Making Property/Casualty Underwriting Investments That Pay Off

by Karlyn Carnahan, April 1, 2016
Operations/ Benchmarking

Abstract

Automation of underwriting processes carries the promise of improved results, but can come at a significant cost.  So where is the industry today, and when does it make sense to invest in automation? 

 

Underwriting is at the core of the insurance industry. The processes of selecting and pricing risk and the additional operational processes necessary to deliver a policy and provide ongoing services are essential to the profitability of a carrier. Over the last few years, carriers have been heavily engaged in replacing core policy administration systems and increasing the automation of their underwriting processes.

Automating processes can be expensive because of both the hard costs of purchasing technology, implementing technology, and changing processes and the soft costs. Change can be hard on both underwriting staff and on the agents who receive the output of the underwriting process.

So when does it make sense to invest in automation? Are there pieces of the underwriting process that, when automated, are more likely to improve results? Celent investigates these questions to provide guidance to carriers that are trying to prioritize their efforts.

“With this report, we wanted to understand the actual state of underwriting automation in the insurance industry,” says Karlyn Carnahan, a research director with Celent’s Insurance practice and author of the report. “Are carriers living up to the hype that implies that virtually every carrier out there has automated every step of the process? Or is the progress slower? Are carriers with older systems at a disadvantage? Do high levels of automation actually result in better financial results? The answers to these questions can help carriers plan where to invest their automation dollars.”

To understand what top carriers are doing in this area, Celent conducted a survey. The process of underwriting was broken into 26 logical components of work. For each component, three levels were defined, ranging from little to significant levels of automation. Carriers can use this report as a diagnostic tool by comparing their scores to the benchmarks.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Introduction

3

 

Key Research Questions

3

 

About the Survey Participants

4

Underwriting Process Framework

5

 

Overview

5

 

Underwriting Process Framework Overview

5

 

Underwriting Process Framework Defined

7

Levels of Automation by Line of Business

11

Levels of Automation by Process Area

12

 

Submission and New Business

12

 

Rating and Pricing

14

 

Underwriting and Renewals

16

 

Policy Issuance, Assembly, and Servicing

17

 

Communication

19

 

Workflow and Processes

21

 

Product and Rate Management

22

 

Reporting

23

Age of Policy Admin System

24

Impact on Results

25

 

The Influence of Strategy

25

Impact on Results

27

 

Personal Lines Carriers

27

 

Commercial Lines

28

 

Workers Compensation

29

 

Specialty Carriers

29

Conclusion

31

Appendix

32

 

Personal Lines

32

 

Commercial Lines

33

 

Workers Compensation

34

 

Specialty

35

Appendix: Liquidity Management Techniques and Tools

36

Leveraging Celent’s Expertise

39

 

Support for Financial Institutions

39

 

Support for Vendors

39

Related Celent Research

40

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