The future of technology and group schemes

Recent technological advances mean that underwriting and claims transactions can be processed on broker platforms. The latest systems are able to facilitate quotations; issue policies; renew and conduct mid-term adjustments on policies; collect and administer premiums; and process claims. Administration systems have proliferated in recent years and utilise various information technology architecture and platforms, predominantly Microsoft and IBM. In addition, the following technology advancements have been made in the third party platform space.

Broker policy and claims administration systems are often connected to external databases such as ITC, eNatis and Mead & McGrouther. These interfaces are used to access credit scores, vehicle information and vehicle values. The connection is automated and facilitates faster access to accurate data at both underwriting and claims stage. Credit scores are often utilised as a rating factor, while vehicle information such as engine number and VIN number facilitate vehicle recoveries, thereby improving loss ratios. Vehicle values co-determine pricing during underwriting and facilitate settlement quantum in claims too.

 

Many broker administration systems also connect into rating engines supplied by insurers. Insurers incorporate their technical rates within a "black box” rating engine and the broker platforms integrate with this to access the pricing for personal lines group schemes. They also provide underwriting rules such as maximum limit and referable instances. The integration of such rating engines means efficient service and accurate risk based pricing for broker and insured.

Insurers and reinsurers have limited access to the data which is held on broker and administration house platforms. This restriction creates a number of issues, including:

• Inability to manage exposures or aggregation of risk adequately;

• Possibility of exposure beyond underwriting appetite;

• Inadequate data for effective risk and pricing analytics that results in inappropriate risk selection and pricing;

• Sub-optimal reinsurance structuring (over-reinsured or under-reinsured); and

• Ineffective capital management due to lack of exposure data.

Insurers that cannot access policy and claims data may also contravene various pieces of regulation which require access to data, including the Solvency Assessment and Management (SAM) regulation and the Insurance Laws Amendments Act.

To manage risk selection, pricing and exposure, insurers and reinsurers need access to data in real time. For insurers, access to data facilitates appropriate underwriting practices. For brokers and the insured, data sharing ensures the sustainability of markets through effective risk based capital management. Data sharing enables cost effective and efficient service.

In the future group scheme brokers will pass data and process transactions with insurers through connectivity. The insurance value chain for group schemes will be connected from insured – through brokers to insurers – and ultimately reinsurers, with data flow and transaction processing facilitated through interconnectivity.

The connectivity between brokers, administrators, UMAs and insurers will be provided by the local short-term insurance data switch, STRIDE. Participants utilise the ACORD data standard in order to facilitate a common data language across the short-term industry. Mutual & Federal and other major insurers are currently mapping between broker systems and the switch to affect connectivity.

The first stage of STRIDE connectivity will facilitate the secure relay of data packages between entities at agreed time periods while stage two will facilitate real-time data flow, 24/7. A further stage would facilitate straight-through processing via connectivity using automated business rules.

The STRIDE switch is not the only means effecting connectivity, and no doubt some of the market will connect directly between enterprises without utilising an intervening mechanism. Whatever switch they choose to send and receive data, they must ensure that the data packages are secure, reach the correct destination and are utilised by authorised parties.

Data would therefore flow from broker to insurer, be processed in the insurer system utilising the insurer business/underwriting/claims rules, and then be returned to the broker/client through connectivity. This collaborative processing will lead to significant improvements in the business intelligence framework – offering improved predictive analytics, risk selection and pricing practices – at lower cost, which will benefit the ultimate insured.