Maybe this is a sign of how far rules engines have come.
Historically an insurer’s underwriting philosophy was documented in an underwriting manual, provided by a reinsurer or produced by the company itself. Sometimes the reinsurer’s philosophy would be supplemented by variations drawn up by the insurer and stored on the underwriting intranet or on paper memos.
Then underwriting engines came along and the job began of producing a rule set in the engine that reflected the underwriting philosophy. Obviously it’s not quite as simple as that because the roles of an engine and of a manual can be quite different. And when you start the job the construction of a rule set can highlight some deficiencies in the manual.
These days some companies have invested a huge amount of time and effort in reviewing and improving the performance of their underwriting engine. Using the management information that it produces, reviewing early claims and analysing how the e-application is used, they have continually tweaked and generally improved the rules. And actually, so much so that the engine starts to become a more accurate and up-to-date representation of the insurer’s underwriting philosophy than is the underwriting manual. In conversation with an underwriting manager not so long ago we discussed how this had happened and how, in practice, the manual was ‘out of date’ in comparison with the engine.
Keeping the manual and the rule set in synch is a problem that reinsurers who supply both have wrestled with for some time and with varying degrees of success. But what about the insurer which has invested heavily in improving its engine’s rules? How does it update the manual to reflect its philosophy? Obviously an applicant should get the same decision whether underwritten by the engine or by a human.
Insurers who have an engine from an independent supplier may feel the need to have their philosophy documented in their own manual, driven by their underwriting engine. For those who use a reinsurer’s manual, to what degree can they customise it? As the use of engines grows, keeping the two philosophies synchronised is going to require careful management.