Take Control Over Underwriting Quality and Leakage

1. Performance Improvement Solutions Take Control Over Underwriting Quality and Leakage Study the issues before jumping to conclusions Improve QA. Improve Results. athenium.com

2. Take Control over Underwriting Quality and Leakage What is the cost of underwriting leakage? • Underwriting loss costs have multiple sources and significantly affect an insurer’s profitability. • Despite the impact of loss costs, many insurers cannot accurately measure and uncover the underlying sources. • This is particularly true of underwriting leakage, a quality-related problem that is a major contributor to loss costs. • More and more insurers recognize this serious problem and are taking action by establishing firmer underwriting guidelines and best practices. • However, the vast majority of insurers do not take any steps to measure or address underwriting leakage and related quality issues. Underwriting leakage costs may be hard to see, yet they can significantly erode profitability.

3. Take Control over Underwriting Quality and Leakage Definitions of “loss costs” and leakage costs” Loss costs Higher loss and expense ratios are caused by policies that are underpriced relative to the financial risk they represent. Leakage costs Additional profits are lost because of failure to comply with established practices, or because the practices themselves are ineffective or not aligned with the organization’s strategic goals.

4. Take Control over Underwriting Quality and Leakage Does your organization understand its leakage issues? Ask yourself these key questions: • Do you know how effective your best practices are or how they can be improved? • Are there clear rules for accommodations and how to monitor them? • Are you aware of exactly how well your underwriters conform to best practices? • What are the consequences of deviation from your established processes?

5. Take Control over Underwriting Quality and Leakage Two primary causes contribute to leakage • Process Adherence • Leakage costs can occur when underwriters fail to adhere to guidelines such as: • Assessment of risk and insurability • Selecting and rejecting applications • Writing and implementing policies • Monitoring loss exposures • Negotiation Skills • Limiting leakage requires negation within accepted guidelines in areas including: • Agency accommodations • Servicing of accounts • Pricing and terms A systematic approach is needed to understand the extent of leakage, locate the specific problems, and identify root causes.

6. Take Control over Underwriting Quality and Leakage Data is both the key and the challenge • Understanding performance and leakage depends on getting data that is: • Measurable, accurate, and up-to-date • Comprehensive, with the ability to precisely identify and prioritize problem areas • Consistent across time, with the ability to assess results in a historical context • Ready for analysis, with presentation options that managers find useful and convenient. • Beyond the data, there are other challenges to evaluating and monitoring leakage: • Poorly defined standards • Limited staff support • Inadequate technology

7. Take Control over Underwriting Quality and Leakage Pinpoint performance issues with a “Leakage Study” • A Leakage Study is a positive first step toward understanding quality issues: • Measure existing underwriting leakage and its cost to the organization. • Understand where underwriting leakage is occurring. • Get a clear picture of the factors contributing to leakage costs. • Gauge your underwriters’ process adherence and negotiation skills. • Establish baseline performance data. • Determine the potential benefits of developing a more structured, ongoing approach to Quality Assurance (QA) for underwriting.

8. Take Control over Underwriting Quality and Leakage What questions should your Leakage Study address? • Ask questions in a way that leverages your organizational data: • Study data should provide organization-wide insights into underwriting performance issues. • Make sure the data can be aggregated by line of business, state or region, product line, or other meaningful groups. • Questions should explore quality issues in a variety of key areas, such as: • Account Pricing • Account Underwriting • Policy Issuance and Service In these 3 areas, questions your Leakage Study can address include …

9. Take Control over Underwriting Quality and Leakage Questions your Leakage Study can address • Is the overall premium for account acceptable, and were the filed or published rates utilized? • Are the multi-policy discounts offered appropriate? • Was the rate within the standard of variance? • Were the loss ratios and loss runs analyzed thoroughly to identify frequency and severity issues? • Account Pricing • Account Underwriting • Policy Issuance and Service

10. Take Control over Underwriting Quality and Leakage Questions your Leakage Study can address • Does the exposure exceed underwriting assessments? • Are all CAT risks properly identified and considered? • Were all credit reports and financial statements obtained and evaluated, and was the premium adjusted appropriately? • Were the appropriate coverages chosen and exclusions addressed? • If the policy underwriting was automated, does it warrant an additional review? • Account Pricing • Account Underwriting • Policy Issuance and Service

11. Take Control over Underwriting Quality and Leakage Questions your Leakage Study can address • Were billing amounts consistent with the rating and pricing? • Was the account performance monitored and were the policies modified accordingly? • Were adjustments made without objective or new information? • Was the renewal strategy thorough and did it match issues guidelines? • Account Pricing • Account Underwriting • Policy Issuance and Service

12. Take Control over Underwriting Quality and Leakage Consider your resources • Identify the best resources for planning, implementation, and follow-up: • What resources will be needed for success during each phase of the study? • What internal resources will be made available to you? • What are your organization’s areas of expertise, and where is expertise limited? • What type of technology will be required? • Who will develop the technology and guide the process from start to finish? • What other outside resources will you need to achieve the most insightful results?

13. Take Control over Underwriting Quality and Leakage Summary • Understanding and reducing underwriting leakage will improve profitability. • Take a major step forward by proactively addressing the issue with a Leakage Study. • Develop data-driven questions that will address your organization’s specific needs. • Plan your study with an eye toward accurately collecting the right data. • Identify internal resources, including limitations in staffing, expertise, and technology. • Choose outside partners with the experience and expertise you need to be successful. • Identify robust technology that can efficiently gather, measure, and analyze your data. • After the study is completed, consider a more structured, data-driven QA program. The right set of decision-making information will enable you to improve execution and compliance with best practices, refine policies and controls, and ultimately achieve better financial outcomes.

14. Performance Improvement Solutions athenium.com Improve QA. Improve Results. Contact Athenium for more information Email: sales@athenium.com “Take Control over Underwriting Quality and Leakage” Download this Athenium white paper Visit us at: athenium.com Athenium delivers exceptional performance improvement solutions that optimize the QA process for insurers worldwide.