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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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slide1
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
Underwriting Assessment
  • Outline
    • Underwriting Assessment -The Problem
    • Potential Solution
    • Suggested Approach
    • The Process
    • Outcome
underwriting assessment3
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
underwriting assessment4
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
underwriting assessment5
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
underwriting assessment6
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
underwriting assessment7
Underwriting Assessment

The Process

  • Interviews (Evaluate Process)
  • File Reviews (Assess Outcomes)
  • Reports and Graphs
underwriting assessment8
Underwriting Assessment
  • Interviews to Evaluate Process
  • Strategies and Guidelines
  • Application of Underwriting / Pricing Practices
  • Monitoring Tools
underwriting assessment9
Underwriting Assessment
  • Interviews to Evaluate Process
  • General Manager
  • Underwriting Manager
  • Underwriter
  • Actuary
  • Loss Control
  • Claims
  • Marketing
underwriting assessment10
Underwriting Assessment
  • Interviews to Evaluate Process
  • Strategies and Guidelines
  • Application of Underwriting / Pricing Practices
  • Monitoring Tools
underwriting assessment11
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
underwriting assessment12
Underwriting Assessment
  • Interviews to Evaluate Process
  • Strategies and Guidelines
  • Application of Underwriting / Pricing Practices
  • Monitoring Tools
underwriting assessment13
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

underwriting assessment14
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?
underwriting assessment15
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
underwriting assessment16
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?

underwriting assessment17
Underwriting Assessment
  • Interviews to Evaluate Process
  • Strategies and Guidelines
  • Application of Underwriting / Pricing Practices
  • Monitoring Tools
underwriting assessment18
Underwriting Assessment
  • Process Interviews - Monitoring Tools
  • Price Monitoring
  • Producer Monitoring
  • Automated Profit / Loss Reports
  • Claims Metrics
  • Automated Production Reports
  • Underwriting Reviews / Audits
underwriting assessment19
Underwriting Assessment
  • Sample Interview Screen - Underwriter
underwriting assessment20
Underwriting Assessment
  • Sample Interview Screen - Underwriter
underwriting assessment21
Underwriting Assessment
  • Sample Interview Screen - Actuary
underwriting assessment22
Underwriting Assessment

The Process

  • Interviews (Evaluate Process)
  • File Reviews (Assess Outcomes)
  • Reports and Graphs
underwriting assessment23
Underwriting Assessment
  • File Reviews to Assess Outcomes
  • Information Collection / Management
  • Application of Underwriting / Pricing Practices
  • Underwriting Decision
underwriting assessment24
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
underwriting assessment25
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
underwriting assessment26
UnderwritingAssessment
  • File Reviews - Underwriting Decision
  • Risk selection
  • Underwriting referral / 2nd opinion
underwriting assessment27
Underwriting Assessment
  • Sample File Review Screen - Policy-Level Data
underwriting assessment28
Underwriting Assessment
  • Sample File Review Screen - LOB Data
underwriting assessment29
Underwriting Assessment
  • Sample File Review Practices Screen
underwriting assessment30
Underwriting Assessment
  • Sample Premium Estimate Screen
underwriting assessment31
Underwriting Assessment

The Process

  • Interviews (Evaluate Process)
  • File Reviews (Assess Outcomes)
  • Reports and Charts
underwriting assessment35
Underwriting Assessment
  • The Outcome
  • Process Effectiveness Scorecard
  • File Effectiveness Scorecard
  • Needed Improvements in Performance
  • Recommendations
  • Implementation Plan
  • Platform for Ongoing Benchmarking