In our last blog article, we discussed Four Ease-of-Business Barriers that Carrier Technology Cannot Fix. In this article we dig deeper into the first barrier: not being clear about what business you want.
A carrier’s underwriting appetite outlines the characteristics of the individuals and/or commercial entities that they prefer to insure. If properly defined, it includes the types of business for which they provide the most competitive and comprehensive coverages.
When a carrier’s operating team is not clear about their underwriting appetite, they send mixed messages to their distribution network. When this happens, both the carrier and their agents end up spending a lot of time on transactions that have a very limited chance of success—a waste of time and resources.
The best carriers work to ensure that their entire operating team knows not only what business they want, but also how to communicate in a way that makes it clear to their agents.
Only your agents can accurately tell you how well your team communicates your appetite. We often see comments from agents expressing their frustration with inconsistent messaging from carriers. For example:
“Provide more info on DESIRED appetite and which classes of business they have the highest success of writing.”
Focus Your Resources on Your Best Business
Over my career I’ve participated in many meetings where the financial people questioned the business’s underwriting costs. As carrier executives, we need to maximize the value of this significant expense.
For carriers that distribute through independent agents, underwriting expenses are among their highest costs. In some respects, this is to be expected since this is a crucial activity where carriers can add significant value in the insurance value chain.
The question is, can underwriting expenses be lowered in a way that still enhances the carriers’ value to their agents, their policyholders and themselves?
For most carriers, the answer is yes. One way to control expenses is to make sure the underwriting appetite is well defined and well communicated.
Attracting the “Right” Business Promotes Growth
It is very difficult for a business to control expenses when they do not grow their revenue.
Salaries and benefits make up the majority of underwriting expenses, and they tend to go up each year. This is especially true in the last few years when salary increases were required to keep talent in a tight labor market. If revenue does not grow and expenses increase, then underwriting expense as a percentage of premium (underwriting expense ratio) increases.
When a carrier’s appetite is not clearly defined, agents become frustrated because their lack of success in placing business increases their cost per transaction. As a result, carriers often see declines in the amount of business submitted by their agents. And when agents give the carrier fewer opportunities to win, they restrict the carrier’s ability to grow. This self-inflicted wound is caused by poor communication and execution.
The following comment from an agent describes a carrier that is not clear about their appetite:
“Very difficult to do business with [CARRIER] as I’m uncertain of their underwriting stance. “
Another agent expressed frustration with a carrier’s lack of communication in this way:
“More communication with reps. Don’t come here telling us you want all sorts of business, but when we send it in, it gets rejected.”
Contrast those with this positive comment from an agent describing a carrier with whom they prefer to place their business.
“They are very responsive and helpful with sharing their appetite and recent successes so I know what they are looking for.”
Being clear about what you want will promote growth, and this growth aids in controlling underwriting expense.
Greater Efficiency Lowers Expense & Improves Morale
There is another advantage to knowing what you want and communicating it to your agents. Your underwriters will be more efficient because they won’t waste time analyzing and quoting business that is not likely to be placed.
When underwriters receive submissions that fit the carrier’s appetite, the chance of writing the business increases. This is because they are familiar with the risks involved and they understand what it takes to win.
By clearly communicating the organization’s appetite, underwriters ultimately save time, have greater success on new business submissions, and can actually handle more transactions. It also frees up time for underwriters to communicate even more with the agents, attracting more high-quality submissions.
In addition, underwriters get discouraged when they work hard with little success. When their efforts are rewarded with successful placement of new business, they become energized. Everyone wants to be part of a winning team. When appetites are clear, underwriter morale improves.
In the end, greater efficiency helps you write more premium for the same underwriting budget, increasing morale and decreasing the underwriting expense ratio.
Key Take Away
One of the best ways for a carrier to grow their business is to ensure that their operating team is equipped to clearly, accurately communicate their underwriting appetite to agents. A clear, consistent underwriting appetite lowers expenses, enhances growth, and improves morale.