TECHNOLOGY ENABLERS OF CHANGE
There are four technology enablers of change in personal lines underwriting: business rules engines, predictive scores/analytics, data management, and optimization tools. Each makes a distinct contribution to improvements in underwriting performance. Working together, they have an even greater impact.
BUSINESS RULES ENGINES
A business rules engine (BRE) is a type of enterprise software which creates and executes rules to automate decisions within processes. Without a BRE, human underwriters make decisions by applying their judgement to available facts. With a BRE, specified decisions are made automatically and with complete consistency—given the same data, the BRE will always make the same decision.
Two of the key benefits of a business rules engine are greater ease of use and faster speed to market in comparison with embedding decisions in process-oriented computer programs. Business rules engines provide graphically oriented, easy to use development environments in which trained business users and analysts can make changes without waiting in line at the IT department.
The underwriting process is essentially a set of rules-based decisions. For example, if all necessary information is available, then the application can be assigned to a tier. A business rules engine, working with a data management system as described below, can recognize missing required information, and execute a request to people, systems or databases to obtain that information. Rules can be expressed in several other ways. For example, a business rules engine can execute a rule, in the form of an algorithm, which calculates a predictive underwriting score.
The insurance industry and insurance companies have a wealth of data on the people and objects they insure, and on subsequent losses. Actuaries use this information to establish tiers and rates (i.e., premiums/prices). A correct price is one that embeds the true expected value of losses on the particular coverage. An insurer’s ability to set its prices correctly is extremely important to its long term success.
Setting prices too high is bad because it will drive business away. Setting them too low is even worse. Assume that a set of applicants each has a true expected loss value of US$300. Carrier A quotes a rate which assumes an expected loss of US$200; Carrier B quotes a rate based on
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