Measuring Underwriting Productivity and Quality: The New ROI Metrics

By Ed Gray, FirstBest Systems

Measuring performance is crucial, especially considering soft market rates, poor investment results, and ever-increasing equity markets demands. Whether you are managing and reporting day-to-day results or building a case for strategic initiatives, it is essential to be able to define and measure quantifiable productivity, quality, profitability, and ROI quotients for business and technical operations. While there is certainly some truth to the saying that you can't manage what you can't measure, it is also true people focus management on what is measured as opposed to what is not.Underwriting metrics have traditionally been limited by what could be measured by the policy administration system and/or manual tracking logs - think numbers of submissions/quotes/binder, quote and hit ratios, premium volume, and overall loss ratio. But these measures have been limited by batch updates, weekly feeds and old reporting systems. Even measuring turnaround time is challenging in some workflows with significant manual components.

While it is clear underwriting quality is key to profitability, it is particularly hard to measure quality in the underwriting process. For example, did the underwriter check the underwriting manual or the last six months of e-mails for appropriate guidelines? Was the account's financial score incorporated in the underwriting analysis and scheduled rating? Did every account that should have been referred get referred? Is your predictive model improving risk selection and target pricing for the complex coverage risk? And do any of these conditions correlate with loss ratio trends?

Fortunately, new technologies are enabling new underwriting processes and offering improved ways of tracking underwriting processes and quality. Today, the vision of what underwriting metrics insurance companies can provide can now easily expand.

What kinds of technologies are we talking about? Web 2.0, rich Internet applications allow the incorporation of all types of attachment files and media within the underwriter's desktop and process. These applications are easily integrated with related applications through SOA or other more seasoned systems, and are capable of unifying processes and data that once had to be brought together manually. Rules engines based on these new technologies are enabling decisions leveraging data to conform to underwriting policies and best practices, and Internet-based applications are allowing ubiquitous access and real-time collaboration for agents, underwriters, and loss control staff. Further, by putting configuration in the hands of users, these technologies let companies quickly target products and enter new niche markets.

This revolution, or evolution, in underwriting processes offers both opportunities and challenges to performance measures. With these new processes, the underwriter can now perform more formerly manual steps in their underwriting management system. And since these activities are performed within the system, they can now be tracked and measured.

For example, using new technologies, the account's financial score, geo-code results, payment and loss history, and predictive model results can be added to the account data and incorporated in the selection, analysis, and pricing rules. As a result, the account's quality, pricing adequacy, and experience can be measured and correlated to the agent, underwriter, territory, line of business, and rating and pricing algorithms.

Similarly, when these account characteristics can be identified, underwriting knowledge can be applied to guide the underwriter's analysis and pricing in real time, not just through high volumes of referrals producing workflow bottlenecks or in after-the-fact audits. And because the application of this knowledge can be tracked, quality metrics can be generated to measure the effectiveness of underwriting guidelines by team, account size, product, market niche and territory.

So, envision a dashboard that presents typical activity counts and ratios in real time, and that also measures account quality, pricing and scheduled rating factors and overrides, and underwriting quality flags. Envision a dashboard that correlates all that with prior experience for similar accounts by underwriter, agent, product, and territory. With flagging of anomalies, drill-down capabilities and real-time dashboards you can effectively measure the production and the quality of your underwriting processes.

As new technologies are applied to underwriting processes, a whole new set of underwriting metrics become possible. Rather than just measuring productivity in widgets and premium dollars, you can start measuring productivity in terms of quality and profitability. Now you can finally measure and manage what today's insurance environment really demands: ROI.

Edward Gray is the director of customer solutions for FirstBest Systems in Bedford, MA. He can be reached for further information or comment at [email protected].New technologies are enabling new underwriting processes, and offering improved ways of tracking underwriting processes and quality. Today, the vision of what underwriting metrics insurance companies can provide can now easily expand.