As the saying goes, one cannot do without the other. For claims and underwriting functions, these areas tend to remain separate in nature, yet increasing reliant on each other to deliver operational efficiencies.
Claims and underwriting will always be separate functions, fulfilling a critical part of the insurance operation. However, as many insurers are discovering, the use of a common cost database can bring consistency to one’s enterprise estimating and creates a consistent foundation. Onto that foundation, one can layer measurable operational efficiencies for both the claims and underwriting departments through tight system integration of the two areas.
As a third party software, data and analytics provider in property insurance space to both claims and underwriting departments of P&C insurance companies, we have worked side by side, often observing the “silo” nature of operations between those departments.
Despite historic slow movement in the industry to extract value from the claims/underwriting connection, there is opportunity to break through the “silo” mentality and create new levels of value creation not possible in today’s market.
This article highlights how that value can be extracted through integration platforms in workflow software with data to drive benefit in the following areas:
A. Data Consistency
B. Workflow Improvement & Information Exchange
C. Enhanced Analytics
As a snapshot, the following chart outlines key benefits, benefit type and benefit department or area.
|Benefit||Benefit Type||Benefit Area|
|Data Consistency in Reconstruction Cost development and Loss Settlement||Estimate Defendability||Compliance|
|Coverage Adequacy & parity with Loss Settlement||Profitability & Customer Retention|
|Workflow Improvement & Information Exchange through real-time system integration||ITV Verification||Profitability & Better Underwriting Risk Management|
|Exchange through real-time system integration||Coinsurance verification||Profitability & Compliance|
|Enhanced Analytics||Predictive Analytics sophistication and speed to market||Profitability & Growth|
|Operational Analytics speed to market||Profitability|
Defendability: The first aspect of value creation stems from utilizing consistent underlying elemental estimating data line items for both property reconstruction cost estimation in Coverage A development as well as claim settlement estimation. Adverse effects of utilizing different underlying data sets can be observed during a total loss settlement, when theoretically there should be complete parity between coverage on the policy and the settlement amount, but often there is not.
We contend that utilizing the same costs basis for estimation creates a much more defendable approach for customers and regulators, ensuring that there are no estimate disconnects that cannot easily be explained. A majority of the widely accepted estimation paradigms utilize different assumptions, variables and methodologies. For example, MSB’s estimating platforms are fueled by extensive research into thousands of variables of construction, labor, soft costs, and equipment and mature methodology of how those variables interact. Having two different cost bases for claims and underwriting can yield a thousand points of deviation between estimates, decreasing estimate parity and defendability.
Workflow Improvement & Information Exchange:
ITV Verification: The next element of value creation stems from a tight integration between estimating platforms is the increased verification frequency of property characteristics. Out of date property information on the policy can cause issues with Coverage A adequacy and Insurance to Value (ITV). Through system integration, property information and risk characteristics that are collected by the claim adjuster during physical property walk-through can be fed to the underwriting estimation system to update the property profile. This information can include data on additions and alterations, which might not be included in the underlying Coverage A, as well reporting on potential property condition hazards such as quality of the roof and lack of pool enclosure. Resulting policy adjustments can be tracked for clear ROI measurement from this data exchange.
Co-Insurance Verification: Another system integration benefit stems from real-time coinsurance verification. Although somewhat underutilized in the past five years, co-insurance verification is becoming a requirement for an increasing number of adjusted claims. The integration ensures that the adjuster has real-time access to the most current property information that was utilized to underwrite the policy directly in their claim management platform to determine potential coinsurance penalties. Valuable time savings can be realized when adjusters no longer need to re-create each line of the property valuation as part of claim adjustment.
Predictive Modeling: In the last few years, we have seen an emergence of increased sophistication of rating plans – by-peril rating, new data elements and interactions, and integration with loss performance of different lines of business. In order to develop that sophistication, massive amounts of underwriting, claims and third party data is utilized in modeling and search for correlations. As an example, through the process of developing our predictive models, PerilVision and InspectView, focusing on by-peril rating and inspection optimization respectively, we have observed that having tight system integration allows for more consistent, accurate, and speedy modeling process. The data connections in the “Life of a Policy” are much more easily traced, connected and analyzed – initial property information input by producer(s), bound policy information, inspection data, and claim adjustment and settlement data.
Operational Analytics: Beyond predictive modeling, an additional benefit of system-interconnection stems from being able to easily connect policy and claim information to develop operational and performance reports. Companies can spend millions of dollars on business intelligence platforms driven by complex algorithms to match customer, claims and policy information coming from different systems. Connected claims and underwriting estimation systems allow carriers to maintain that connection during the actual operations. For instance, when an adjuster goes out to settle a claim, he or she can pull in the valuation that was used to underwrite a property, update it and send it back to underwriting, maintaining the data connection.
By shifting the silo mentality to an integration strategy, one can experience measurable operational efficiencies for both the claims and underwriting departments through tight system integration. The transformational opportunity through the insight delivered when claims and underwriting data is combined results in better advance data mining, business intelligence and predictive modeling assessments.
By Mikhail Palatnik, AVP Residential Underwriting Solutions at Marshall & Swift/Boeckh (MSB), and Ken Robinson, product manager at Symbility Solutions.
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