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Power tools: new and evolving technologies are helping personal lines underwriters properly assess risks and provide better rates for consumers.

Technology's done it again, and this time it has underwriters praises.

The evolution of online tools is providing personal lines underwriters not only greater efficiency, but also speedier, easier access to sources of data to better assess risks. The tools are eliminating the laborious burden of underwriters having to order reports and wait for weeks to get the data. Now, obtaining much of the information used to properly assess risks is as easy as the click of a mouse.

Underwriters aren't the only ones benefiting. "The information age and the ability to get information has improved between the Internet, Google, third-party information sources and others, and for consumers it's helping eliminate fraud and cross-subsidization because they're getting the proper rate for the proper risk," said Andy Webster, product manager for auto and excess lines for Fireman's Fund Insurance Co.

Information Gathering The information comes from a variety of sources.

"Based on new pricing initiatives, many carriers have multivariate pricking models that look at a host of things, including credit or insurance scores, driving records, vehicle usage and prior carrier information. Some third-party vendor products offer a snapshot of what an insured's deck page looked like with their prior carrier, providing relevant information with the highest degree of accuracy," said Dave Freeman, vice president and personal lines underwriting department manager for Erie Insurance Group.

One of the most popular data sources to help underwrite automobile policies is Department of Motor Vehicle reports. "MVRs have been used for a long time, and technology is advancing carriers' ability to use motor vehicle data sets more efficiently and effectively," said John Wilson, assistant vice president of analytics for ChoicePoint--the creator of CLUE (Comprehensive Loss Underwriting Exchange) reports. He said ChoicePoint works with the industry to maximize carriers' information dollars through the use of rule-based processing in conjunction with other underwriting data sets.

CLUE reports--a database of consumer claims that insurers can access when they are underwriting or rating a policy-continue to be a central source of data for many carriers writing auto and homeowners policies. CLUE reports provide such claim information as date of loss, type of loss, amounts paid, and claim disposition. Additional data on the details of the property being evaluated can be obtained through a CLUE add-on service called Real Property, and comprehensive data on prior automobile policy experience including specific vehicle information can be obtained through Current Carrier report, said Wilson.

"CLUE revolutionized easy access to claims activity because prior to claim history databases, carriers were often forced to go to other carriers for prior loss lists" said Freeman. That was a lengthy process that often didn't yield timely results, he said. "In more recent years, real-time access to claim information has been very helpful. At the time of application, one can go online and verify information instantly rather than send or upload applications to the home office to have underwriters order a report and wait a week or two for it to come in. Now it's all about the availability of information at the point of sale."

AIR Worldwide Corp. has aided the evolution of underwriting tools with its ISO HomeValue--an Internet-based residential replacement cost estimator that provides insurers and their agents access to valuable property data upon entry of an address. "Frequently, on a given property, the property information fields in ISO HomeValue will pre-fill with key building features compiled from public records data. This provides agents objective information that can be the basis for estimating the replacement cost of a home. The pre-fill data improves the efficiency of the property information-gathering process by streamlining some of the standard inquiries typically made of homeowners by agents," said AIR Vice President George Davis. "The data can be used to validate information provided by homeowners and can be expanded upon to produce a more refined estimate. Once the replacement cost is estimated, all of the information becomes available instantly to the underwriter and is stored on a database that can be accessed for endorsements or renewals."

ISO HomeValue's latest release enables underwriters to invoke AIR's catastrophe models to generate a catastrophe risk analysis of the individual property at the point of underwriting.

Third-Party Vendors

Technology is also linking under writers to data from third-party vendors. "They can gather information from police reports and vehicle registration databases to determine if a vehicle has a defective title, was in a serious accident, sold to salvage or was flooded in New Orleans. All of this information is readily available to underwriters, even on motor vehicles reports that used to be batch processed, which delayed the underwriter and often ended up [causing] the underwriting window of opportunity to disappear--the first 60 days in many states," said Webster. Now, he said, in most states data is immediately sent electronically.

Also vendors have licensed data feeds from Departments of MotorVehicles and are creating new activity databases, he said. "Anyone who's had a violation or accident in that state is populated, and [insurers] can go against the vendors' activity File and get hits on current activities. Then they can order a full MVR report, which helps keep costs down." Webster said that's a significant savings because in many states MVR reports cost about $10 per report, "whereas information from a database can cost just pennies or a few dollars."

Technology is also helping some third-party vendors identify patterns of consumer usages. "For instance, a vendor may purchase the mileage and frequency record of how many times a person gets their oil changed at a local or national oil change shop," said Freeman. "Companies sell such information to third-party data collectors who resell the information and/or interpolate that an insured must drive X amount of miles per year based on that information. Volumes of information are being collected and resold under different kinds of formats." Many carriers, however, aren't relying on such third-party databases but instead are developing their own sophisticated and proprietary databases, he added.

Across the Internet

"If we get a request to insure a boat, the underwriter can find out the speed, capability and other features by simply searching the make and model and getting all the information, specifications, pictures and more about the watercraft," said Webster of Fireman's Fund. This removes much of the manual busy-work underwriters previously encountered, he said. "That's where everything comes together and we'll continue to see much expert underwriting being done electronically from information sources being interfaced" The benefit? "It will keep costs down and make underwriters' lives much easier, allowing them to focus on risks that need their expertise," he said.

"Underwriters can also find out good things about individuals or discover horror stories about what they may have been involved in. It lets you identify if someone is high profile or a target or to discover if they're involved in any lawsuits. Those are advances we didn't have just a few years ago," Webster said.

The plethora of available information may bring with it some legal and regulatory challenges, but insurers are prepared. "We comply with the Fair Credit Reporting Act, providing applicants and customers with notices when reports are ordered or when anything comes back from a third-party report that may impact their pricing or qualification for the best possible rate," said John Foster, vice president of personal lines for Penn National Insurance.

Working With Agents

The Internet is making underwriting more consistent and accurate for both companies and agencies, Foster said. Penn National recently built tools onto its front-end systems. "It wasn't too long ago that an agency submitted a paper application for auto or homeowners reports and would then order a report, with much of the underwriting being done in the back end. Now we've built those tools in our front-end systems for agencies with a Web quoting portal, and MVR, CLUE and insurance score reports are now all built into the system," he said. Agents can underwrite the risks before they submit the policy, which benefits both agents and customers in different ways. Penn National has also implemented computer-assisted underwriting within its Web quoting portal, which automatically determines program eligibility and pricing for its agents based upon the applicant's underwriting information. The company built a quick underwriting resource within the portal for easy agent reference. "The enhancements were all designed to make it easier for agents to accurately quote and underwrite new business with us," he said.

For State Farm, technology will continue helping its field agents get information from customers into the hands of underwriters, said Robyn Bakel, P/C underwriting director. "That's being accomplished via electronic-based applications rather than on paper, and it allows us to do things like ensuring data is always in the same format or that information is always provided. An agent, for example, may forget on paper to provide a customer's VIN number, but through an electronic format we have ways to remind the agent to enter the information. That's a simple example, but it enables us to do many more things, and with a VIN number we can know things such as if a vehicle has automatic seat belts, which can drive down the price for customers"

Changing Times

The industry has reached only the tip of the iceberg when it comes to evolution of underwriting tools, said AIR Worldwide's Davis.

"The insurance industry has always been data intensive, but systems that companies used weren't always synchronized. That's changing and we're continuing to see more tightly connected systems from the front end to the back end," he said. For example, he said, ISO HomeValue connects with other systems, such as policy administration systems and inspection processing systems, and information gathered from ISO HomeValue can also be automatically copied to populate data warehouses.

The role of underwriters will also likely continue to evolve. "They'll become less individually account-based and more book-of-business-related and assist agents in finding accounts that fit," said Bob Brandon, vice president of underwriting operations for Penn National Insurance.

That's not all. "Underwriting is becoming more objective," said ChoicePoint's Wilson. "You can't completely remove subjectivity from the process, but to the extent that you can bring data to bear that's statistically sound and actuarially relevant to the decision-making process, you make it more objective." He said, however, that's complicating underwriters' lives because they have to seek more information and interpret an increasingly sophisticated set of data. "But the positive side is that they're better able to price for a relative risk and that's good for all of us from a competitive and solvency perspective" he said.

Key Point

* Underwriters are more easily and quickly obtaining information, such as vehicle reports and CLUE reports, to help assess and properly price risks.

* Underwriters are using automated data feeds, geopositioning and predictive analytics, among other technology tools.

* Technology is helping agents get information about customers to underwriters more quickly.

Today's Tools

Some insurance underwriters are exploring the newest technologies in insurance and other industries and adapting them for underwriting purposes:

Application Prefill

Erie Insurance is among several carriers either using or considering the use of application prefill. The advantage to prefill is that it feeds an application with names, addresses, vehicle information, coverage limits and other information, said Dave Freeman, vice president and personal lines underwriting department manager. "Then, rather than spending 30 minutes asking the applicant for and recording answers to routine questions, an agent can look at a prepopulated application and only needs to then validate the information."

Automated Data Feeds

"Underwriters no longer have to look for information like loss history, said Donald Light, senior analyst for research and consulting firm Celent. "It costs money to get the information, and insurers don't want to spend that for all of the applications they're writing. The question is when do you access the information; that's where human judgment or an algorithm may come into play."


Geopositioning is used to locate the exact position of a mobile element or object on the Earth. "A geocode for a location helps underwriters better understand individuals' risks, such as if a property is located next to an oil refinery. It's a much easier process than just searching by address or ZIP code. Data visualization can be used to show a map of the local radius of a property and identify exposures," Light said.

Predictive Analytics

Predictive analytics has also become a popular staple for some carriers. It helps underwriters better understand the risks they're putting on the books and helps to refine the understanding of risks in the market, said Robyn Bakel. P/C underwriting director for State Farm.

Taking Credit

Despite the uproar by some consumer groups, credit--or insurance--scoring remains an important tool for many personal lines underwriters. "Insurance score data is undeniably an excellent predictor of loss," said Andy Webster, product manager for auto and excess lines for Fireman's Fund Insurance Co. "If you're responsible for the way you manage your life and pay bills on time, you tend to be the same way in maintaining your home or auto."

Theresa Lawless, property product manager for Fireman's Fund, said credit scoring and other new underwriting tools allow underwriters to not only better understand and assess risks, but also target pricing to reflect those risks. "That means that customers likely not to have losses will benefit and enjoy lower pricing, while those at higher risk will pay more" she said.

One of the biggest changes in the industry is the increased degree to which carriers are incorporating credit into their more complex rating structures, said John Wilson, assistant vice president of analytics for ChoicePoint. While some jurisdictions restrict the use of credit scoring, that's not the case in most states. "In the beginning, the validity of credit scoring was the subject of much debate, but most such concerns have since been satisfied." He said carriers are finding credit scoring to be very meaningful from a pricing perspective, and it provides the opportunity for lower rates for many consumers.

Learn More

Erie insurance Co. A.M. Best Company # 04272 Distribution: Independent agents

Fireman's Fund Insurance Cos. A.M. Best Company # 00034 Distribution: Independent agents

Penn National Insurance A.M. Best Company # 00766 Distribution: Independent agents

State Farm Group A.M. Best Company # 00088 Distribution: Exclusive agencies

For ratings and other financial strength information about these companies, visit
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Title Annotation:Technology: Underwriting
Author:Chordas, Lori
Publication:Best's Review
Geographic Code:1USA
Date:Feb 1, 2007
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