Commercial insurance underwriting Best practice case underwriting and portfolio management
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1
A presentation to the Turkish CUOs
by David Ovenden
Nov 2013
Agenda
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2
Introduction
The Turkish
market in an
international
context
TW best practice
framework
Thoughts and
priorities
Introductions
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3
David Ovenden
Director, RCS
London
Chris Halliday
Consultant, RCS
Istanbul
Phone. +44 207 8865106
Mobile. +44 7908 1188855
Phone. +90 212 337 2104
Mobile. +90 530 303 3822
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4
Introduction
The Turkish
market in an
international
context
TW best practice
framework
Thoughts and
priorities
Commercial lines – Turkey v International
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5
Recognition of the need for greater
sophistication in approach
Focus on automation (and easy of
trading) and improved pricing/analytical
sophistication
Agent distribution is a challenge, but no
longer a reason to stand still
Increasing interest in factoring
product/market cyclicality into decision-
making in commercial lines
Significant interest in growing micro-
commercial/SME
Commercial portfolio remediation is a
common challenge
Lots of talk about generic ‘Big Data’, with
some smart activity
Large business portfolios are hurting
Many years of rate reductions
Some large businesses pay at or around
minimum quake rates
Large non-Cat losses increasing in
frequency
Some rate increases, some of which are
significant
Some lines of business / individual risks
attract limited capacity
Risk selection is critical
Interest in small and medium sectors
Significant reinsurance sessions at case
and portfolio level
Potential for de-tariffication of quake
International Commercial Lines Turkey Commercial Lines
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6
Introduction
The Turkish
market in an
international
context
TW best practice
framework
Thoughts
questions and
priorities
PROCESS
PROCESS
CROSS-
FUNCTIONAL
ENGAGEMENT
CROSS-
FUNCTIONAL
ENGAGEMENT
Best practice underwriting
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7
Price Delivery
Governance &
Regulation
Tools &
Techniques
Capability &
Capacity
Internal &
External Data
Systems &
Technology
Underwriting
Strategy
Customer &
Intermediary
Insight
Price Assessment
FOUNDATION
Underwriting
Approach Risk Modelling Demand Modelling
MI & Decision
Support
ANALYSIS
Product &
Portfolio
Management
DECISION MAKING & BUSINESS MANAGEMENT
Sales Execution
IMPLEMENTATION & DELIVERY
Case Underwriting Best Practice Components
• Client
• Exposure
• Context
Background
• Appetite
• Acceptance Criteria
Initial Acceptance
• Condition
• Extensions
• Exclusions
Case UW
• Client Solutions
• Cover & Price options
Deal Options • Conclusion
• Documentation
• Policy Execution
Negotiate
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8
Active Portfolio Management
Governance Environment
Decision Support, Data, MI & Communication
• Tech Price
• Actual Price
Pricing
PROCESS
PROCESS
CROSS-
FUNCTIONAL
ENGAGEMENT
CROSS-
FUNCTIONAL
ENGAGEMENT
Commercial framework with a market overlay
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9
Price Delivery
Governance &
Regulation
Tools &
Techniques
Capability &
Capacity
Internal &
External Data
Systems &
Technology
Underwriting
Strategy
Customer &
Intermediary
Insight
Price Assessment
FOUNDATION
Underwriting
Approach Risk Modelling Demand Modelling
MI & Decision
Support
ANALYSIS
Product &
Portfolio
Management
DECISION MAKING & BUSINESS MANAGEMENT
Sales Execution
IMPLEMENTATION & DELIVERY
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Market opportunities
towerswatson.com
© 2013 Towers Watson. All rights reserved.
• Understanding potential data assets
• Foundation level roadmap for commercial
pricing (post changes in quake tariff)
• Build data (particularly geospatial)
capabilities
• Ensure capital plays a part in underwriting
strategy, not just P&L considerations
• Evaluate current underwriting and pricing
tools against future challenges
• Develop and execute a common approach
to underwriting commercial business
• Focus on the technical elements of
property underwriting
• Ensure technical risk pricing sits at the
heart of your processes (even if it is not
possible to achieve technical pricing)
• Increase the amount of ‘science’ in your
decisions
• Development of lead indicators
• Understanding likely future performance:
• Written Loss Ratios
• Mix indices
• Claims inflation
• Technical pricing v achieved pricing
• Accumulation monitoring (risk and cat)
• Greater use of data from surveys
• Frontline underwriters with significant
technical experience
• Negotiation in context of portfolio
performance (and potentially future
performance)
• Technical pricing and risk selection not
just risk selection
• An understanding of capital requirements
and / or reinsurance costs
Foundation Analysis
Decision making Implementation
Agenda
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11
Introduction
The Turkish
market in an
international
context
TW best practice
framework
Thoughts
questions and
priorities
Proprietary and Confidential. For Towers Watson and Towers Watson client use only.
Voting Question
How prepared do you feel, when thinking about removal of the quake
tariff?
1. Very, prepared I have all my commercial risks geocoded and
technically priced
2. I am comfortable, I know where all the risks I write a located and
differentiate my fire rates to include trade, exposure to perils and
quake
3. I have a plan to geocode my business and improve my technical
pricing
4. I am worried about the move and feel poorly prepared at this point
5. I was not aware that changes to the quake tariff have been proposed
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Voting Question
When do you think the quake tariff will be removed?
1. 2017
2. 2018
3. 2019
4. 2020
5. I do not think it will change
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Building a strong analytical foundation
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14
An
aly
tic
al
Wo
rks
tre
am
s
Having a detailed understanding of performance at a product level is vital.
Understanding the relationship between exposure and rate achieved is a
minimum requirement. Industry leading retention management requires a
view of technical price
Rate and
exposure data
Are you capturing the pricing and underwriting information
you need when the claims are reported? A lot is spoken about ‘big data’
but the best sources of underlying claims data, on which to layer external
data, are you own claimants.
Claims cause
codes
Where are you winning, what trades, sectors, geographies are you
competitive? Are you getting a ‘fair’ share of an agents business? Do my
commission and additional remuneration payments represent value for
money? All simple issues, but is the data granular enough?
New and
retention
performance
It will take some time to geocode your commercial exposures, however the
benefits in terms of underwriting decision support and RI purchasing will
deliver a significant return on investment – especially if the quake tariff is
removed.
Geospatial Data
Building a strong foundation will allow you to out-compete and remain agile
Building a strong analytical foundation
© 2013 Towers Watson. All rights reserved. towerswatson.com
15
An
aly
tic
al
Wo
rks
tre
am
s
Having a detailed understanding of performance at a product level is vital.
Understanding the relationship between exposure and rate achieved is a
minimum requirement. Industry leading retention management requires a
view of technical price
Rate and
exposure data
Are you capturing the pricing and underwriting information
you need when the claims are reported? A lot is spoken about ‘big data’
but the best sources of underlying claims data, on which to layer external
data, are you own claimants.
Claims cause
codes
Where are you winning, what trades, sectors, geographies are you
competitive? Are you getting a ‘fair’ share of an agents business? Do my
commission and additional remuneration payments represent value for
money? All simple issues, but is the data granular enough?
New and
retention
performance
It will take some time to geocode your commercial exposures, however the
benefits in terms of underwriting decision support and RI purchasing will
deliver a significant return on investment – especially if the quake tariff is
removed.
Geospatial Data
Building a strong foundation will allow you to out-compete and remain agile
A Canadian insurer
has out performed the
market by some 3
percentage points over
the last 5 years. Much
of this outperformance
has been built on their
ability to capture,
manage and analyse
internal and external
data.
In Ireland a
commercial insurer
was able to
substantially
reduced reinsurance
cost and capital
loadings by
providing they were
less flood exposed
Support case underwriting decisions
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16
Cas
e u
nd
erw
riti
ng
wo
rkstr
ea
m
In most insurance companies MI flows up the organisation. By directing MI
and KPIs to the frontline to support decision making it is possible to
improve the portfolio performance. Simple decision support points include;
‘risks like these’ and intermediary scores
Decision support
Adopting a common language and approach to underwriting
specific products improved the agility and technical foundation of an
organisation. It also allows a more learning focused audit approach. Common process
An effective governance environment where underwriters
authorities reflect their capabilities and link back to underwriting appetites
and the business plan can be a powerful driver for growth. Intermediaries
prefer dealing with decision makers.
Effective
licensing
Typically, even in large developed markets the volumes of data are
relatively limited, especially when you get down to trade level.
However, by getting the underwriters and actuaries working
together it is possible to develop board averages from which to start.
Rate clustering
Pushing the correct information to the frontline teams will improve UW outcomes
Support case underwriting decisions
© 2013 Towers Watson. All rights reserved. towerswatson.com
17
Cas
e u
nd
erw
riti
ng
wo
rkstr
ea
m
In most insurance companies MI flows up the organisation. By directing MI
and KPIs to the frontline to support decision making it is possible to
improve the portfolio performance. Simple decision support points include;
‘risks like these’ and intermediary scores
Decision support
Adopting a common language and approach to underwriting
specific products improved the agility and technical foundation of an
organisation. It also allows a more learning focused audit approach. Common process
An effective governance environment where underwriters
authorities reflect their capabilities and link back to underwriting appetites
and the business plan can be a powerful driver for growth. Intermediaries
prefer dealing with decision makers.
Effective
licensing
Typically, even in large developed markets the volumes of data are
relatively limited, especially when you get down to trade level.
However, by getting the underwriters and actuaries working
together it is possible to develop board averages from which to start.
Rate clustering
Pushing the correct information to the frontline teams will improve UW outcomes
In the UK,
segmentation and
renewal decision
support has
delivered a 10%
improvement in
core midmarket
performance.
Refocusing
underwriting
licences allowed
a European
insurer to cut
commercial
property
referrals by 1/3.
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Voting Question
How confident are you in the capability of your commercial underwriters
given the changes and challenges that lie ahead?
1. I am the underwriting leader, and I am confident in my current teams
capabilities, tools and processes to tackle the challenges ahead
2. I am the underwriting leader, and I feel my current teams will need
some support to tackle the challenges ahead.
3. I am an underwriter, and I am confident in my capabilities, tools and
processes to tackle the challenges ahead
4. I am an underwriter, and I feel I will need some support to tackle the
challenges ahead
5. I am worried about how we will handle these threats.
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Deploy appropriate automation
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19
Au
tom
ate
d u
nd
ew
riti
ng
wo
rks
tre
am
It is possible to ‘fastrack’ or have a low touch renewal approach for some
small and medium business. Segmentation and a better understanding of
‘technical’ price will allow sophisticated approaches to automatic renewal,
freeing the underwriters to write new business
Fastrack
renewals
An important part of the automation process is the product development.
Simple products that are well suited to the target audience with features,
deductibles , assumptions and conditions that reflect the automated basis
of acceptance.
SME products
When automating new business or renewals it is important to identify
outliers, risks that look weird, that perhaps an underwriter would spot.
These outliers can be pushed out of the process. Identify outliers
Understanding what trades and products represent suitable targets for
automation is key to balance the needs of efficiency and effectiveness. Segmentation
Balancing efficiency and effectiveness will deliver competitive advantage
Deploy appropriate automation
© 2013 Towers Watson. All rights reserved. towerswatson.com
20
Au
tom
ate
d u
nd
ew
riti
ng
wo
rks
tre
am
It is possible to ‘fastrack’ or have a low touch renewal approach for some
small and medium business. Segmentation and a better understanding of
‘technical’ price will allow sophisticated approaches to automatic renewal,
freeing the underwriters to write new business
Fastrack
renewals
An important part of the automation process is the product development.
Simple products that are well suited to the target audience with features,
deductibles , assumptions and conditions that reflect the automated basis
of acceptance.
SME products
When automating new business or renewals it is important to identify
outliers, risks that look weird, that perhaps an underwriter would spot.
These outliers can be pushed out of the process. Identify outliers
Understanding what trades and products represent suitable targets for
automation is key to balance the needs of efficiency and effectiveness. Segmentation
Balancing efficiency and effectiveness will deliver competitive advantage
A market leading
European insurer was
able to drive profitable
growth in a competitive
European market by
repositioning its Small
Business products,
simplifying the
quotation process and
improving speed to
market.
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Voting Question
What is your medium term (next 2 years) ambition for automation in your
commercial business?
1. I automate all my small business and use similar techniques to speed
up some larger renewals.
2. I currently have all my small commercial business automated.
3. I have a well developed plan and capabilities in this areas
4. I have an ambition to automate more commercial business
5. I do not consider this to be a priority
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