Changing times: carriers turn to underwriting automation to improve workload management, underwriting decisions and financial results.

Insurers are looking beyond legacy policy administration systems, spreadsheets, email and manual processes to focus on more modern, flexible underwriting management systems and tools that enable underwriting automation.

That's a growing trend which insurance strategic advisory firm Strategy Meets Action founder Deb Smallwood now sees across the industry.

In fact, 63% of companies plan to invest more dollars into new business/underwriting, while only 3% expect to decrease that spending, according to a recent SMA study of more than 140 industry leaders. New business/underwriting is second only to agent and broker portals in companies' list of vertical projects this year--a year that SMA expects will see overall IT budgets climb, on average, by about 4%.

In the past, Smallwood noted, business demand to invest heavily in underwriting automation outside of personal auto and small commercial was low due to companies not being ready or not understanding what is possible in providing automated commercial lines, especially for more-complex risks.

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However, that's changing, she said, and there is new interest in how underwriting automation can improve top- and bottom-line results. The shift to automated underwriting is mostly a way for insurers to improve workload management and underwriting decisions, Smallwood added. "They're looking for ways to share information with agents and brokers and to collaborate more effectively."

Where carriers stand on the automated underwriting spectrum varies by line of business. "The trends, maturity levels and tools they select are different in each area," she said. For instance, the personal lines sector is "pretty mature" and using policy administration systems with work flows and rules engines that allow users to plug in predictive models and external data. On the small commercial side, it's also about straight-through processing, either through comparative raters, portals or agency management systems, Smallwood noted. And when it comes to midsize and large commercial risks, insurers are looking for a variety of automated tools to assist the underwriter, she added.

Life companies, on the other hand, are quickly moving to automate new business processes, with much activity focused on document management systems and work flow tools to help new business pull in applications, medical reports and other necessary forms, Smallwood said. She's finding many life writers are reluctant to replace their policy administration systems because "they have to do data conversion. Instead, they are buying underwriting solutions and new business solutions and integrating it with their policy administration systems."

Nicolas Michellod, a senior analyst in Celent's insurance business and co-author of Seeking Simplicity: A Historical and Future Perspective on Underwriting System Segmentation, said specific business requirements, such as distribution channels and lines of business, are the leading factors resulting in the current segmentation of companies' underwriting and policy administration systems. That's followed by a desire to make the most of legacy systems, mergers and acquisitions, capital and capacity constraints, lack of relevant components available on the market and IT skills available internally or with a partner.

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For many carriers, he said, current underwriting system segmentation stems from mergers and acquisitions or through market entry. "In both cases, shifts in distribution trends over time have led to insurers re-entering existing markets, often with new systems, and frequently leaving the existing legacy system running the existing book of business."

Challenging economic conditions both in the United States and Europe, along with low profitability gains from investments, point to insurers' need for a positive underwriting record, Michellod said. "This is a direct aspect that they need to act upon in order to improve their overall combined ratio. So underwriting is a high priority on their list, and it's why insurers try to improve the way they leverage existing data and information they don't have but can easily find."

Are underwriters receptive to automating their underwriting processes? Yes, said Smallwood. However, their biggest resistance remains around IT platform constraints and internal cultural resistance because of the perceived investment required to provide underwriting automation.

But with that automation comes profitable growth, she noted. "If you can provide tools that will enable underwriters to be more efficient and effective, improve time-to-market and create an easier way to submit business, it will improve relationships with agents and brokers."

Also, she added, carriers with automated underwriting tools in place will be able to scale their business when the market turns.

"When applications start flooding in during a hard market and pricing becomes competitive, they'll be able to turn those around much faster and seize the hard market."

Best's Review took a closer look at several new and enhanced underwriting tools being used in the industry today.

Key Points

* The Backdrop: More companies plan to invest added dollars into new business/underwriting this year.

* Current Happenings: Challenging economic conditions and low profitability gains from investments point to carriers' needs for positive underwriting records.

* What's Coming Up: Automated underwriting tools will continue to help insurers scale their business and gain profitable growth.