By taking advantage of ISO electronic content capabilities P&C carriers can make significant gains in operational efficiency while addressing goals of profitability and regulatory compliance.
In an effort to stay on top of loss cost trends, new product forms, and regulatory changes, many P&C insurers utilize ISO rates, rules and forms. However, while ISO information is invaluable, the processes traditionally used to leverage this information and keep up-to-date are manual and inefficient. Taking advantage of ISO electronic content capabilities is key to overcoming this concern. By replacing the manual update process, carriers directly address the goal of operational efficiency. Indirectly, they place themselves well for addressing two other key market goals—profitable growth and regulatory compliance—which depend in correctly pricing risk.
According to a recent Novarica report titled “ISO Support: A Comparison of Manual Processes and Electronic Practices,” the average work time needed to process an ISO Circular is over 560 hours, with the bulk of time spent on getting the ISO changes into the carrier’s systems. Significant time is spent also on interpreting the change.
Manual processes also tend to drive costs of keeping up-to-date with ISO higher. The Novarica research report found that handling an ISO circular costs more than $45,000 when done manually, with complex circulars costing over $80,000 to process—a staggering amount.
To address carriers’ challenges, ISO launched ISO Electronic Rating Content (ERC) to speed up the process of interpreting and taking ISO changes. The ISO ERC offering enables rating engines from ERC partners to electronically deliver ISO releases to address changes in circulars, simplify and streamline ongoing maintenance and updates of ISO rating content and enables insurers to efficiently manage their deviations using configurable tools.
Benefits of ERC
The Novarica study compared the time and cost differences experienced by carriers supporting ISO in a manual environment and using ERC. Among the benefits of using ERC are a 39 percent overall reduction in overall hours working on updates ISO circulars, a 58 percent decrease in time spent on IT modification operating to ISO rates, and a 38 percent decrease in the overall cost of keeping up to date.
The advantages of ISO ERC are clear, and there are several options for utilizing it. Carriers can develop their own rate/quoting system leveraging ISO ERC. They also have the option of procuring an off-the-shelf system from a vendor that is a member of the ISO Electronic Rating Content Associates Program. Finally, carriers can also look at managed service offerings from vendors participating in the program.
Whichever option a carrier chooses, it is important to ensure the ability to 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.
In Part 2 of this series we will address what carriers need to consider when choosing a vendor solution or building a custom rating engine that takes advantage of ERC. Part 3 will look at concrete ways ERC can drive efficiency at an insurance carrier.