The State of Underwriting

Across all lines of business, economic and competitive pressures make the argument for the tools and technologies necessary to perfect the underwriting process all the more compelling. Several insurers are well on their way to the ideal.

Insurance Networking News, February 1, 2012

Pat Speer and Justin Stephani

The process of classifying, rating and selecting risks that conform to an insurer's risk appetite is a simplified way of describing the bare bones of an underwriter's job. If you asked an underwriter to provide their own job description, you may hear words such as statistician, investigator, psychic, tightrope walker and even politician. No doubt the stakes are higher than ever, as underwriters scramble to "get it right," protecting his/her company against adverse selection and associated financial reckoning in one of the worst economic climates in history.

By line of business, the underwriting function is both distinct and similar. Distinctive differences exist between medical underwriting and virtually any other type, especially as the industry faces health care reforms that will create a retail selling environment for many carriers. Further differences exist in underwriting between life or personal lines property/casualty and commercial lines, largely tied to complexity, exposure and pricing.

Similarities exist in the call for organic growth, which has become the watchword of the entire industry and in the intensely competitive environment where growth related opportunities are hiding. And for all lines of business, similarities exist with the technologies, tools and processes that simplify and streamline the underwriting process to a successful end.

In a perfect world, the technologies insurers would rely on would include centralized, cleansed data-a single point of real-time access to all historic underwriting, policy admin, claims and loss exposure information.

Further, underwriters would respect automated workflow processes, use the Web and secure Web portals to access, verify and transmit risk management information, and conduct underwriting in as close to straight-through-processing mode as possible. This perfect world of technologies and processes extends the underwriter's view of specific books of business, making reporting easier and more transparent.

In the real world, however, insurers still rely on multiple platforms hosting disparate systems, largely the result of legacy modernization polarization. These systems keep very imperfect data siloed, sending underwriters scrambling as patchworked user interfaces slow the process under increasing demands. Yet across all lines of business, the argument for that perfect world has never been more compelling, and several insurers are well on their way to the ideal. We can learn from them. </p>

Insurance Networking News is pleased to provide a look at the "state of underwriting" in four major lines of business: personal lines health, life, personal property/casualty and reinsurance.

Health: Underwriting Prepares to Enter New Arena

To say that the health insurance industry, and the health care universe, are in a state of flux is analogous to saying that if you get sick enough you'll die.

Along with its providers, partners and stakeholders, insurers are scrambling to meet the requirements of history-making health care reforms, and as a result, medical underwriting, as we've known it, is about to go away. Yet even as the industry rethinks its underwriting practices, it must continue to do business with the industry it serves; from health care providers trying to keep up with a merry-go-round of mandates and reforms, to consumers who will soon be faced with more health insurance options than they may be able process.

Obviously, insurers have skin in the game, affected by health care providers' responses to issues such as graduated criteria for meaningful use standards, electronic health records incentives, and other technology and patient quality-related issues that have hovered over providers of all sizes and shapes for the past several years.

Hitting closer to home is the U.S. Department of Health and Human Services' rules for medical loss ratio (MLR) rebates and requirements, part of the Affordable Care Act's Section 1001. As of press time, the rules require large group plans spending less than 85 percent of premium revenue on clinical services and small group and individual market plans spending less than 80 percent to provide rebates to enrollees starting in 2012 before August of each year.

Meanwhile, the volatility surrounding a reform-based retail-fashioned health insurance business model continues to grow as state health insurance exchanges pop up ahead of the government's 2014 deadline, (29 states have made progress and at least four states have either returned federal dollars for building exchanges or have said they do not plan to participate (resulting in the feds taking ownership of the effort).

To many, this volatility is the result of a splintered universe trying to function as a unified state. "Health care is arguably inefficient due to its fragmentation-5,800 hospitals, two-thirds operated independently; 700,000 physicians, 90 percent operating in single-specialty settings; 4,500 bio-pharma companies competing for the next breakthrough in therapeutics; 6,000 device companies, 80 percent with fewer than 200 employees; 400 companies selling electronic health records (EHR) systems; 1,300 health plans; and so on," notes Paul Keckley, Ph.D., executive director of the Deloitte Center for Health Solutions.

For more information on related topics, visit the following channels:

• Underwriting