A direct link: Network-enabled pricing, quoting and issuance can lead to savings for insurers. (Network-Based Distribution Technology).

Property/casualty insurers increasingly look to the Internet to eliminate redundant processes, boost efficiency and reduce sales and service costs. To date, the industry has barely begun to tap into the huge potential cost savings and economic value creation of network-based computing.

In the networked economy, insurers must deliver accurate prices any time, anywhere, to any participant on any device. This is the key to successful property/casualty policy acquisition. Insurers that deploy policy pricing and acquisition to the point of sale can achieve a distinct competitive advantage. They can also take a major step toward improved service and superior customer relationships.

Most insurers price using inline rating that is deeply embedded in their policy management systems. Neither agents nor consumers can easily access prices. Companies delivering products through an Internet portal or aggregator are generally unable to provide instant, accurate prices. Instead, the prospect or client receives a delayed response via phone, fax or email days later, if at all.

Solutions to the pricing problem are often complex. Many insurers have multiple rating engines in use throughout their companies, which inhibit real-time pricing, quoting and issuance. Additionally, changing a system with multiple rating engines can be difficult, time-consuming and costly. Consider the example of an insurance carrier that does $250 million of business annually. Assume also that the carrier gets an average 3% rate increase, which is placed into production 30 days after the effective date. For each month that goes by without implementation of the rate increase, this carrier can lose approximately $500,000 in bottom-line profit.

Fragmented quoting, rating and issuance generate huge redundancies. Time after time, agents and consumers in a variety of distribution channels replicate this process.

Network-Enabled Rating

For insurers to become full participants in the networked economy with slashed sales and service costs, they must implement network-enable pricing, quoting and issuance. Here are some guidelines on how to get there.

First, any new solutions must easily integrate into insurers' current infrastructures and assets. To establish network-based front-office solutions insurers need not toss out years of work and start from scratch. Advanced technology offers explicit ways to retain proven, existing systems while replacing only those components that don't work efficiently in the evolving distribution environment.

Next, insurers must consider consolidating on one rating technology for all lines of business: personal, commercial and specialty. The modern rating engine is a sophisticated, accurate calculator that can work with any set of rating or underwriting rules. Rules can be created and maintained as needed to address the carrier's business focus. Today, a company needs only a single rating solution for all lines of business. The modern rating engine has the added advantage of dramatically simplifying ongoing rate maintenance. Rate changes can be rapidly implemented, cutting costs and reducing the time to implementation.

Unbundling rating from the policy management system also makes it possible for the company's employees, agents and consumers to use browser-based user interfaces to get accurately priced, real-time quotes over the Internet, intranets and other property/casualty supply chain networks--using the exact same rates as the company's internal systems.

Many companies developed their rating systems in-house. Yet, the vast majority of rating is the same. At least 80% of policy content in products such as homeowners, businessowners policy (BOP) and commercial auto is virtually identical across the industry. Therefore, it makes sense--and saves time and money as well--to base company-specific rates on a standard template and deal with the 20% of exceptions only where necessary, rather than starting from ground zero each time.

Automated Rating

In turn, this suggests that the property/casualty industry can adopt an automated approach to building customized rating and underwriting solutions. A CAD/CAM (Computer-Aided Design/Computer-Aided Manufacturing) approach, for example, reduces the time and effort needed to both implement and maintain rates and rules. The CAD phase allows for disciplined rate/rule creation and maintenance, where the results are stored in a rating/rules database. The CAM phase takes the information from the database and creates executable rates.

Many versions of rates can be stored, updated and managed within the database. The CAD-like tools employ modern object technologies to allow a standard line of business's rate/rule structure to be enhanced to match the company's specific rating needs, based on its actual rates, at any point in time. What emerges is a documented "base-exception" model for rating/underwriting implementation and maintenance, where major economies of scale are achieved.

The ability to connect these rates to internal and external systems in a secure manner must also be provided. Up-to-date security systems, browsers, XML-based data interchanges and industry-standard queuing technologies allow a deployment path for anyone, any time, anywhere and on any device.

Before a price can be finalized and the risk accepted, companies often gather additional information--such as motor vehicle reports, credit scores and information about buildings--from third parties. A true network-enabled rating system acquires external information and returns it to the rating system, providing an accurate price. The modern rating system also enables sufficient automated underwriting so that a binder can be issued on the spot, and the policy information can be seamlessly transferred to the policy management system for processing and issuance.

Insurers can make their policy pricing and administration available via a browser or automatically "push" it down to their agents. Besides taking companies out of the business of constantly producing rating disks, network-based delivery ensures that all property/casualty value-chain participants consistently use current rates, which boosts accuracy and price-performance across the entire policy marketing process.

Commercial Lines

Many people think of rating as primarily an issue in personal lines. However, network-enabled rating is just as important for commercial lines processing. For independent-agency carriers, which often focus on commercial lines, it can be a key competitive issue.

At one end of the commercial lines spectrum are businessowner policies, which, while packaged and standardized, differ significantly among companies. BOP quoting, rating and issuance should be--and can be--as efficient as they are in personal-lines products. Given the small premiums they generate, BOPs must be handled very efficiently to generate profits.

At the other end of the spectrum are large, complex policies that pose unique rating and underwriting challenges. For example, an insured might have 50 locations in 20 states. This dramatically increases rating complexity. It also makes rating speed a key consideration. With large or complex risks, agents and underwriters spend a lot of time negotiating rates and nailing down details.

Once agents have decided where to place such a policy, they can use an efficient, Web-enabled gateway to move underwriting information to companies, with appropriate security. Meanwhile, both parties need access to the same source material to ensure the accuracy of changes. With browser-based processing, both agents and underwriters can simultaneously view the same application and interactively review coverages, deductibles and rates. Network-enabled pricing thus enables cooperative processing. By empowering all parties to view the same information at the same time, cooperative processing fosters productive work flows and real cost savings.

Self-Service

While rating is a mission-critical system for insurers, it is only a part of the whole solution needed to address the cost structure issues facing the property/casualty industry. What also shows considerable promise for cost reduction is the ability to provide insureds self-service. For example, customers often want to know how their deductible affects a premium, or what happens if they add a driver, buy a new car or hire an additional employee. Today, insureds usually get answers by calling the company or the agent, who may then have to call the company. Industry analysis estimates that it costs an insurer $12 to $20 to field each telephone call, a prohibitive price to pay when Web-based self-service can cost mere pennies a session.

Likewise, networked rating and administration let consumers and agents self-serve for timely results at a fraction of the cost. They can simply log on to the company site, enter their information and get an accurate, real-time rate, even when they comparison shop. Over time, this can save a company millions of dollars and help to establish a measurable market advantage. While this process can be simply stated, it is much more difficult to achieve, unless the front-office applications of property/casualty carriers are specifically designed to accommodate networked access with a solid, business-based foundation of security.

Rating has traditionally been a troublesome area for insurers, but the good news is that agile solutions are at hand. Efficient, network-enabled rating/pricing technology can be harnessed now. New functionality can be effectively layered into existing information technology architecture, and insurers can become highly competitive players in the converging, networked landscape of financial services.

Paul Philp is president and chief executive officer of AscendantOne, a software company in Nashua, N.H., that offers systems and services for property/casualty insurers.