Insurance Raters: Moving Beyond Spreadsheets

Spreadsheets are ubiquitous in insurance. For that reason, Microsoft Excel has long been the favored workhorse for developing models, simulating business scenarios, computing premiums, and more.  As we rapidly phase into the Digital era, however, it’s becoming increasingly clear that spreadsheets are insufficient for achieving the effortless speed, scale, and security of modern, technologically enabled rating solutions. With digital transformation becoming a key differentiator in the modern insurance marketplace, forward-thinking firms are moving beyond spreadsheets to data-driven, intelligent raters.

Since spreadsheet rating is not the way forward, what is the optimal path ahead? Let’s begin by examining the disadvantages of spreadsheets, and the key trends shaping property/casualty insurance today.

The Disadvantages of Spreadsheets

To begin, let’s examine some of the major disadvantages and drivers for replacing spreadsheets: 

  1. Spreadsheets are a compliance nightmare
    Whenever there are changes in underwriting guidelines or rates, new versions of spreadsheets must be put in place. Manually managing these versions can pose a risk over time, as human-error is inevitable even among the most scrupulous individuals and under the most robust processes.

  2. Inability to enforce standards
    Specialty insurers’ underwriting and product leaders pride themselves on the edge they possess on account of their exceptional knowledge of their niche market / segment, risks and products. While this “edge,” or differentiation is important, there are efficiencies to be gained in applying standards within product and process areas. For example – a common taxonomy and / or product definition standards across various product groups can improve product development processes. Spreadsheets are not easily able to support such standardization approaches.

  3. Insurers may risk losing their intellectual property
    Underwriting, Product and Actuarial groups in specialty insurers offer products tailored to specialized market needs. If a specialist from these teams  leaves a firm, he or she may in a sense be walking out with the firm’s intellectual property— including the spreadsheet(s)—with all the base rates, modifiers and underwriting guidelines. 

  4. Spreadsheets impede operational efficiency
    Underwriting expense is a key lever that specialty insurers must control. Ideally, insurers should be able to efficiently track aggregate data to calculate the time spent per quote, premiums written per employee and other such metrics. Automation makes it easy for insurers not only to track these metrics, but also seamlessly process the majority of risks that fit within a “box” and can be processed straight-through. As underwriters’ time is best utilized in assessing mid-market and large deals, moving away from manual spreadsheets to raters with automation abilities make allow underwriters to focus on the cases that drive the most value, or are otherwise exceptional.

  5. In this Digital era, spreadsheets are the exact opposite of “ease of doing business” 
    It’s well understood that agents place business with the carriers who have the easiest, speediest, and most intuitive processes for rating. Spreadsheet raters rank quite low across these three dimensions, requiring much time and manual effort on the part of the agent. With quick quote turnaround being of great importance, agents are rewarding insurers who provide seamless, self-service portals with automated rating capabilities.

The Digital Forces Shaping Insurance

As the digital ecosystem continues to shape up, distribution channels are rapidly evolving, with digital agencies and MGAs popping up every week offering new digital capabilities and technologies. Given the way these Digital Capabilities are radically reshaping industry dynamics, it is crucial to consider these factors when thinking about replacing spreadsheet rating:

  • Anytime, anywhere, any device access
    While most business still gets done on a personal computer, the demand for multi-device functionality has been increasing. When considering a new rating solution, consider a tool that allows agents/brokers to gain access using other devices. Among other use cases, agents/brokers may wish to leverage eSignature capabilities while at a customer’s location, or they may want to capture data outside of the office.

  • Rich, Engaging Experiences
    Rich, engaging experiences have become a baseline expectation, and online rate-quote-bind should be no different. In our personal lives, we’ve become 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” detailing basic coverage, to more advanced capabilities that educate the agent/broker on your unique products, with rich content such as infographics and videos served contextually during the transaction.

    In order to enable agents/brokers to rapidly perform transactions, your future online rate-quote-bind solution should prioritize ease of business above all. For instance, minimizing keystrokes by prefilling data related to risk by pulling from third-party data sources. Providing agents/brokers the ability to upload schedules via spreadsheets is another useful capability that reduces repetitive input of location, class, and vehicle.

    Furthermore, these rate-quote-bind capabilities must be available to new distribution channels; leveraging application programming interfaces (APIs) is paramount as it will allow products to be rated and quoted using the distribution channels’ technology.

3 Ways to Replace Spreadsheets

After considering the ideal capabilities of your future insurance rating solution, there are 3 common approaches you can take to replace your spreadsheet rater. Depending on your particular organization, there are a number of factors and considerations to weigh in the decision process: 

  1. Do it yourself
    This option is more conducive to those who have a dedicated IT department, a deep bench of web development skills, and a clearly-defined, governing architecture that is independent of any individual developer. However, this is difficult to achieve at most insurance companies. As a result, an in-house approach is inherently higher-risk as the business is reliant on individuals who may leave. 

  2. Web development vendor
    Web development vendors can quickly develop online rate-quote-bind capabilities for simple products. With a small investment, insurers can get up and running fairly quickly. If you choose to use a vendor, it is highly recommended to conduct due diligence on how your vendor would manage change – for instance, how easy/costly would it be to change rates or underwriting rules? How about to add rates from a new carrier and present a side-by-side comparison? Finally and most importantly, you must clearly establish 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.

  3. Vended solutions
    There are a limited number of vended solutions in the market today that enable online rate-quote-bind. Depending on the solution, these technologies 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 through a software-as-a-service (SaaS) model – essentially providing a package that includes functionality, production support with service levels, and hosting in the cloud. Additionally, you should evaluate how easy/costly it would be to make changes such as adjusting rates, altering rules, or adding new plans through the solution.

All in all, moving beyond spreadsheet raters is just the beginning. As digital takes root in virtually every aspects of our personal and digital lives, it is imperative that MGAs, Program Administrators and Cover Holders embrace technology and develop key digital platform capabilities to become indispensable to their agents/brokers and customers and prepare for a future with new sources of competition.

Ready to take your rating up a notch? Find out how our BizDynamics team can help you build the capabilities you need to succeed in the digital era.

Edited and updated on September, 2020.
Originally published in the CHART Exchange digital magazine, November, 2017.

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