Spreadsheets are undoubtedly indispensable in the property/casualty insurance office! With its ubiquity and reliability, Microsoft Excel has become the favored workhorse for developing models, simulating business scenarios and even computing premium, amongst other uses!Spreadsheets also enable speed and ease of use to quickly launch new insurance products to test in the market place. This probably is the biggest advantage realized by the entrepreneurial underwriters at MGAs, Program Administrators and Coverholders. You collaborate with the carriers and build a new product in spreadsheets and start quoting! You capture all attributes relating to the risk, holistically view the risk, compute and adjust premiums.
In this article, I will share:
- The disadvantages of spreadsheets
- The current insurance trends that should drive you to swiftly move away from them
- The 3 approaches you can take today to overcome the challenges
The Disadvantages of Spreadsheets
Spreadsheets are a compliance nightmare
From time to time, when there are changes in the underwriting guidelines or in the rates, new versions of spreadsheets are put in place. Manually managing these versions can pose a risk over time, even with the most scrupulous individual and the most robust process.
You risk losing your intellectual property
MGAs offer tailored products to specialized market needs, i.e. intellectual property. If an underwriter leaves your firm, he or she may also be walking out with your intellectual property - the spreadsheet with all your base rates, modifiers and underwriting guidelines.
They impede operational efficiency
MGAs are often the most efficient working units in the insurance space. Some of the most efficient MGAs track aggregate data to calculate time spent per quote, premiums written per employee and other such hard numbers. Not being able to track these metrics impedes operational efficiency. Also, underwriters’ time best utilized in assessing mid-market and large deals, while most risks that fit within a “box” could be processed straight-through. Today, it is easy to achieve such automation such that the underwriter only handles cases that don’t fit in the “box”.
They are the exact opposite of “ease of doing business”
Then there is the issue of agent/broker ease of business. It is well understood that agents or processing staff often know where they are going to place the business. And one key criteria is how quickly they can get a quote. This is unlikely in the case of spreadsheet rating. Also, agents often want to take control of their destiny, and if they see value, will be willing to self-serve themselves so as to quickly turnaround a quote to their customers.
Harness the Digital forces to succeed
If spreadsheet rating is not the way forward, what is the optimal path ahead? The answer to this requires that we examine some key trends shaping the property/casualty industry today.
Distribution channels are rapidly evolving with digital agencies and digital MGAs cropping up every week threatening to disrupt traditional MGAs with technology and data as their core competencies. Fintech giant Two Sigma tied up with Hamilton and AIG to create Attune which is chartered with harnessing data to accurately turnaround quotes by having an applicant answer just a few questions.
New business models are evolving which also have disruptive potential. We are moving rapidly to a sharing economy and a gig economy. Pay per mile auto insurance is here on one hand (Metromile) and on the other, there is the time element based insurance for those driving for Uber on the side or renting out their home on Airbnb (Slice). These trends, while seemingly targeted at personal lines, are expected to impact commercial lines too – especially small commercial insurance.
Powerful Digital forces are impacting virtually every industry. Mobility, Internet of things (IoT), demographic shifts, Analytics and Social - all need to be harnessed by MGAs, Program Administrators and Cover Holders.
Given the industry dynamics and the Digital forces, when thinking about replacing your spreadsheet rating, you must think further out and consider some of these important factors:
Anytime, anywhere, any device access
While most business gets done on a personal computer, there are many use cases for agents/brokers to gain access using other devices. They may want to leverage an eSignature capability while at the customer’s location or they may start capturing data while away from the office but finish up later in the office.
Rich Engaging Experiences
The online rate-quote-bind capabilities also need to contemplate rich engaging experiences. For instance, in our personal lives we are now accustomed to our favorite apps guiding us, informing us what others like us have done or prompting us to ensure that we’re making the right selections. Such capabilities can be as simple as “help-text” describing a coverage, to more advanced capabilities that educate the agent/broker on your unique coverages and options, with rich content such as infographics and videos that are served contextually during the transaction.
The online rate-quote-bind technology should allow for ease of business above all else in enabling the agent/broker to perform transactions rapidly. For instance, the technology can help minimize keystrokes by prefilling data related to the risk from third party data sources. Or you can provide them with the ability to upload schedules via spreadsheets to avoid having to enter each location or class or vehicle one after another.
Further, in anticipation of new distribution channels emerging, the rate-quote-bind capabilities must be available to new distribution channels and it is important to ensure that your technology uses a rich set of APIs or application programming interfaces – that allow your products to be rated and quoted using the distribution channels’ technology.
3 Options to replace spreadsheet raters
Do it yourself
This option is more conducive to those who have a dedicated IT department, a deep bench of web development skills with a governing architecture that prevails regardless of the individual developer. Most companies struggle with this and as a result there is a high risk with this develop in-house approach as business is reliant on individuals who could leave.
Web development vendor
Web development vendors can quickly develop online rate-quote-bind capabilities for simple products. With a small investment, you can get up and running fairly quickly. However, you should conduct due diligence on how they would manage change – for instance, how easy/costly would it be to change the rates or some of the underwriting rules. Or how easy/costly would it be to add rates from a new carrier and present a side-by-side comparison? And most importantly, you must understand whether you are relying on an individual or a company with well instituted processes such that if someone leaves, you are not left holding the bag.
There are a limited number of vended solutions in the market today to enable online rate-quote-bind. Such vended solutions can address simple products to far more complex ones, such as those that use ISO, NCCI, AAIS for the underlying lines of business. You should inquire if your vendor offers the solution in a software-as-a-service (SaaS) model – essentially providing a package including functionality, production support with service levels and hosting in the cloud. Also, you should evaluate how easy/costly the solution supports changes to rates, rules, addition of new plans and so on.
In summary, as digitization takes root in virtually all aspects of our personal and digital lives, it is imperative that MGAs, Program Administrators and Cover Holders embrace technology and automation to become indispensable to their agents/brokers and customers and prepare for a future with new sources of competition.
View this on-demand webinar: HOW CAN INSURERS BENEFIT FROM USING ISO ELECTRONIC RATING CONTENT? to learn how James River Insurance is benefiting from a rating engine with support for ISO Electronic Rating Content - presented by Mark Sheehan of ISO, Adarsh Singh of James River Insurance Co., Peggy Bresnick Kendler of Insurance & Technology and James Carlucci of ValueMomentum.