Adding Value With Technology.

Exploiting a company's cache of data with best-of-breed technology can dramatically improve underwriting results.

The essence of underwriting is risk taking. But many property and casualty insurers tend to play it safe in their underwriting process because the few carriers that pursue risks commonly perceived as "tough" have over time outperformed the industry.

The secret to underwriting profitability lies in using technology to leverage information. Carriers with a large market share based on specific geographies, industries or customer segments typically amass a wealth of data. Exploiting that data with best-of-breed technology can help to dramatically improve their underwriting results. Risk exposures are easier to identify, resulting in more accurate pricing. Data leveraging also enables carriers to better understand the value of their customers-leading to improved customer retention and growth.

To win, insurers need to be predators who leverage technology and enterprise integration to take advantage of market opportunities and feed upon their competitors' pricing inefficiencies. Finding these opportunities is the key, and technology is the enabler.

Technology can be used to enhance underwriting efficiency and effectiveness in several ways:

* Automated Decision Making. The vast majority of underwriting decisions in personal lines and small-commercial risks can be made without human intervention. Software can automate the decision-making process by risk-exposure assessment and, ultimately, pricing of risk. The ability to integrate data from all areas of the organization at the underwriter's desktop, such as financials, risk history, loss control, market data and competitor information, can help carriers tailor products and services to specific customer segments. Several national personal lines writers, for example, have instituted automated underwriting for more than 90% of their risks, resulting in improvements to both expense ratio and loss ratio.

* Data-Support Systems. Insurers can leverage profiling data to identify and aggressively home in on profitable microsegments where the perception of risk is greater than the actual risk. For example, a national automobile insurer changed its long-standing practice of charging very high rates to all drivers with a history of driving under the influence. Its systems revealed that married male homeowners in their 40s with one DUI conviction rarely are repeat offenders. So, the insurer lowered premiums for this group and, as a result, captured huge market share. Its underwriting results were as good as or superior to other segments, even including non-DUI groups. Carriers can identify attractive microsegments with deeper, broader internal and external data (such as credit reports), which can be leveraged using relational databases.

* Data-Analysis Tools. By using automated-segmentation technology, insurers can make real-time product adjustments. Traditionally, it might take several days or weeks for carriers to change their rates or underwriting rules that are the foundation of their rates. But cutting-edge performance metric tools can enable carriers to quickly adjust rules and rates.

* Data Linking. Data-linking tools enable instant feedback and benchmarking across the policy life cycle- underwriting, claims, loss control, actuarial and marketing. Real-time data links permit carriers to quickly identify loss trends. By linking loss control with underwriting and claims, carriers can prevent future losses by leveraging this feedback technology. Suppose commercially insured hair salons begin using a certain hair dye that inadvertently caused customers' hair to catch fire, resulting in a bump in claims. With a clear feedback loop from the claims department to underwriting, a red flag will be raised whenever underwriters assess future hair salon businesses.

* Underwriter Workbench. Underwriter workbenches make the underwriter's job easier by bringing account, market, product and competitor data into one view. Underwriters can be more effective using comparative rating software that identifies competitors' rates, product offerings, terms and conditions, and service inefficiencies.

Top performers aren't afraid to take risks. These companies have insight that drives action, powered by data-mining and analytical tools that provide this insight in time to leverage speed to market and obtain a competitive advantage.

Ultimately, underwriting profitability is based on the hundreds of decisions made daily by actuaries, claims adjusters, loss-control engineers and underwriters. The key is to leverage best-of-breed data and technology to create a consistent approach to each of these decisions, and doing so will provide the competitive advantage to sustain growth over time.

Steven I. Kauderer (left) is a partner and Amy J. Kuehl is a manager in the insurance segment of Accenture's Financial Services Practice.