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The Average Time Property/Casualty Insurers Spend on ISO Circulars?

Many property/casualty insurance carriers use ISO advisory loss costs, rules and forms to stay on top of loss cost trends, new product forms, and regulatory changes. While this ISO content is invaluable, the processes utilized by some insurers to leverage this information and keep it up-to-date is often manual, and inefficient.

Maintenance and management of rates, rules and forms are essentially complex, labor-intensive, 

time consuming, and expensive processes for property & casualty insurers. Inefficiencies in these processes come in the way of achieving goals of operational efficiency, price adequacy, profitable growth, and regulatory compliance. 

This article examines the lengthy process for implementing ISO circulars prevalent across the industry and explores alternatives available to actuarial, underwriting, compliance and IT teams to introduce efficiencies.

Size and scope of the task at hand

ISO provides commercial lines manuals, comprising of multiple lines of business such as general liability, commercial property, commercial auto, business owners policy, commercial umbrella, amongst others. For most lines, the manuals provide a multistate and a state specific section which have rules, loss costs and forms. Additionally, ISO provides links to circulars and Notices to Manualholders (NTMs).

These circulars provide vital information on industry developments and ISO activities including ISO filings for loss costs, rules, forms, and statistical plans, as well as actuarial data and analysis and other important insurance topics.

If you are tasked with analyzing, interpreting and determining the course of action with a new ISO circular – you already know the complexity involved! On an average, ISO releases over 75 circulars a week. Just imagine, how many circulars a nationwide carrier with multiple line of business would receive.

There are two ways that carriers can decide to consume ISO rating content:

  1. Manually: Interpreting the ISO circulars manually or
  2. Electronically: Leveraging ISO Electronic Rating Content

Typical manual process of assessing and implementing new ISO circulars

ISO manuals are descriptive in nature and the content cannot be applied directly into insurers’ products. Typically, a cross-functional team representing actuarial, underwriting and compliance departments analyzes the circulars to interpret the changes, finalizes the changes and provides the specifications for IT to implementing the changes.

As shared by Karlyn Carnahan, Research Director Celent, in a recent webinar, the process to completely assess and implement a new ISO circular can be broadly divided into four steps: 1) Receive & track circulars, 2) Analyze circulars, 3) Finalize circulars and 4) Update circulars.

Insurers can now update ISO rating content digitally-510945-edited.png

Source: On-demand webinar: Insurers Can Now Update ISO Rating Content Digitally

In the first step, a cross-functional teams at an insurer first logs a new circular and reviews it to see if at all the changes in a circular are applicable.

In the second step, insurer takes up the actual analysis of the circular. The maximum portion of time and cost of assessing and implementing a new ISO circular occurs in this stage. According to a Novarica research partners program report, titled ISO Support: A Comparison of Manual Processes and Electronic Practices, underwritten by ISO, analysis phase comprises over 30% of the total time and on average carriers have ten people involved in this task. At this stage, the team assesses the impact of the circular on the insurer’s product, state filings and displacements to customers’ policies. The teams also determine the scope and timing of the change. All too often, constraints related to availability of resources, cost and time factor into this decision. As we will see, electronic means remove these constraints to a fairly substantial extent.

The same Novarica report mentions that the average work time needed to process an ISO circular is over 560 hours. The report further states that there is a wide difference between the time needed to handle a simple ISO change compared to a complex change. A complex ISO change, on an average, takes 6 times more work time than simple changes for carriers working manually. Let’s take an example to illustrate this: in 2011 ISO introduced changes to limit of insurance (LOI) curves—for example, new occupancy/construction relativities. Many insurers that had rating engines that relied on manual processes found themselves facing long lead times from IT departments to effect these changes.

In the third step, the team finalizes the changes by identifying the specific form and rate changes, and the plan for handling filing across multiple departments of insurance.

In the fourth and final step, updates are made to the systems. To update changes in the system, IT teams create business requirements, system specifications, test cases, code the changes and thoroughly tests changes before rolling it out to users.

High costs and challenges with effective date

The same Novarica report mentioned above cites that handling an ISO circular manually costs more than $45,000 whereas complex circular costing going over $80,000.

Another challenge that insurers face with manual consumption is the inability to respond to ISO circulars by their effective date. Because of the sheer amount of circulars that ISO releases and time each circular takes to implement, most insurers fail to respond to the circular changes on their effective date. If insurer is out of date on the rate, it faces the prospect of premium leakage. If insurer is out of date in form changes, it faces the prospect of loss leakage.

Electronic means help insurers overcome challenges posed by manual methods

So, how can insurers overcome with the challenges of keeping current with all of the changes that ISO releases for various line of insurance programs?

To address insurers’ concerns with leveraging ISO rating content, ISO launched ISO Electronic Rating Content™ (ERC). With ISO ERC, insurers receive the rating content that incorporates the changes identified in the circulars - loss costs, list of valid limits, list of valid deductibles, rules, algorithms for premium calculation, forms attachment logic, stat code assignment and business edits - all in electronic format.

In the webinar Insurers can now update ISO rating content digitally, Mark Sheehan, AVP, ISO Rating Solutions, shared that with ISO ERC, ISO has taken care of the analysis and implementation phases of the manual process, which usually constitutes 70% of the total effort.

With electronic means, insurers can now implement ISO circulars in just three simple steps –

Receive ISO ERC Release:

An ISO ERC release comprises of several circulars logically bundled together. ISO also provides release notes in an electronic format. Modern rating software that can take advantage of the release notes, can help visualize the actual circulars and isolate what has changed – significantly reducing the time involved in analyzing the impact of each circular.

In summary, all the steps involved in the above described manual method associated with “analyze changes” and “update system” are done – by ISO. Not only is this a substantial time and cost saving, but this also reduces the potential for introducing manual errors in interpretation, analysis or coding.

Auto-adopt or pick-and-choose which circulars to adopt:

In this step, the insurer’s team can choose to auto-adopt the circulars packaged in the release or pick and choose which ones to adopt. Again – modern rating software fully automates this with the electronic files ISO provides, and can help insurers visually select which circulars they would like to adopt and automatically update the system with just those circulars and the associated changes to rates, rules and forms. Such software also allows actuaries to visualize the impact of the changes on their book-of-business – to analyze displacement to customers’ policies, overall premium impact, what-if analysis to assess alternative strategies, and so on.

Retain, enhance or modify company exceptions:

In this step, the insurer can choose to retain, enhance or modify the company exceptions that were in place prior to the ISO ERC release. Typically these exceptions would be the “refer to company” rules that involve coverages such as inflation protection, rate exceptions, and so on.

Test & implement the changes:

It is important to note that this step does not involve actually coding the changes as was the case in the manual method. The ISO ERC files are already available with the changes and modern rating software with support for ISO ERC can propagate the changes to a test environment for user acceptance testing and subsequently to production.

Benefits of using electronic means over manual methods

According to the Novarica report mentioned above, using ISO Electronic Rating Content, insurers have realized a 39 percent reduction in overall hours working on updating ISO circulars, a 58 percent decrease in time spent by IT and a 35 percent decrease in the overall cost of keeping up to date.

ISO Support - A comparison of manual processes and electronic practices.png

Source: ISO Support: A Comparison of Manual Processes and Electronic Practices, underwritten by ISO

The lines of insurance currently supported by ISO ERC

ISO Electronic Rating ContentTM (ERC) is currently available for the following ISO programs:

Lines of business supported by ISO ERC.png

ISO ERC Suite supports Workers' Compensation through an arrangement with NCCI.

Key benefits from adopting electronic means to implement ISO circulars

Property/Casualty insurers have reaped significant benefits by adopting electronic means over manual methods. Some of the key benefits they have realized include:

Speed to market: Leveraging the ISO interpreted rating content in ISO ERC, insurers can drastically cut down on the time to analyze, develop, file, and implement rate changes. This translates into speedy roll out of new products or changes to existing products.

Cost reduction: Insurers can handle an ISO circular at a 35% lesser cost electronically compared to handling in a manual environment. Insurers report savings of 59% with complex circulars which can cost over $80,000 to process manually.

Regulatory Compliance: Regulatory compliance is the major advantage with ISO ERC for P&C insurers. ISO has already taken care of all the regulatory requirements with ISO ERC. So, insures need not spend time and money to review and respond to legislative and regulatory changes.

Staying current: Insurers who work with ISO electronically were on average 7 months more current than those using ISO with a manual process. With the manual process, most insurers struggle to stay current on the effective dates and are usually at least two years behind the effective dates.

Key Takeaways

There is no doubt that electronic means trump manual methods when dealing with interpretation and implementation of large volumes of ISO circulars. ISO Electronic Rating ContentTM (ERC) brings tremendous value for the insurers who leverage ISO manuals and circulars in their core operations. With ISO ERC, P/C insurers can completely do away with the traditional time consuming and error prone manual process of interpreting, analyzing and implementing ISO circulars. This brings a lot of efficiency to insurers’ rating process. In a constantly changing regulatory environment where ISO releases, on an average, 75 circulars a week, it is nearly impossible for insurers to respond to circular changes on their effective dates by assessing and implementing an ISO circular manually.


To learn more about how ISO Electronic Rating Content when combined with right technology can be a powerful tool for P&C insurers to fully automate the implementation of ISO advisory loss costs, rules, and forms, read the whitepaper: Reduce Costs and Stay Current with ISO

White Paper - Reduce Costs and Stay Current with ISO

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