Best Practices

5 Ways Pricing Actuaries Can Benefit from a Best Practices Review

by Adrienne Lewis

Credentialed actuaries adhere to a high standard of practice, so their work is necessarily going to be thoughtful and thorough. However, working only with an in-house team might insulate you from what is happening elsewhere in the industry. You might be falling behind in terms of competition and growth. But how can you really know? This is where the best practices review can be your company’s secret weapon.
Usually performed by an unbiased third party, a best practices review compares your practices to other companies and generally accepted actuarial methods to ensure that you are meeting or exceeding a high standard of practice. Close scrutiny helps to determine that you’re not missing key segments in your ratemaking. In short, it makes sure your business is keeping up.
However, that is just the broad look at the benefit. There are many more detailed ways that a best practices review can give your company a boost. Here are five specific ways your pricing actuaries could benefit from a review by an outside actuarial support partner.

  1. Alleviate the time burden.

Reviewing your rate level indication processes ahead of time can relieve your actuarial teams of some of the pressure that accompanies a rate filing. Every state has specific requirements or considerations that are unique to that jurisdiction. If your company submits a filing with indications that don’t meet muster with that state’s department of insurance, you’ll have to go back and make revisions—which could delay your filing or require you to scramble to collect the appropriate information. Undertaking a best practices review before a major filing helps you stay on schedule.

  1. Rank priorities to determine what will bring the most benefit.

Indications are also a significant part of internal decision making. Understanding how your processes stack up can help you determine the appropriate priorities to focus on in order to achieve your projected growth or other business goals. By determining how your actuarial methods compare to the indications from other companies and the industry as a whole, you can prioritize process enhancements or other aspects of your pricing methodology. You might discover that your teams are not performing an industry-leading procedure in some instances, but this might not be critical for overall business strategy. Knowing what to devote time and resources to can save you from wasting both.

  1. Determine how your company measures up against competitors.

Beyond comparing your methodology and results to actuarial standards, a best practices review can also provide insight that you might not be privy to otherwise. While your reviewing partner might not be able to share specifics, they can alert you if some of the ways your pricing is out of the ordinary for the industry, or if you are overlooking things that other companies are including.

  1. Build confidence in short-term and long-term growth.

Recognizing and determining how to respond to a particular finding is helpful for your business. With limited exceptions, every company has concerns about credibility. With indications, the data may say one thing, but how will you interpret it or react to it? A heavy reliance on your own data could lead to internal overreaction. A best practices review will compare your methodologies to other companies to make sure your decisions are not based on a myopic perspective.

  1. Validating what you’re doing right.

A best practices review is not just about identifying weakness; it can also surface all the ways your company is ahead of the curve. You’ll see your own role in pioneering industry change. An objective, third-party assessment by a credentialed actuarial support team will equip you with valuable intelligence about all the ways you’re doing things right.
An actuarial best practices review is like getting a regular physical exam for your business. It’s not something you need to do often, but it’s smart to check in regularly to make sure everything is okay. When you take a closer look, you’ll find areas for improvement and create benchmarks against which to measure future gains. We recommend conducting an actuarial best practices review every five years or so. Like with everything in insurance, it’s better to know for sure than to be surprised.
Also, best practices reviews can help all aspects of your business, not just indications. Once you complete the review for your company’s rate indications, consider doing the same with your reserving methods, product development, internal operations, and other departments. When the entire cycle is complete, it will be a good time to check in on rate indications again.

Curious about how your rate level indications compare to the rest of the industry? A best practices review from Perr&Knight can help you find out. Contact us today to discuss our actuarial support offerings.

The Sharing Economy: What You Should Know Before Jumping In

by Courtney Burke

Authors: Courtney Burke, JD, CPCU, Michael Goldman, FCAS, MAAA, Les Vernon, FCAS, MAAA
The proliferation of the sharing economy impacts both commercial and personal property casualty insurance by creating new insurance needs. This new landscape brings many opportunities to better serve your customers – but also plenty of pitfalls. If your company is considering undertaking a new insurance product development project to address the needs of this fast-growing and quickly evolving marketplace, here are some key factors to keep in mind.

Mind the gap

Networking companies like UBER, Lyft and Airbnb have specific insurance needs that require customized commercial insurance. If not modified, traditional personal auto and homeowners policies may have gaps in insurance coverage for transportation network drivers and home sharing network hosts due to standard exclusions. For example, although UBER provides liability insurance for its drivers while they are working and Airbnb provides host protection insurance covering third-party liability claims related to a stay, the driver or host may not be protected for damage to their personal property.
The sharing economy also impacts the accident and health insurance industry. The majority of gig workers, i.e. service providers in the sharing economy like UBER drivers or Taskers on TaskRabbit, do not receive employee benefits through their networking companies. This creates a market for individual supplemental health products customized for gig workers.
These gaps create opportunities for insurance companies to develop bespoke products that address highly specific coverage needs.

Insurance + technology = opportunity

Much of the sharing economy is technology-based – services are engaged online or via a mobile phone application. If you’re considering targeting the sharing economy, you may need to mirror this online delivery model for your insurance products. This modernized distribution of insurance provides an opportunity for insurtech companies who can help deliver insurance products that feel native to this tech-centric landscape.

Finding the right insurance product development partner

As the sharing economy becomes more prevalent, you’ll likely begin to explore different methods to provide coverage. If you’re new to the sharing economy insurance market, you may wish to develop products with features specifically designed for this arena, including episodic or short-term insurance, or industry-specific coverage.
To design a solution that keeps pace with the market, you should partner with an insurance consultant who has extensive experience in developing new products. Experienced insurance product development consultants can draft coverage enhancements to incorporate specific coverages that may not be currently offered in your product. A product design consultant will also work with you to understand where coverage gaps or limitations exist in your current product and then make recommendations to address each.

Right pricing requires close actuarial attention

One of the sharing economy’s unique features is shortened exposure periods for coverage. Sharing economy insurance products typically offer coverage just during heightened time periods of exposure to risk, aka “insurance on-demand.” For example, home sharing insurance coverage, such as that offered by Airbnb, would depend on the frequency and length of stays, the number of guests, accessible areas of property, etc.
Understanding and correctly pricing for risks during unique exposure periods requires actuarial experience to correctly handle expense loads, increased risk of adverse selection, potential fraud and risk of litigation. If you’re thinking of entering the sharing economy, work with consulting actuaries and data scientists who have the expertise and experience to utilize predictive analytics and advanced pricing techniques in the development of rates.

Regulation varies by state

Sharing economy insurance products must comply with each state’s insurance regulations – those that apply to all insurance products as well as those specific to sharing economy insurance. For example, several states have passed specific legislation regarding transportation network companies. By working with an experienced regulatory compliance consultant in the markets and jurisdictions you wish to enter, you can ensure that your products comply with applicable regulations and that your products are filed with the states as required.
Strict governmental and industry oversight make insurance one of the most demanding industries for regular and accurate data reporting. Property and casualty insurance policies designed for the sharing economy present unique challenges. For example, for a ride-sharing driver, when is s/he covered by personal auto versus commercial auto? To which special statistical code does the vehicle get assigned? Your regulatory compliance consultants will make sure all these details are covered before you file.
To best capitalize on this exciting time, work with an experienced insurance consulting services team who can help you develop a proactive strategy to release products the correct way. In addition to actuarial expertise, make sure your partners possess years of statistical reporting experience, technical expertise, and data management best practices to help you navigate your unique reporting requirements. With a clear objective and the right team, you can develop a comprehensive solution that puts you ahead of the market in this new economy.

For more information about how to best develop insurance products specifically for the sharing economy, contact Perr&Knight today.

Entering the Workers Compensation Line of Business: What You Need to Know

by Michelle Freitag

Workers Compensation (“WC”) filing activity is increasing as more and more insurance companies and InsurTech providers roll out WC products to round out their insurance product offerings. However, many of these companies possess only a limited understanding of the scope of what is involved in WC insurance product development. In the rush to market, they overlook important requirements that negatively impact the state filings process and stall their product’s release.
Before your company proceeds full steam ahead with your WC product, here are some important considerations to keep in mind.

Multiple rating bureaus and their products

Before an insurance company can begin writing WC they must affiliate with the appropriate rating bureau. The National Council on Compensation Insurance, Inc. (“NCCI”) is the designated statistical agent and rating bureau in 37 jurisdictions.  The remaining 14 jurisdictions have either licensed an independent state-specific rating bureau or provide workers compensation through a monopolistic state fund.  Companies will need to affiliate with the appropriate rating bureau before filing their product with a state.
Your team must be aware of the product offerings of the various bureaus in order to ensure you file everything you need. In most jurisdictions, the WC core product is already filed on your behalf and you are tasked with providing specific supplemental information. However, the amount of supplementation varies by state. It’s important to know exactly what information you’ll be responsible for submitting.  For example, schedule rating is allowed in Connecticut and is filed on the company’s behalf by NCCI in that state.  NCCI is also the rating bureau in Illinois and Illinois allows for schedule rating, but it’s not filed on the company’s behalf by NCCI.  So, if a Company wants to use schedule rating in Illinois, they must specifically file a schedule rating plan.

Creating a countrywide product is complicated

Many insurance companies think that they can develop a product that meets the requirements for a handful of states, then simply expand coverage to include other states. When it comes to WC, state filings just aren’t that simple. With so many state nuances that require careful navigation, it’s virtually impossible to create a countrywide product that will satisfy every jurisdiction.
Some jurisdictions have required mandatory offerings (ex. risk control services and small deductibles) that may or may not need to be filed with the state. Some states don’t allow schedule rating for WC. Others require drug-free workplace program credits. Mistakenly thinking you can use the same product features everywhere will slow down your state filings process.
Bringing a product to market is never as easy as it seems, particularly when it comes to WC. Unforeseen delays and close regulatory scrutiny are simply par for the course. Perr&Knight has assisted numerous clients in getting their WC products to market. We are knowledgeable about each state’s requirements, limitations and restrictions. For more information about how we can help you achieve successful and streamlined Workers’ Compensation insurance product development, contact our offices today.

California Personal Auto Filings: Avoiding the Pitfalls

by Dee Dee Mays

Any companies with a personal auto program in California who haven’t submitted a rate or class plan filing within the last couple of years may be in for a surprise when they submit their next filing.
Personal auto filings have been coming under increased scrutiny by the California Department of Insurance (“the Department”) as the state has taken a stricter view of the existing personal auto regulations. This is likely in part due to the pressure from Consumer Groups to ensure that the premiums charged to consumers are fair and are not excessive.
Most notably, ProPublica published a report stating that poor and minority communities face significantly higher premiums than their counterparts in more affluent neighborhoods. Although the validity of the results has been questioned, the ProPublica report has brought this issue to the forefront, which has caused the Department to take a closer look at zip code rating. Other Consumer Groups have also raised concerns about other items in personal auto filings. All of this combined with the Department’s internal review has resulted in changes that will have a material impact on personal auto filings in California. Many companies are learning this the hard way by submitting California auto filings without taking into consideration the latest changes made by the Department.

Unfamiliarity with Changes Can Result in Undesirable Revisions

If your company is not aware of the latest requirements for California auto filings, you may be required to make significant, unexpected changes during the filing review process. These could include costly revisions such as reducing rate levels below proposed rate levels; reducing existing fees used with the program; revising rates charged by zip code without consideration of the competitor information; revising class plan factors to be consistent with the Department’s request; or paying for a consumer group’s intervention on the filing.
In order to make sure that possible changes required during the filing review will be in your company’s best interest, companies should review the pros and cons that could result from submitting a filing. 

Consumer Group Intervention

A review of California rate change filings shows that many companies file rate changes of +6.9%. This is due to the regulation stating that the commissioner must hold a rate hearing upon timely request by a Consumer Group for a rate change that exceeds +7% in a personal lines filing. However, filing a rate change less than +7% will not prevent a consumer group from intervening in the filing if they think the proposed rates are excessive or unfairly discriminatory, even if the filing is for a proposed rate decrease. Also, the commissioner at his discretion can decide that a rate hearing is necessary for any rate change including ones below +6.9%. That said, the Department does its best to mediate between all parties involved in the filing so that a rate hearing can be avoided. For rate increase filings at or above the +7% threshold, the Department and the Consumer Group must be satisfied with the support for the proposed rate change to avoid a rate hearing.
The following link contains a list by year of the filings that have been intervened on by consumer groups, along with the cost that was paid by the insurance company.

Beware of the Recent Change in the Filing Review Process

One of the biggest changes that has occurred is with the Frequency and Severity Band assignments by zip code. Even if you are not proposing changes to these class plan factors, the Department will require a review of them, which is likely to result in needed changes. This review will need to be done strictly in accordance with regulations, including the requirements for use of an alternative dataset for any zip codes that lack credibility. Companies should also be aware that the Department has been relying more heavily on the indications from the sequential analysis and the proposed factors need to be consistent with the indications for all class plan factors, including class plan factors where the company may not have been intending to propose any changes.
Companies should also take note of the following items regarding the review of rate filings:

  • All rate changes must be within the range of allowable changes for each coverage;
  • Calendar year or calendar quarter data derived from the development triangles should be consistent with the corresponding data in the trend exhibits or it will be questioned by the Department; and
  • Fee amounts charged to policyholders may need to be supported based on underlying expenses even if no changes are proposed, particularly if the fees are high.

The above are just some of the most important items when it comes to a California personal auto rate and class plan filing. As always, it is important to stay abreast of the latest changes in the California auto filings review process.

What You Don’t Know Might Hurt You

In complex jurisdictions like California, it’s smart to partner with experts who can provide insurance filing support that helps you carefully navigate the regulatory environment. For example, the Department regulations have been amended to reflect the new 21% federal corporate income tax rate, effectively lowering the maximum allowable rates for all P&C lines subject to Proposition 103. Excessive rates may not remain in effect under California regulations. If your company needs to take a rate decrease, you should be filing one. The Department does annual reviews of the financial results of all companies by line of business and has required companies to submit filings supporting that their filed rates are not excessive.
To assist you with personal auto programs and avoid the pitfalls of filing in California, work with experienced consulting actuaries who have a complete understanding of the Department’s latest positions and whose insurance filings support service includes an active dialog with the Department. Look for partners who have assisted other insurance companies in achieving the best possible results on filings that have been intervened on by consumers groups.

Knowing what to expect in California can put you ahead of the game. Perr&Knight can help.

Think Before You Act: Why Expert Solution Architecture Should Always Precede Critical Data Initiatives

by Joseph Allen

Deploying a data solution that addresses a real-world business problem is not just about drafting a quick set of specs and coding to meet those requirements. Instead, it’s about architecting a solution that will satisfy your true business need.
As experts in insurance data services, we have seen many companies dive headfirst into development without taking the time to outline a process that delivers not only their desired data set, but a viable strategy to keep moving forward.
Companies can sink deeper and deeper into development quicksand, increasing budgetary spend and extending the project timeline by piling more features onto both legacy and modern systems that don’t fully address the problem. To achieve lasting solutions that deliver maximum value, slow down and think before you act.

Focus on the problem, not the tools

Before you undertake any data initiative, it’s vital that you dedicate sufficient time and attention to define the full scope of your problem. We have seen companies get distracted by the latest, greatest software tools and fail to determine whether or not these tools will deliver the information they need.
Focusing primarily on tools is like shopping for ingredients without an idea of the meal you will be preparing. Instead, clearly articulate the problem first, then determine how you will utilize the tools at your disposal to solve this problem as efficiently as possible.
At Perr&Knight, most of our engagements are preceded by an in-depth workshop, during which we aim to identify the true need. Many companies think they need help with one aspect, but it turns out that addressing a different issue will solve their challenge. We apply our insurance data services expertise to determine short-term success as well as define a long-term solution that will help our clients avoid this situation in the future.

Outline specific future actions and activities

After assessing your problem, articulate the specific activities that you will take as a result of obtaining your data set. Knowing these actions informs the scope of what should be contained in your reports. Focus on obtaining useful information that will equip your teams to perform their jobs more efficiently and effectively.

Teams must understand how their roles support your business

IT teams might be deeply focused on technical aspects of the initiative but lack sufficient context for the project as a whole. As such, their expertise is stifled. Don’t limit your IT teams to only the execution of the plan – loop them in early to make sure that the ultimate solution takes into consideration your actual business needs. Spend time bringing your IT team up to speed on how their input fits into the bigger picture of your data initiative and what your overall goals and outcomes are. Equipped with this knowledge, your technical teams become more valuable project assets.

How to avoid “analysis paralysis”

Successful deployment efforts start with the known and build incrementally from there. Look for what you can define that will provide an immediate benefit. In the effort to plan for every possible event, software developers can end up overdesigning their solution architecture. Companies that want to create a massive system to address every possible future need often get stuck developing bloated, unwieldy software that takes forever to deploy.
Perr&Knight’s process is to plant a firm stake in the ground by targeting a specific data consumer with a specific need, then focus on building out just those portions. From there, we expand incrementally, generating deliverables that are definable, measurable, and achievable.

More expert tips to keep your data initiatives on track

  • DON’T cast too wide a net. Keep your eye on the specific problem you’re trying to solve.
  • DON’T chase trends. Make sure your solution delivers the information that addresses your core
  • DO make sure that you are being specific. There’s no point in coding to vague specs.
  • DO define what constitutes success before you undertake the project, including how you will measure progress along the way and metrics that ensure you accomplish various scope items throughout development.

The fact is, data reporting is not a sexy profit center – but it is a critical part of doing business. Everyone wants a quick plug-and-play fix, but solution architecture is more about business modeling than a strictly technical solution. There is no such thing as a silver bullet. Quality solution architecture starts at the business level, i.e. understanding your business problem and applying that knowledge as your guide to implement the best solution. Data initiatives are a marathon, not a sprint. Keep this in mind and you’re sure to go far.

For more information about Perr&Knight’s expert insurance data services, contact us today.

Unique Challenges of Travel Insurance

by Susan Cornett

According to the U.S. Travel Association, Americans took 2.2 billion leisure trips in 2016. This skyrocketing volume of leisure travel opens up new opportunities to develop additional creative products to protect travelers from a range of travel-related setbacks. Today’s travel insurance products run the gamut from standard offerings such as flight cancellation due to illness, to buying the first round of drinks after scoring a hole-in-one on the green, to covering your pet’s stay at the kennel when your return trip is delayed.
But travel insurance product development is like playing a game of Twister. Filing requirements for New Mexico? Put your left hand on blue. Florida? Right hand on yellow. When the dust settles, you’re left with a complicated balancing act of variables that shift according to jurisdiction and coverage.
When you file other lines of business, such as personal auto or homeowners, it’s usually the same SERFF TOI in all 51 jurisdictions. But travel insurance comes with a unique set of stipulations that vary by jurisdiction, coverage type and, in some jurisdictions, coverage amount.
During decades of providing regulatory compliance services, we have seen the ongoing changes that impact travel insurance policies. Here are some of the challenges that are unique to this evolving line of business.

The regulatory environment is changing

As travel insurance has become more popular, jurisdictions are taking a closer look at these policies. This increased scrutiny has resulted in several companies voluntarily entering into regulatory settlement agreements with various Departments of Insurance. Other companies are leaving the market entirely.
In addition to the Market Analysis Working Group (MAWG), NAIC also has a travel insurance working group in the process of drafting a new model law. NCOIL has also developed their own model. These new frameworks will require you to take a closer look at the entire scope of your travel insurance line of business:

  • If group coverage, is the master policyholder a valid group?
  • Are your distribution channels appropriately licensed for each jurisdiction?
  • How do your distribution channels operate?
  • Are the rates consistent across the channels, with all other variables (trip cost, residence, etc.) the same?
  • Do you have processes in place to monitor or audit those distribution channels?

To avoid stiff penalties, make sure you have established the appropriate regulatory compliance processes.

Install adequate support when offering inconvenience benefits

Many insurers are offering inconvenience benefits to make their customers’ lives easier when filing a claim. Things like ultra-quick disbursements or payments via PayPal. If your company is considering offering this level of customer service on travel insurance products, be sure that you have the right operational structure in place before you go to market.

Current regulatory settlement agreements can impact your offerings

Even if you haven’t been flagged for violation, make sure you stay current with the results of regulatory settlement agreements, so you are aware of what regulators are looking for. Your in-house teams or regulatory compliance services provider should issue regular reports to keep your product development team aware of the settlement agreements that can impact your offerings. The Missouri State DOI has compiled a list of the results of recent market conduct investigations, including settlement agreements. This comprehensive list is a good place to start.

Avoid benefit overlap

There is potential for benefit overlap with both A&H and P&C coverages when issuing travel insurance. Some jurisdictions require additional disclosures to remind consumers that coverage is limited or supplemental. Other jurisdictions are requiring insurers to clearly state that a trip cannot exceed 6 months. Otherwise, policies that are too rich in accident and health coverage might raise a red flag with the DOI, making it appear that you are trying to circumvent the Affordable Care Act.
In addition to accident and health considerations, insurers should establish a clear demarcation between traveler benefits and homeowners’ or renters’ insurance plans. Insureds should be reminded to review their existing coverage so that they are aware of overlapping coverage.

Be aware of regulatory requirements regarding excess

Some jurisdictions will not allow excess plans and will require you to be the first payer. These changes can affect rates and filing requirements between jurisdictions. Pay attention to details like this before you undertake the filing process.

Product architecture can vary by jurisdiction

Instead of a single countrywide travel insurance policy modified for each state, you may need multiple versions. This could be because a state requires a split filing (A&H and P&C), or a state doesn’t allow variability. A&H benefits in excess of $50,000? New Hampshire requires insurers to file the P&C coverages separately from the A&H. Check with each state’s Department of Insurance for product architecture requirements as you begin product development.
Hasty or sloppy travel insurance product development jeopardizes approval, which impacts your speed to market. Don’t jump into the travel insurance line of business without taking a careful look at what will be required for every policy in every jurisdiction.
At Perr&Knight, our team of actuaries and product development experts are familiar with the extensive list of requirements for both accident and health and property and casualty insurance. This deep understanding of both sides of the coin can help you navigate the challenges that arise when drafting travel insurance policies.

For more information about how Perr&Knight’s insurance product development services can help you increase speed to market on your travel insurance products, contact us today.

 

The Benefits of a Mock Market Conduct Exam

by Terri Hitchcock

Authors: Terri Hitchcock, JD, Director of Product Design and Nancy Self, Sr. Product Design Consultant
Regulatory compliance infractions are damaging to an insurance company. Violations can result in fines, cease & desist actions, license suspensions, or, in worst case scenarios, loss of a company’s certificate of authority. In addition to these sanctions from the state DOI, compliance failures can devalue stock and generate terrible press that creates lasting reputational harm.
The best way to handle a compliance violation is to not receive one in the first place. One of the most effective ways to discover compliance weaknesses is to carry out a mock market conduct exam. These “non-official” reviews reveal the systems and processes that increase your risk of penalty when your company comes under examination.
In this article, we’ll discuss how mock market conduct exams are your company’s smartest strategy to uncover potential compliance issues and get ahead of the problem.

Market Conduct Exams in General

Market conduct examinations are the means by which regulators examine the practices, policies, and behaviors of an insurer in the marketplace. As a result, they focus on a broad range of consumer protection topics such as company operations, complaint handling, marketing and sales, producer licensing, policyholder services, claim handling, underwriting, and rating.
Exams will vary. Some are all-encompassing, while others are limited to certain topics. Some states (California, for example) have a regular schedule for market conduct exams, while others may conduct “targeted” exams. Targeted exams can be triggered by things such as complaint activity (i.e., an uptick in complaints or the recurrence of a particular type of complaint) or a significant premium volume change.  In all cases, it’s best to be prepared so when regulators come knocking, you’re not left scrambling.
A “mock” market conduct exam describes the review of your organization by someone other than a regulator (i.e. a contracted regulatory compliance services company or your organization’s internal compliance department).

How Mock Market Conduct Exams Can Help

Conducting an internal compliance audit or partnering with experienced third-party insurance consultants can help your organization identify violation-worthy practices and discover areas you hadn’t considered that could expose you to compliance violations. These “mock” market conduct exams can also help identify gaps between what your policies articulate and how your organization actually operates.
Some companies choose to handle mock market conduct exams internally, but many companies lack the human resources to devote staff for the time needed to conduct a comprehensive mock exam. External insurance consultants can get into the nitty-gritty, pulling random files and double checking against the same criteria that an examiner would–things like claim files, whether or not notices are sent in the correct number of days, adjusting to average reserves; if not, do you have the right documentation in the file? This close scrutiny ensures that you’re looking as deeply as an auditor would.
At Perr&Knight, we don’t just perform mock exams, we advocate for our clients. In addition to identifying potential weaknesses, our regulatory compliance services help companies figure out how to bridge the gap between their current conduct and what they should be doing. This helps companies get on track before the market conduct examiner arrives. Self-identifying problems gains points in the eyes of the examiner since examiners place value on proactivity and self-awareness.
Get comfortable with the fact that it’s only a matter of time before your company is subject to a market conduct exam. Your best bet for minimizing the impact of a negative market conduct exam is to allocate time and resources in advance. In addition to mock market conduct exams, we recommend regularly reviewing your policies and procedures with staff and making sure that these rules are being followed. Also, study market conduct exams on state DOI websites and look at the NAIC regulator handbook to obtain specifics on areas that will be covered, should you receive an exam notice. As with everything in the insurance industry, the best defense is a thorough and complete offense.

For more information on mock market conduct exams and other regulatory compliance services from Perr&Knight, contact us today.

The Importance of Unambiguous Product Requirements: Why a Good Business Analyst is Worth their Weight in Gold

by Ken Ekers

Launching or updating a new insurance system seems like a straightforward process. But it’s common knowledge in the industry that a large percentage of projects hit roadblocks due to unclear requirements. This lack of clarity might initially seem like a small issue. But reverberations further down the line can have massive negative consequences to your timeline, budget, and ability to deliver the defined scope.
In this article, we’ll outline some of the problems that can arise due to ambiguous product requirements and discuss how working with an expert business analyst from a qualified insurance support services partner can start your project off on the right foot and keep it on track.

Evaluate where you are–and where you want to end up.

Charting a course for implementing a new process is not just limited to outlining a list of your project’s final requirements. It begins with taking an honest stock of your “as-is” process and determining clearly how you want it “to be”. This gap analysis enables you to look realistically at the strengths and weaknesses of your current system and the associated processes, and determine the amount of change that will apply to these processes.  It is important to include input and gain acceptance from your assigned subject matter experts (SMEs) and the project stakeholders affected by these changes.

What can go wrong?

All of your business processes and systems are so deeply intertwined that small problems can quickly spiral into much larger issues. If product requirements aren’t clear, the first line of defense occurs early in the IT project itself. Vague or incorrect requirements can be uncovered by the developers or testers. These requirements will have to be re-drafted. If the vague requirements make it through development and testing, the SMEs could possibly uncover the issue. That means that the BA will need to refine the requirement(s), developers will have to re-develop and the QA testers will have to re-test, etc. This additional work will create both an immediate and long-term unfavorable impact on your budget and schedule.
Unclear or incomplete requirements will also result in a sub-standard suite of test cases, which will lead to incorrect or insufficient testing. As a result, the quality of your product will suffer.
Your new IT application or system will have to integrate with other systems–it will have to “play nicely.” If your requirements aren’t drafted correctly, not only do you run the risk of not delivering the right product, your new implementation could significantly disrupt other systems and cause those to exhibit problems that in turn require correction.  The fall-out period after an implementation could run longer and deeper than projected.
Poor product requirements can create scope creep as your requirements start to veer outside the defined boundaries of your project’s goals. These expanded requirements will go on to get developed and tested, and will more than likely be rejected by the SMEs who will expand the scope a little further (e.g. change control) because the deliverable doesn’t quite meet their expectation. Before you know it, your budget and schedule will balloon.
Finally, improper requirements will eventually create an adverse impact on your business team. Releasing a product that ultimately fails means higher expenses and loss of revenue, a double whammy. Or, the business sponsor might be forced to move forward with whatever portion of the project is complete and still lack certain critical functionality. You’ll end up throwing good money after bad as you divert resources that could be spent on new business or writing more policies toward fixing preventable problems. In short, poor articulation of product requirements can cause you to risk losing your competitive advantage.
Luckily, most of these problems can be avoided. This is where an experienced business analyst comes in.

How can an insurance support services business analyst help?

A business analyst is dedicated to establishing clear requirements and keeping a close eye on the project through every stage. Not only do they bring professional industry experience to the table, but they will take the time to elicit input from business SMEs. This can be done via a combination of various methods including brainstorming, interviews, requirements workshops, and several other techniques. Each of these approaches is designed to reveal the true needs of the project effectively giving your project a boost with a set of clearly defined requirements that are within the bounds of the project scope.

Aren’t business analysts basically all the same?

Business analysts are not all equal. Right now, there is a shortage of quality business analysts in the U.S. market. Of the available pool, some lack effective training or experience. Alternatively, individuals might have been in business analysis for many years but still have a limited perspective or do not use best practices. It’s worth it to take the time to evaluate an analyst’s capabilities and track record before contracting their services.

How you can get the most from your business analyst.

Your business analyst can be a major asset to your project, but your organization must do its part, too. Here are some ways you can support your business analyst as they steer your project toward success:

  • Use quality software to manage your requirements. There are several tools out there on the market, such as IBM Rational, Jira, or CaseComplete, that can document and log your requirements, so each step is traceable.
  • Invest in producing quality requirements. That means building time into the schedule to produce clear and accurate requirements and devoting funds to support that phase.
  • Avoid low-cost business analysts. This could be a sign that they lack experience or confidence, and insurance support services is not an area where you should skimp.
  • Be willing to accept input from strong business analysts. They can possess valuable subject matter expertise in the insurance industry. They want to deliver a successful project, so be willing to listen to and act on their advice.

At the end of the day, don’t reinvent the wheel. Partner with industry experienced business analysts who can elicit and evaluate your requirements from various angles. This comprehensive perspective creates a clear roadmap and alleviates the chance of misinterpretation, making their services well worth the investment.
At Perr&Knight, we know where to get answers, due to our decades of experience in the insurance industry. We also have a complete set of resources to establish quality requirements right at our fingertips, including experienced actuaries and experts in regulatory compliance, filing, and product design. For project support at any phase of development, contact our offices and we’ll be glad to help.

Predictive Analytics and Insurance Regulation: 5 Tips for Success

by Denise Farnan

As the influence of big data continues to rise, insurers are utilizing analytic models more often than in the past. But when launching new predictive models for use in insurance programs, it’s never a good idea to submit your model to regulators without the right support. By applying a regulatory-focused strategy, you can ensure that the review process does not slow down your model implementation.

Here are our tips for success:

Tip 1. Prepare thorough data documentation

The models you create for use in your insurance programs will be reviewed by regulators. Make sure your documentation on the data used in the model is clear and thorough, such as disclosure of internal and external data sources, data quality and accuracy checks, handling of missing data fields, as well as any adjustments you made to the data, including capping, removing outliers, etc. Regulators want to be sure best practices are followed by the modeler who conducted the analytics. To ensure that your data documentation is clear, it’s beneficial to contract an outside actuarial consulting firm to conduct an external review of your analytic model prior to submitting to state insurance departments.

Tip 2. Provide strong analytic support

Once you have documented your data, you still need to provide regulators with model validation results. Did you follow best practices when generating your predictive analytic model? A thorough regulatory review will require analytic support such as correlation and interaction tests, the statistical significance of results, confidence intervals, lift charts and many other items. Someone familiar with the regulatory review of predictive models can help ensure you are prepared with the necessary support. Once again, this is another area where it’s smart to partner with an actuarial consulting firm to confirm the accuracy of your results and conclusions.

Tip 3. Be prepared for variations by state

Remember that states may require different levels of support for regulatory approval of an analytic model. Some states have questionnaires as part of the filing process for predictive analytics models. Do all of your data fields comply with state-specific rules regarding allowable data fields? Never assume that just because your submission went smoothly in one state that you can count on an approval in another. If you’re submitting in multiple states, a third-party consultant can save you from major setbacks by performing a compliance review of your model before you submit.

Tip 4. Adopt the regulator’s perspective

Take the time to anticipate the areas that regulators will watch closely. Consider questions and concerns they might have and address them upfront in your support. This will help you stand a better chance of fast approval. If you do have questions about how to best support your model, request to discuss these concern with regulators prior to submitting your model.

Tip 5. Predictive analytic support versus intellectual property

It’s understandable that when you invest so much work and so many resources in developing your model you don’t want to share your valuable intellectual property with the world.  Whether you have developed your predictive model in-house or are using an InsurTech vendor’s model, you need to balance regulator review with protecting proprietary formulas. Partnering with a consulting firm that is familiar with confidentiality requirements can help protect your work without slowing the approval process.
When it comes to predictive models and insurance regulation, the most important thing to remember is: be prepared. Make sure your documentation clearly outlines your predictive analytic process to support the use of the model and address any state-specific regulatory concerns. It’s in your best interest to have all pertinent information at the ready so the process proceeds as smoothly as possible.

For more information about how Perr&Knight can provide predictive analytic consulting services to help you navigate the regulatory process, contact us at (888)201-5123 x3.

How to Achieve More Effective Program Monitoring

by Adrienne Lewis

In the insurance industry, program monitoring is usually about tracking loss ratios and production figures—that is, the various aspects specific to insurance-related metrics. But program monitoring has many other valuable applications for an insurance organization.
Monitoring your marketing initiatives will equip your sales team with important insights. Tracking the implementation of a new underwriting strategy will benefit your underwriters. And of course, actuaries will be interested in all the data they can get their hands on. In addition to identifying areas to course-correct internal programs, you can also monitor competitor actions and industry trends to make sure you’re not missing a valuable marketplace opportunity.
Though all insurance companies are conducting some level of program monitoring, your initiatives might not be achieving their maximum potential.
Here’s how to strengthen the effectiveness of your programs.

Everything starts with quality data

As with most things in our industry, success boils down to the data. You can’t monitor your program if you don’t have detailed, sufficient data to capture relevant metrics, on both policy and sales sides. For a truly complete picture, you need front-end policy data as well as back-end claims information. Make sure you are capturing current, relevant data that populates specific reports with detailed objectives.

Involve all departments

Program monitoring is not always about making corrections– it’s about updating priorities and realigning business strategies. Reports can help you identify the problem, but can’t help you solve it. This is where your teams come in. Each individual department supplies an important perspective to help determine the best decision, so collaboration is crucial. All the areas of your business must work together to determine the ideal solution.

Useful suggestions

During our decades of providing insurance support services, we’ve seen what works–and what wastes time and resources. Here are some key techniques that have been proven to increase the effectiveness of program monitoring for insurance organizations of all sizes.

  • DO automate reports so they are produced regularly with limited effort.
  • DO prioritize analysis. Just because you generate the report, doesn’t mean anyone is analyzing it. Raw data is useless without a qualified analysis. 
  • DON’T create so many reports that you can’t look at them. Ask your end users which reports aren’t bringing much value and eliminate those.
  • DON’T get so detailed that the results are too volatile and impede drawing any useful conclusions. Instead, aggregate the data to a larger group or produce the report less frequently.

When to work with an insurance support services consultant

Designing effective program monitoring initiatives takes time, attention and expertise. Many insurance organizations simply do not have the internal resources available to devote to shoring up program monitoring processes. Companies specializing in insurance support services can speed up the process tremendously by filling in the gaps. Partnering with an experienced insurance operations consultant can reveal areas where you can begin to achieve results immediately.
While there are some useful software-based reporting tools on the market, these tools are limited in their ability to analyze the reports they generate. At Perr&Knight, we believe in the importance of creating effective program monitoring strategies that provide valuable insights for end users in every department.  By taking a close look at your managing entity, products and the jurisdictions in which you operate, Perr&Knight provides these services to elevate the effectiveness of your program:

  • Designing strategies to automate report production
  • Recommendations for metrics to evaluate regularly
  • Illustrative sample reports
  • Layout designs that are more meaningful to end user
  • Peer review of report calculations or internal audits
  • Data warehouse redesign recommendations

Effective program monitoring allows your company to track trends, identify problems, and reveal potentially undesirable results early. From there, you can address inefficiencies, correct errors or narrow the focus of your programs before getting too far down the line. Monitoring your programs allows you to track actual vs. expected impacts, which can enable you to make adjustments based on real-world impact. Review early warning or key indicator metrics regularly to ensure that your company stakeholders have the info they need to make intelligent business decisions.

For more information about how to make your program monitoring more effective, contact Perr&Knight today.