease of use, Connell asserts. "The investment will continue on both sides," he affirms. "We don't see ourselves stopping; we see us just getting better, working on a continuous improvement basis with our agency partners."

The return on Selective's investments may be gauged by its strong performance relative to its competitors. While not immune to the challenges of the recession, in 2008 - Selective's latest reported year at press time - the company logged a combined ratio of 99.2 percent, compared to the industry average of 104.7 percent reported by A.M. Best. Selective also expanded into its 22nd state and added 60 new agents, bringing the carrier's distribution force to just under 1,000 agents.

The insurer continues to enjoy favorable agent reviews in independent studies in which multiple carriers participate, and it also scores highly in figures released by the agency management vendors. "When it comes to agents quoting business by pushing data from their management systems straight through to us, we can see that we are faring well, right at the top of all the industry players in that space," contends Allen.

Strong business performance during a down economy coinciding with the down end of a pricing cycle is the ultimate validation of the Selective IT organization's support of distributor relationships and precise underwriting. However, the organization also can point to a solid record of internal performance. According to Connell, all of the IT organization's initiatives are judged by hard performance criteria, such as related financial results. "In all cases," he reports, "we have achieved the objectives that the individual initiative has set out [to achieve]."

Connell sees that success as the result of identifying the proper objectives, prudently setting priorities and never losing sight of the fundamentals of execution. "It goes back to, 'Plan it right, build it right, run it right,'" he says. "In running the information systems department we believe you have to focus on the basic blocking and tackling, and making sure that you're focused on the right priorities. If you do that over time, it wins the game."

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