Risk Insider: Ernie Feirer

Top 4 Commercial Underwriting Blind Spots

By: | May 14, 2018 • 4 min read
Ernie Feirer, CPCU, is Vice President and General Manager, Commercial Insurance, at LexisNexis Risk Solutions, where he is responsible for developing a suite of solutions for the commercial insurance market. He can be reached at [email protected]

Prior losses can be a strong indicator of future risk. Yet many commercial carriers lack access to prior loss history, making them vulnerable to “blind spots” that can negatively impact the profitability of their books of business. They believe gathering and analyzing the data can be simply too costly and cumbersome.

Advertisement




However, research shows that 78 percent of commercial carriers feel that automated loss runs would go a long way toward solving this problem[i]. Yet few carriers currently employ some kind automated loss run solution to address this deficit.

The disconnect is surprising considering proven technology is now available that makes pricing risk easier than ever. Maybe it’s because they are skeptical, or perhaps simply unaware of the advances in automated loss run solutions.

Understanding the underwriting blind spots that mask risks might help commercial carriers better understand the intrinsic value of the technology. The following are the top four blind spots that can be illuminated with automated loss runs.

These findings are based on the results of separate tests with seven commercial carriers in which searches uncovered prior losses on risks which the carriers had previously bound.

Blind Spot #1: Moving bad risks across the carrier’s own companies

Many carriers have multiple underwriting companies with separate policy processing systems that don’t talk to each other. Consequently, bad risks often “boomerang” undetected between the carrier’s different underwriting companies. The test revealed multiple instances where an insured had a poor loss history with one of the underwriting companies, then moved to a second underwriting company within the carrier’s group as a claim-free risk. Without easy-to-access visibility in previous losses, the “new” insured looked clean.

These “boomerang” policies can create expensive losses. In one case, 64 percent of a carrier’s total prior losses (costing $57 million) were from customers who left the carrier and later returned, undetected. Automated loss runs can shed light on policies as they move across the carrier’s underwriting companies.

Blind Spot #2: Assuming “clean” risks

Carriers may assume all of the policies in their book of business are “clean,” meaning free of prior losses. This may be due partly to the fact that many carriers do not believe there is an efficient and reliable way to actually verify whether or not a policy has a prior loss.

Automated loss runs can unearth prior losses simply and accurately, leading to better-informed underwriting. To validate this premise, analysts ran automated loss runs on 5,800 supposedly clean policies belonging to a single carrier. It revealed that 15 percent of the carrier’s policies did indeed have prior losses.

Blind Spot #3: Missing risks with large loss history

Effective commercial underwriting is able to identify policies with risks that will generate future losses and, more importantly, avoid those risks that are destined to create large losses. Tests performed on automated loss runs of seven commercial carriers revealed that:

  • Small claims less than $10,000 accounted for 85 percent of the total claim count, and 20 percent of the total incurred losses.
  • Claims between $10,000 and $100,000 accounted to 14 percent of total claim count, and 36 percent of total incurred losses.
  • Claims over $100,000 accounted for just 1 percent of total claim count, but a whopping 44 percent (worth $180 million) of total incurred losses.
Advertisement




Clearly, finding those potential large loss risks through automated loss runs can make commercial underwriting much more effective.

Blind Spot #4: Searching only on business claims history

Carriers typically perform loss runs only on searches of businesses’ loss histories. The approach used to be effective. However, the tests found that adding a driver claims history search to the mix creates a much more comprehensive view of potential risk.

Automated loss runs can unearth prior losses simply and accurately, leading to better-informed underwriting

Multiple automated loss run tests identified $123 million in commercial auto incurred losses when researchers searched for business losses. They unearthed an additional $25 million when they searched on individual commercial driver claims history. This incremental $25 million represents a 17 percent lift in new claims found by adding a driver search to the loss run analysis.

The value of automated loss runs

These research findings underscore the important insights automated loss runs provide when they bring to light previously unseen blind spots in a carrier’s book of business. With this fresh view of data, carriers’ visibility improves, leading to better underwriting decisions, less risk exposure and a better bottom line.

For more information on the test results, download the Blind Spots Case Study.

[i] LexisNexis Risk Solutions proprietary data

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]