Solving the puzzle: underwriters need more pieces than ever to put together a complete picture of potential exposures.

While the fundamentals of commercial underwriting have not changed significantly over the past several decades, business models continue to evolve, adding layers of complexity to the underwriting task.

Commercial underwriters today must contend with businesses that are increasingly global, that outsource a wide variety of services and that conduct e-business as a matter of routine. As a result, the underwriter must be disciplined in determining the information necessary to formulate an answer while not getting caught up in trying to have answers for every possible scenario.

Global insurance providers need to understand the complexity of risks around the world. Suppose you underwrite clinical trials in Europe. It would seem that you would benefit from the European Union's Clinical Trials Directive, implemented in 2004 to simplify and harmonize regulation of clinical trials across the EU. However, the directive is not specific in its insurance requirements; it merely requires that insurance is in place. As a result, national variations continue.

This is just one example of how geographic differences in legislation and regulation, fire protection standards, crime conditions, catastrophe exposures, local zoning codes and other factors affect an underwriter's job.

The outsourcing of business functions and services is another trend that has made underwriting business risks more complex. Extending far beyond the realm of IT and call centers, outsourcing now ranges from securing a third party for human resources domestically to conducting pharmaceutical research in India.

With more outside contractors contributing to the business, there are more unknowns for the underwriter. Access to contractors' safety records and business practices is often insufficient. Insurance carriers must now consider how their customers are screening and monitoring their contractors and, in turn, how those contractors are screening and monitoring their employees. The days when one could simply underwrite the individual insured are over.

Fueling the outsourcing trend, and adding a layer of complexity all its own, is the increasing use of the Internet in business. In today's economy, online business transactions are the norm. If a business is collecting customers' personal and financial information online, it faces potentially costly security breach exposures. Consider this scenario: A contract programmer for a major financial institution illegally enters the institution's system and copies credit and other personal information. The bank discovers the illegal entry, but cannot stop the material from being published on the Internet. The bank shuts its system down and sues for financial injury. Stories such as this will become even more common as the use of the Internet for business transactions continues to grow and evolve.

These scenarios are just a few examples of the complexity that underwriters face today. More important than the specifics is the common thread that runs through them: The loss of a certain degree of control over exposures that are simultaneously becoming more complicated. Never has detailed, accurate information been so important to the underwriter. And having the right information is not enough; it must be shared effectively throughout the organization.

Commercial underwriting today is a more complex puzzle than in the past. Making the pieces fit together requires concentration and diligence. But insurance carriers and agents need to have all the pieces to create a complete picture of exposures.

Steven R. Pozzi, a Best's Review columnist, is senior vice president, Chubb & Son, and chief underwriting officer for Chubb Commercial Insurance. He can be reached at [e-mail].