Part Six: When and Where to Underwrite
From The Original Insurance Wiki
Part Six: When and Where to Underwrite
Contents |
[edit] New Business
Traditionally, PPA applications would be prepared by agents and submitted to the insurer’s home office, where they would be reviewed by underwriting staff. The underwriters would order and analyze any reports needed, then make decisions about whether the application would be approved and the policy issued. Adjustments to limits/deductibles, modification of coverages and pay plans, and cession to residual markets were all decisions made at the home office.
The labor-intensive and time-consuming process of home office underwriting is the source of the significant expense reductions possible with AUS and Recon. The best AUS systems are in fact “expert systems” designed to duplicate, and then improve upon, the home office process. AUS systems offer the additional benefits of speed, consistency and accuracy that even the best underwriting staffs cannot deliver.
We have discussed the availability of instant MVRs, credit scores, and Claims Histories, and the design of Recon Engines to order and analyze them. We have discussed intelligent AUS design to expedite and focus the underwriting decision-making process. These systems can be combined to create a truly “once and done” point of sale system, whether the platform is a local PC or the Internet.
[edit] Policy issuance at the point of sale
Many systems in use today take advantage of the power of these systems to issue the actual insurance policy—rather than an application—at point of sale. Policy numbers are assigned in the agent’s office (or on the web server), and the printed application is modified to meet the standards of a declarations page.
This process can deliver more accurate and consistent results than home office underwriting, and offers many advantages:
- Eliminating postage costs and mail time
- Reducing the number of home office underwriting staff
- Eliminating home office printing and filing of documents
- Eliminating “uprated policies” and the accompanying billing/cancellation headaches
[edit] Endorsements
While it is possible to automatically underwrite and rate endorsements to PPA policies at the point of sale, it is much less common than with new business. The primary reason for this is that correct endorsement rating requires detailed knowledge of the policy as it exists on the endorsement effective date. Many company systems, including those with state of the art AUS and Recon systems for new business, do not have this detailed information available at the agent’s office.
Web-based systems usually do have access to the in-force policy database, and are therefore well-suited to automated underwriting of endorsements. In these situations, a process similar to that described for new business may be used. The AUS can make the proper decisions and issue a revised Application/Declarations page.
Because of state regulation, insurers may have limited options in handling endorsements. For example, companies may not have the freedom to cancel a policy or move it to a different rating tier until the next renewal. In these cases, the AUS should issue the endorsement but also send an indicator of the action that should be taken at renewal.
[edit] Renewals
Renewal offers are most commonly issued from the insurance company, rather than from the agent. Renewals are also generally processed in large batches several weeks ahead of their effective dates.
Good AUS and Recon Engines will be designed to handle the batch processing of renewals as well as one-risk-at-a-time new business processing. In the case of renewals, the first data set to be considered consists of the attributes on the policy’s current term (rather than agent/applicant inputs). These attributes are then compared to new MVR and Accident History reports.
Most outside report vendors will return large batch files of reports for use in processing renewals. Vendors also allow companies to place their own indexing information in report orders. This index information is returned with the ordered reports, and is used to match reports to the corresponding renewal policies.
The Recon Engine and AUS must
- pull data from the current policy term and each returned report, then
- analyze the data to return one set of attributes to be used on the renewal term.
The AUS portion of the system can also make the same decisions about the renewal term that it does concerning new business (rating tier, coverages, limits, deductibles, etc).
The AUS should also take into account any indicators that may have been placed on the policy during its current term. In our discussion of Endorsement processing, we mentioned that some jurisdictions limit the actions an insurer can take mid-term. If the company has determined earlier in the term that some action should be taken at renewal time, the AUS needs to interpret and act on the codes set on the policy at that time.
Companies selling through independent agents need to carefully consider the design of their POS software. It can be counterproductive for a company to make it too easy for agents to re-underwrite renewal policies. Renewal policies are, as a rule, much more profitable for insurance companies than new business and high renewal retention is an important goal. At the same time, independent agents are very aware of the price sensitivity of most insurance buyers and frequently re-quote policies at renewal in order to offer their clients the lowest possible price. Companies need to be aware of this and not make it too easy for agents to use their system to move renewal business to competing carriers.
