While ERC may alleviate many challenges related to cost, time and keeping up-to-date with ISO, it is very sophisticated and requires complex design and engineering to reap all its benefits.
In our previous article on this topic, we laid out the reasons for why insurers need to incorporate ISO Electronic Rating Content (ERC) to run their business more efficiently. Now, we’ll take a look at how your organization can benefit by utilizing a rating engine that can integrate with ISO ERC, and realize gains in efficiency, as well as time and money saved.
We discussed previously the different options insurers have when looking to implement a rating engine that incorporates ISO ERC: namely, to build an in-house solution or procure a commercial off-the-shelf solution from a vendor that is a member of the ISO Electronic Rating Content Associates Program.
But whichever option you choose, you want to ensure that it can easily support present and future needs. While ERC may alleviate many challenges related to cost, time and keeping up-to-date with ISO, it is very sophisticated and requires complex design and engineering to reap all its benefits.
If going the vendor route for a rating engine, there are several considerations to keep in mind. Among the most important is breadth and depth of support for lines of business. The solution’s architecture should be able to take advantage of ISO ERC such that future lines of business are not large scale efforts and keeping current with ISO is not hindered by rigidity of the solution.
Another major factor to consider is that the solution has timely access to ISO updates. You want to know you are going to be able to keep up to-date with ISO content. With ERC, you could be in a position to fully absorb a new ISO release as-is, with ISO changes, interpreted and specifications issued directly by ISO. This allows you to keep current with ISO’s most recent filings with almost no effort. To illustrate this, in 2009 ISO introduced changes to limit of insurance (LOI) curves—for example, new occupancy/construction relativities. Many insurers that had rating engines that relied on manual processes found themselves facing long lead times from IT departments to effect these changes. On the other hand, insurers that could capitalize on this change quickly, profited from their agility.
When evaluating your solution options, be sure to assess how your rating system can automatically absorb ISO ERC—because any manual effort will defeat the purpose, and potentially re-introduce risk of errors, increase time and costs to keep up-to-date.
You also must ensure that you have the ability to apply your company-specific deviations to ISO. These deviations may reflect the needs of, and risks represented by your target customers. Your rating engine should make it easy to create deviations from ISO for experience based loss cost modifiers, custom coverages, algorithms and rules. You also need the tooling to separate what is baseline ISO content from your company deviation. This ensures that when new ISO ERC releases are available, your deviations can be retained, modified as necessary and applied to the ISO release.
No Programming Intervention
And finally, we should note that not only should your system be up-to-date with ISO changes, but must also be designed in a way that the user interface or quoting system can take advantage of ISO updates without any programming intervention that would result in delay or major effort. You should verify that your solution takes advantage of the “implementation specifications” provided by ISO ERC. Effectively taking advantage of this, will ensure that not only rate tables and algorithms are up-to-date, but so is the quoting system that enables data capture and performs validations against the ISO provided implementation specifications.
In our third and final part of this series, we will be taking a look at what a hypothetical example of how a carrier can benefit from implementing a rating engine as described above, as well as some technology considerations to bear in mind.