Memories of Manual Rating
Karlyn Carnahan | May 05, 2014
Once upon a time, long ago when I was an underwriter, we manually rated risks—yes, on a napkin—and quoted them over the phone. Risk assessment was based almost completely on an underwriter’s individual judgment which for me, as a new underwriter, was relatively uninformed. To become a really good underwriter, you had to have been in the job for a long time, which gave you plenty of opportunity to see lots of risks and hone your judgment.
Today, carriers rely heavily on data and analytics to support the underwriting analysis. Predictive models and multivariate rating plans are used by most personal lines carriers and more and more heavily by commercial lines carriers. Carriers are developing more sophisticated models that tap into massive amounts of data that simply weren’t available even five years ago.
Most carriers, upon launching a model focused on risk assessment and pricing, see significant lifts in their loss ratio, which is why managing data and using analytics in the underwriting process is one of the capabilities most desired by carriers today. Large numbers of carriers have data and analytics as key initiatives and are focusing on building the infrastructure necessary to manage and store huge quantities of data—both structured and unstructured and both internal and external.
But having capabilities for managing data isn’t just about the storage, the schemas, or the reports. Carriers are looking for key people who can analyze this data. Typically these are individuals with masters degrees or PhDs in math or statistics. The best also understand insurance and a sense of curiosity is a requirement.
Some call these individuals data scientists, some call them data masters. Some have even called them “caped superheroes.” Whatever you call them, there don’t seem to be enough. Data enabled risk assessment is here to stay and relying on personal expertise in some lines has faded like my memory of manual rating.
While colleges are producing more students majoring in the STEM areas, it is still a difficult task to find those with the right skill set and experience. Forecasts of the numbers of graduates still pale in comparison to the forecasted need. As a note, 33 percent of all graduates with engineering degrees are foreign born, as are the 27 percent of graduates in computers, math, and statistics, according to U.S. News & World Report. Some are concerned that reported abuses of the H-1B visa system may lead to increased restrictions on hiring foreign-born workers.
What does this mean for carriers? If you’re recruiting from colleges, you may need to hone up on the legal requirements for hiring foreign born workers. You may want to invest in efforts to encourage more students to major in the sciences in order to fill the future pipeline. Many carriers are investing in extensive training for their own employees to build the skill internally.
The good news is that software supporting this kind of detailed analysis is becoming more robust. Carriers can do much more with vended packages today than they could in prior times. There are firms that provide specific services in building and managing predictive models and scores. And some consulting firms are building centers of excellence around data modelling.
With a wide variety of tactics available, it’s time for carriers to begin assessing their strategy for bringing the required capabilities in house.
(Karlyn Carnahan is research director for Celent.)
- Enterprise Architecture in an Agile World
- Top 10 Tips for Securing Your Mobile Devices and Sensitive Client Data
- Industry Insight: 4 Global Insurance Trends in Digital, Data, Content Services and Security
- Diving Deeper into Prioritizing Your Strategic Digital investments
- Why Content Rules
- How Mass Personalization Will Open the Small Business Benefits Market
- At Year End 2017, Will Your Organization Be Protected from Cyber Risks?
- Do Insurance Bots Dream of Mitigating Risk?
- Conditioned to Respond
- Managing & Mobilizing Insurance Data in a Connected World
- Race to the Finish Line
- New Tools, New Opportunities in Claims
- ITA LIVE: Reaching Insurance Industry Crossroads
- Advice to Insurance IT Leaders: Keep Your Eye on the Ball
- New Date, Venue for ITA LIVE 2017
- Guidewire Makes Major Push to Small and Midtier Market by Acquiring ISCS
- Insurance Disruption is Happening Right Now
- Insurity Adds Strategic Investment Partner, General Atlantic
- Beyond Transformation: The Convergence of Finance, Risk, and Actuarial Functions
- The Rapid Evolution of Consumer Protection Regulation
- Talent Hunt: Finding, Attracting, Retaining Top People
- Insurers Flexing Their Distribution Models
- Technology Driving Disruption in Insurance
- Fear of ‘Next Bubble’ Challenges Life, Annuity Carriers
- Technology Allows Commercial Lines Insurers to Stand Out
- Single Sign-on Viewed as Biggest Tech Challenge for Agencies
- ISCS Observes 20th Anniversary; Scurto Predicts Major Changes Ahead
- Policyholders and Their First Impressions
- Progressive Making Progress on the UBI Front
- High and Dry: Insurers Search for Disaster Recovery Plans
- Insurers Sign The (Un)Dotted Line
- Reflections of a Retired Insurance CIO
- Mobile Device Management Just One Answer to BYOD Issue
- Lessons from GEICO and Progressive on Winning the Critical Buying Stage
- You Are a Target for a Cyber Attack
- Web-based Systems are the Next Evolution in Claims Technology
- Gaining a “Wow” Experience from Web Users
- Time to Shift from Business/IT Alignment to Business/IT Alliance
- Healthcare Insurers Changing to Consumer Model
- Organization is the Key for Selecting Software Vendors
- Analysts Expound on the Needs of the Mid-tier Insurance Market
- Finding the Cure for Obamacare’s Website
- New Software Solutions Benefit Insurers on the Inside and Outside
- Products, Market Impede Investment in Systems for Life Insurers
- Combatting Cyber Threats: Predict, Prevent, Persist
- The Future of Telematics Heads Beyond Insurance
- The Shame in Cyber Security Lapses
- Building Policy Administration Systems for the Future
- Insurers Look Into The Eyes of Their Policyholders
- It’s a New Dawn for the ITA
INSURANCE IT NEWS
- Sapiens DECISION Recognized as a “Hot Vendor in Digital Business Platforms, 2017”
- DATAMATX Announces Prelude Software as New Solutions Partner
- Quadient Appoints Christian Hartigan President and General Manager of the Americas
- Gibraltar BSN Life Berhad Selects Majesco Distribution Management and Majesco Digital Solutions
- Desjardins General Insurance Group Deploys EIS Suite for Commercial Lines
- Acuity Modernizes Customer Communications Management with OpenText Exstream and ValueMomentum
- COUNTRY Financial Joins Roost’s Home Telematics Program
- Roost partners with The Weather Company
The Email Chat is a regular feature of the ITA Pro magazine and website. We send a series of questions to an insurance IT leader in search of thought-provoking responses on important issues facing the insurance industry.
ITA is pleased to present the 2014 Webinar Series. We have many topics for you to choose from and attendance is open to all ITA members. The webinar topics are current and exciting — ranging from predictive analytics to telematics and will focus on the direction insurance carriers need to follow for the future. All webinars are presented by insurance IT professionals along with some of the leading analysts and consultants in the field. There is no cost to attend an ITA webinar. For more information and to register for the webinar, click the “title” of the webinar below.
BLOGS AND COLUMNS
It has become a common refrain over the past few years to view the practice of enterprise architecture (EA) as something that time has passed by, much... READ MORE
One important trend in society over the past decade is our increasing ability to create and consume a seemingly unlimited amount of digital content... READ MORE
You have surely heard it said that small businesses are the growth engine for America. Today, the phrase has a special ring to it for benefits... READ MORE
With stagnant growth and lingering low interest rates, the life insurance industry faces a challenging future... READ MORE
Finding insurance carriers willing to write commercial lines risks has always been a challenge for producers... READ MORE
As Guidewire Software prepares for the start of Connections, its 11th annual user conference that begins on Nov. 2, Brian Desmond, chief marketing... READ MORE
Fraud detection has always been and will continue to be a critical component of claims management. Learning the lessons from current claims Straight... READ MORE
- Vendor Views