Account and book underwriting methods today still incorporate very little in the way of hard data. Often, inspection reports, prior loss information or experience modifications are about it.

The degree of subjectivity in pricing and selection drives much of the industry's hand-wringing over the training and general experience level of underwriters. But the problems go deeper.

Subjectivity and its resulting inconsistencies:

  
• Impedes understanding of trends and opportunities for corrective fine tuning. The more consistency in decision-making, for example, the more often pricing will be closer to the right level.   
• Compound already confused signals being sent to the marketplace. Clarity and consistency in underwriting approach go a long way to improving the quality of applications received.   
• Create missed opportunities to move the performance needle and profitability of a book. For example, using historical growth trends to spot sectors in which aggressive premium audit activity can yield a big up-tick in cash flow.

Here are three tips for avoiding the pitfalls of subjectivity:

Tip 1: Use hard facts, rather than anecdotes and hearsay.

Information on market share, growth, and exposure trends is more available and accessible than ever today. It is also far too important to your understanding of potential profitability to be treated casually.

Using database tools in underwriting introduces objective measures that can yield more control and better performance. In fact, the touch points for market data in underwriting are so numerous, the converted can easily outstrip the capacity of research units to provide needed input. For these individuals, significant value can be found in direct access to such tools.

Tip 2: Don't underestimate what you can learn from economic activity.

Insurable exposures rise and fall with the ebb and flow of the economy. In fact, changes in exposure are even more pronounced than cyclical changes in business revenues. Recognizing this, underwriters can use growth forecasts to adjust ongoing direction and attitude.

For example, contrast the phase of the insurance cycle with exposure trends. You can mitigate the impact of market-driven pricing by increasing your focus on states with strong exposure growth forecasts and which are large enough to provide a stable base for rate making. Similarly, reducing emphasis in states with very weak growth forecasts, and in lines that are forecast to have weak growth, can bear performance fruit. Simply looking at the forecasts on sizable classes can be a useful guide. But more detailed analysis can yield important insights that can be turned into competitive advantage.

Tip 3: Don't let the best be the enemy of the good.

Don't lose sight of the fact that little changes can produce important results. Use the insights your facts provide, not just on new business, but on existing books as they renew. Using facts for direction settting can also help with buy-in and consistency, such as in objectively determining when to give or withhold credits. Just think: if you can move the performance of an inert book of business by ¼ of a point, how much would the bottom line benefit?

MarketStance integrates insurance statistics and business demographics to put up-to-date, comprehensive and highly relevant intelligence on the market for insurance at your fingertips. These tools enable you to gain quick answers to straigthforward questions, or to perform multidimensional analysis on various aspects of the business. MarketStance data cubes allow you to point, click and drag information into interactive, dynamic reports, charts and graphs. That adds depth, detail - and objectivity - to support a wide range of important underwriting decisions and functions.