MGAs, program administrators and coverholders protect against a specified loss or damage in return for a premium – more often for those risks that are not well understood or don’t “fit the box”. Underwriters decide whether or not to cover the risk, the terms at which to provide the risk and the price to charge for the protection.So let’s talk about different types of risks, the role of the underwriters and the systems that enable them to provide such protection.
Types of insurance risks
Standard insurance can be somewhat commodities – Auto, Home, Rental, Property, Liability. Most insurers handle these lines well with the underwriting rules and the standard rating algorithms. Some even come under the straight through processing which was popularized a decade or so ago.
Many MGAs, program administrators, and coverholders specialize in niche specialty markets and have the underwriting expertise that carriers may not possess. These can be certain lines such as restaurants, garage owners, artisans, contractors, school transportation providers, coastal personal and commercial property, athletic clubs and gymnasiums. There are even more specialized coverages, which require even more specialized underwriting. Here are a few of the event coverages.
- Wedding Coverage – In the event a natural disaster requires a cancellation.
- Cold Feet Coverage – In the event the bride or groom get cold feet, the coverage will pay the costs of the wedding.
- Hole in One Coverage – Some golf tournaments have a large prize if someone hits a hole in one, so this covers the cost of the award.
Specialty insurance niche
While some of the above are examples of more specialized coverages, many MGAs, program administrators and coverholders bring to bear their unique expertise in specializing on a niche and assembling the right set of coverages for such risks.
Carriers seek more profitability and growth with specialized underwriters who have a track record of understanding these risks. These markets require more flexibility with their systems to enable their underwriters to assess, price and provide terms for the risk.
Specialized risks require modern flexible system
Unlike standard insurance, where systems are expected to maintain consistency in how rules, rates, algorithms are applied in transactions, specialized risks require systems with more flexibility. Underwriters may choose to override certain rates, apply debits or credits based on the risk and loss history, seek to create stipulations to limit the exposure, and so on.
Many MGAs, program administrators and coverholders use administration systems that allow precisely such flexibility. These systems provide the ability to capture insured information, risk clearance, capture loss history, input statements of values and schedules, input premiums, develop quote proposals and binders, issue policies, calculate commissions and so on. Premium calculation is possible with simple excel calculation or with sophisticated rating engines.
Often, underwriters use rates, rules and forms from bureaus such as ISO, AAIS and others – as a starting point and adjust the premium calculations commensurate to the specialized risk based on the underwriters’ judgement. To do so, they access rating systems with support for such bureaus. Such rating software systems can provide common lines of business such as commercial property, commercial general liability, business owners policy, commercial auto, commercial umbrella, commercial package, inland marine, crime & fidelity, homeowners, farm owners and other lines from bureaus such as ISO. Further, such systems also provide for the ability for configuring deviations or exceptions from ISO commercial lines manuals and their loss cost modifiers. These systems can also be configured to support proprietary rate plans as is commonly applicable for proprietary lines such as professional liability, directors & officers, errors & omissions, wedding coverage and so on!
Modernize your rating systems
Rating software with support for bureaus such as ISO, AAIS and also proprietary lines, integrate with administration systems and enable underwriters to rate, quote, bind and even issue policies. Forward looking MGAs, program administrators and cover holders also invest in systems that allow agents and even consumers (for select lines) to access quotes and even service their policies. In fact, in the digital age, this is one of the most important investments that contributes to:
- Operational efficiency: by speeding up turnaround times on quotes
- Increasing revenue: by providing agents the ability to access quotes instantly or faster than current averages
- Attracting and retaining agents and brokers because of “ease-of-business” via agent portals to sell and service policies
- Increasing underwriting consistency by freeing up underwriters from clerical tasks to those focused on risk assessment and pricing
In summary, the dynamic business of selling and servicing specialized insurance is exciting, consistently growing at faster pace than the overall property/casualty industry and highly profitable for the most part. Dynamic underwriters with entrepreneurial spirit are constantly identifying new niche or specialty opportunities, developing their programs or guidelines, setting up their distribution engines, partnering with high quality markets and instituting modern and nimble systems to write profitable business.
Click below to view the on-demand ISO ERC Webinar to learn about the real-world deployment of a modern rating engine in combination with ISO ERC at Ryder System by Sue Tribby, Senior Director of Insurance Product Lines. You’ll also gain a deeper understanding of ISO automation with an actionable-information presentation by Mark Sheehan, VP and Head of Rating Solutions at Verisk.