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Underwriting Risk Models: An Assessment

Underwriting Risk Models: An Assessment. Presented by Urban E. Leimkuhler, FCAS, MAAA Manager & Senior Consultant Milliman - Princeton CAS Annual Meeting – New Orleans November 10, 2003. Underwriting Assessment. Outline Underwriting Assessment -The Problem Potential Solution

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Underwriting Risk Models: An Assessment

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  1. Underwriting Risk Models: An Assessment Presented by Urban E. Leimkuhler, FCAS, MAAA Manager & Senior Consultant Milliman - Princeton CAS Annual Meeting – New Orleans November 10, 2003

  2. Underwriting Assessment • Outline • Underwriting Assessment -The Problem • Potential Solution • Suggested Approach • The Process • Outcome

  3. Underwriting Assessment • Compelling Industry Need for Excellence • In Underwriting • Low interest rate environment implies higher target underwriting returns • Resulting need to maximize performance at individual risk and portfolio levels • Industry actions affecting underwriting performance and readiness • Value in institutionalizing underwriting excellence

  4. Underwriting Assessment • The Problem: • Industry failures to effectively train commercial lines • underwriters • Insufficient value attached to underwriting as a differentiator in company performance • Demise of underwriter training programs • Prolonged soft market underwriting and pricing practices • No available quick fixes

  5. Underwriting Assessment • Potential Solution: • Institutionalize profitable risk selection and management • Analyze and quantify the effectiveness of underwriting and pricing practices • Identify and target opportunities for improvement • Implement changes in processes • Monitor and measure benefits through regular check-ups

  6. Underwriting Assessment • Suggested Approach: • Evaluate specific areas for improvement • Strategies and guidelines • Information collection and management • Exposure identification / analysis underlying risk selection • Application of underwriting and pricing practices to individual risk • Monitoring tools • Benchmark and measure performance • Identify and quantify performance gaps • Report to management • Implement improvements • Benchmark performance at multiple levels

  7. Underwriting Assessment The Process • Interviews (Evaluate Process) • File Reviews (Assess Outcomes) • Reports and Graphs

  8. Underwriting Assessment • Interviews to Evaluate Process • Strategies and Guidelines • Application of Underwriting / Pricing Practices • Monitoring Tools

  9. Underwriting Assessment • Interviews to Evaluate Process • General Manager • Underwriting Manager • Underwriter • Actuary • Loss Control • Claims • Marketing

  10. Underwriting Assessment • Interviews to Evaluate Process • Strategies and Guidelines • Application of Underwriting / Pricing Practices • Monitoring Tools

  11. Underwriting Assessment • Process Interviews-Strategies and Guidelines • Strategies / plans are defined, communicated and managed • Ongoing market assessment • Pricing programs and goals • Underwriting authority • Ratemaking process / rating plan structure

  12. Underwriting Assessment • Interviews to Evaluate Process • Strategies and Guidelines • Application of Underwriting / Pricing Practices • Monitoring Tools

  13. Underwriting Assessment • Process Interviews-Underwriting / Pricing • Practices - The Underwriter • Use of Loss Control information by Underwriting • Role of Premium Audit • Familiarity with producer capabilities • Management reinforcement through behavior • Feedback loops involving Claims, Actuarial Loss Control and Underwriting

  14. Underwriting Assessment • Use of Loss Control Information by • Underwriting - Interview Questions • How effectively are Loss Control resources deployedby Underwriting? • How are Loss Control recommendations addressedby the Underwriter? • In what other ways is Loss Control asked to assistUnderwriting in ensuring effective risk selection, pricing and ongoing risk management? What otherinformation is provided?

  15. Underwriting Assessment • Process Interviews-Underwriting / Pricing • Practices - The Actuary • Formal rate reviews • Manual rate development • Actuaries / underwriters execute decisions and action plans • Actuarial role in pricing • Ratemaking data and data quality • Actuarial / operating management coordination

  16. Underwriting Assessment • Actuarial / Operating Management • Coordination - Interview Questions • What ongoing information and advice is provided by Actuary to Management? • What action plans are established - and by whom? • How effectively are these executed? • How would you characterize relationships between Actuarial and Management?

  17. Underwriting Assessment • Interviews to Evaluate Process • Strategies and Guidelines • Application of Underwriting / Pricing Practices • Monitoring Tools

  18. Underwriting Assessment • Process Interviews - Monitoring Tools • Price Monitoring • Producer Monitoring • Automated Profit / Loss Reports • Claims Metrics • Automated Production Reports • Underwriting Reviews / Audits

  19. Underwriting Assessment • Sample Interview Screen - Underwriter

  20. Underwriting Assessment • Sample Interview Screen - Underwriter

  21. Underwriting Assessment • Sample Interview Screen - Actuary

  22. Underwriting Assessment The Process • Interviews (Evaluate Process) • File Reviews (Assess Outcomes) • Reports and Graphs

  23. Underwriting Assessment • File Reviews to Assess Outcomes • Information Collection / Management • Application of Underwriting / Pricing Practices • Underwriting Decision

  24. Underwriting Assessment • File Reviews - • Information Collection / Management • Risk pre-qualification • Application / renewal questionnaire • Availability of loss experience • Loss Control reports • Access to / use of outside information

  25. Underwriting Assessment • File Reviews - Underwriting / Pricing Practices • Exposure basis • Classification assignment • Evaluation of underwriting exposures • Coverage considerations • Basis for price decision • Interaction among disciplines that support Underwriting

  26. UnderwritingAssessment • File Reviews - Underwriting Decision • Risk selection • Underwriting referral / 2nd opinion

  27. Underwriting Assessment • Sample File Review Screen - Policy-Level Data

  28. Underwriting Assessment • Sample File Review Screen - LOB Data

  29. Underwriting Assessment • Sample File Review Practices Screen

  30. Underwriting Assessment • Sample Premium Estimate Screen

  31. Underwriting Assessment The Process • Interviews (Evaluate Process) • File Reviews (Assess Outcomes) • Reports and Charts

  32. Underwriting Assessment

  33. Underwriting Assessment

  34. Underwriting Assessment

  35. Underwriting Assessment • The Outcome • Process Effectiveness Scorecard • File Effectiveness Scorecard • Needed Improvements in Performance • Recommendations • Implementation Plan • Platform for Ongoing Benchmarking

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