Time To Automate UnderwritingTime To Automate Underwriting

Financial ServiceSolutions can provide automated underwriting on 58% of the applications it receives under contract with a major bank, which it declines to name, and the Re/Max International Inc. realty service. "Our intentions are at one point to do 100% of our underwriting" through the ProcessPro system, Edelson says.

Fully automated underwriting would give Financial ServiceSolutions' customers a competitive advantage, since the automated system saves on employee time. The company needs an underwriter for every 10 mortgage-processing employees, at a cost of about $75,600 a year each in salary and benefits. By capturing more of the underwriters' judgments as rules and building them into an underwriting system, Financial ServiceSolutions can build more expertise into ProcessPro. That doesn't mean eliminating underwriters as much as using their skills on the cases that really need them, Edelson says.

By automating underwriting and other parts of the mortgage-application process, Financial ServiceSolutions can provide mortgage services as a utility for multiple banks, while presenting the processing results under each bank's brand. "We do everything in the bank's name," Edelson notes.

St. Paul Travelers Cos. Inc. is another insurer that has implemented automated underwriting in what it calls its "garage to greatness" program. It's focused on providing property and casualty insurance to small technology companies that many insurers can't bother with.

Its VisionPak system, a custom desktop application for agent offices, with connectivity built in to upload information to St. Paul Travelers' mainframes, authorizes agents to examine a technology company with revenue of $15 million or less, automatically underwrite its application, and issue a quote in little more than an hour at an agent's office.

"We streamline the buying, underwriting, and pricing to get the policy out the door as fast as possible," says Bill Rohde, president of Global Technology Underwriting, a unit of St. Paul Travelers.

The firm also will automatically underwrite technology companies with up to $25 million in revenue with an automated system it calls TechXpress, another agent office application capable of assessing a prospect. Its underwriting rules are more stringent and complex because the larger company represents a larger risk. The agent may assess the prospect, but St. Paul Travelers' reserves the right to approve such prospects. While it has a current ceiling of $25 million in revenue for companies undergoing automated underwriting, Rohde says, that ceiling will rise as some of its best clients grow larger.

About 30% of St. Paul Travelers' premium revenue now comes from the technology sector, compared with none in 2000 when it implemented its technology industry focus. Over two-thirds of its technology-company policies are handled by the automated systems, Rohde says.

St. Paul Travelers insures Adobe Systems Inc. and storage supplier Quantum Corp., as well as a small company called Clientek Inc. The 25-employee company produces code for insurance companies, including St. Paul Travelers. "We had coverage from several different companies," and renewing each of them was time-consuming at his executive-constrained firm, president Kirk Hoaglund says.

By buying a package through St. Paul Travelers, he can always find his policy information online, where he can easily increase his coverages, receive quotes, and renew his policies, he says. Hoaglund was "uncomfortable" at receiving an automated quote at first but says such systems open up the opportunity "for a company the size of St. Paul Travelers to work with companies our size." He previously had been unable to get a large insurer to take an interest in his company's business, he adds.

A company like St. Paul Travelers is unlikely to ever automate 100% of its coverage, Gartner's Harris says. The task becomes more complex as the tech companies it serves grow in size and produce more products. One area of coverage for technology companies is "errors and omissions," protecting a company against suits by customers who claim to have received defective software. And, in general, prospects that don't fit neatly into a category still require a human underwriter to assess the special conditions of the case, such as a small business that earns most of its revenue at customer sites doing installations rather than in retail sales. But automating 30% to 50% of a business like St. Paul Travelers is feasible, she says.

Capturing the best available rules for underwriting in systems lets firms be sure that they're dealing with customers in the same way and with the same best practices. The effort to capture those rules, however, will tend to confront an old fear among workers. "They'll be asking themselves as they set down their decision-making process, 'Am I going to write myself out of a job?' It has to be handled with the right communication," Harris says.

Eventually, such systems will analyze the data flowing through them and pick out the customers representing the largest return on investment for the insurer. "It's our belief that automated underwriting will be a competitive factor over the next two to three years. Over five to six years, all the mainstream insurers will be using it," Harris says. And those who aren't no longer will be competitive.