CHAPTER 4 : UNDERWRITING ACTIVITIES AND TECHNOLOGY

 CHAPTER 4 

UNDERWRITING ACTIVITIES AND TECHNOLOGY

After studying this chapter:

• Define field underwriting and identify producer activities that facilitate the underwriting process (mendefinisikan field underwriting dan mengidentifikasi kegiatan producer yang memfasilitasi underwriting process)
• Identify the purpose of a field underwriting manual and the types of information typically included in such manuals (mengidentifikasi maksud dari field underwriting manual dan jenis-jenis informasi yang disertakan dalam field underwriting manual)
• Define tele-underwriting and explain how tele-underwriting differs from field underwriting (mendefinsikan tele-underwriting dan menjelaskan bagaimana tele-underwriting berbeda dengan field underwriting)
• Explain the purpose of a table of underwriting requirements (menjelaskan maksud table underwriting requirement)
• Describe the role of an insurer's policy issue area (menjelaskan peran dari perusahaan asuransi area tertentu dalam penerbitan polis )
• List the types of information requested in application (permohonan) for individual life or health insurance and describe an agent's statement (menyebutkan jenis-jenis informasi yang diminta atau perlu diisi dalam pengajuan untuk individual life or health insurance dan menjelaskan pernyataan agen)
• Describe the numerical rating system (menjelaskan sistem pemeringkatan numerik)
• Distinguish between automatic reinsurance, facultative reinsurance, and facultative obligatory reinsurance (membedakan antara automatic reinsurance, facultative reinsurance dan facultative obligatory)
• Distinguish between an internal audit and an external audit and explain why the audit process is important to reinsurance underwriting (membedakan antara internal audit dan external audit serta menjelaskan mengapa proses audit penting untuk reinsurance underwriting)
• Identify situations in which an insurer may be audited by a reinsurer and the types of records the reinsurer may audit (mengidenftikasi situasi dimana insurer dapat diaudit oleh reinsurer dan jenis-jenis catatan yang dapat diaudit)
• Define straight through processing (STP) and explain how STP affects insurance company operations (mendefinisikan STP dan menjelaskan bagaimana STP mempengaruhi pengoperasian perusahaan asuransi)
• Describe how data mining, predictive model, business rules engines, document management systems, and workflow automation apply to the underwriting of insurance. (menjelaskan apa itu data mining, predictive model, business rules engines, document management systems, dan workflow automation dalam penerapannya untuk underwriting of insurance)

Underwriting as Part of New Business

New Business = 

potential client (klien potensial)

applications submitted (permohonan yang diserahkan)

all the activities they engage in sell insurance (semua aktivitas yang mereka lakukan dalam menjual asuransi)

New Business to refer to 

1. the policies an insurer underwriter and issues as a result of receiving applications from customer and (Kebijakan yang dikeluarkan oleh insurer underwriter sebagai hasil dari menerima permohonan dari customer)
2. the activities an insurer undertakes in receiving applications, underwriting those applications, and issuing policies (kegiatan insurer dalam menerima permohonan, mengunderwrite permohonan dan menerbitkan polis)

Underwriting a case consist of three basic activities : 

1. a producer undertakes field underwriting (produser melakukan field underwriting)
2. an underwriter, other company employee, or vendor gathers additional information when needed to a sound underwriting decision and (underwriter, pegawai  perusahaan lain, atau vendor mengumpulan tambahan informasi ketika dibutuhkan untuk suatu keputusan)
3. an underwriter makes a decision whether to accept an application applied for, offer to issue a policy that is different than the one applied for, or reject the application.(underwriter mengambil keputusan apakah menerima permohonan untuk diterapkan, menawarkan untuk menerbitkan polis yang berbeda dengan permohonan, atau menolak permohonan)

Field Underwriting

Underwriting an application for insurance often begins well before (jauh sebelum) the applications reaches an insurer.

• In the field underwriting process, a producer screens applicants for insurance and gathers initial information about a proposed insured. (dalam field underwriting process, producer menyaring pemohon asuransi dan mengumpulkan informasi awal tentang proposed insured)
• The initial information gathered enables the producer to help the customer decide which insurance products best meet the customer's need. (initial informtion memungkinkan producer membantu customer memutuskan insurance product yang dibutuhkan)
• If a customer needs life insurance, the producer helps the customer decide how much insurance she needs and provides her with information as to the amount the insurer is likely to issue.
• Although the underwriter decides how much coverage to approve, the producer plays an important role by counseling clients to have realistic expectations as to the amount of coverage for which they are likely to qualify and recommending the amount of coverage for which they should apply.
• Underwriter must investigate applications for more insurance coverage than appears justified or necessary; such applications can indicate the possibility to speculation and can create delays in the underwriting process.
• Speculation is an unethical use of insurance in which someone purchases insurance to make a profit on the proceeds rather than to protect against loss.
• In helping an applicant determine which insurance product best meets his needs, a producer also must evaluate the applicant's ability to pay for the coverage (dalam membantu permohon menentukan insurance product mana yang dibutuhkan, producer juga harus mengevaluasi kemampuan pemohon membayar jaminan)
• The producer also helps each applicant complete the application for insurance. (producer juga membantu setiap pemohon melengkapi permohonan asuransi)
• Traditionally, applications for individual life and health insurance have consisted of two section-part I and part II.
• Part I contains questions designed to identify the applicant and the proposed insured if different from applicant, specify the amount and type of coverage requested, and provide the insurer with basic information about the proposed beneficiary and the insurability of the proposed insured
• Part II provides the insurer with medical information about he proposed insured
• Most insurers also include in insurance applications a section called the agent's statement, in which the producer can comment on any factors relevant to the case and the risk it involves. (Semua insurer menambah kolom pernyataan dalam permohonan asuransi yang disebut dengan agent's statement, dimana producer dapat memberikan komentar faktor-faktor yang relevant dengan kasus dan risiko yang ditimbulkan)
• The Producer also should educate the applicant about the insurer's usual underwriting guidelines and rating requirements (producer juga harus mengedukasi pemohon tentang underwriting guidelines dan rating requirement)
• Most insurance companies have created a field underwriting manual to help producers performs field underwriting (semua insurance companies membuat field underwriting manual untuk membantu producer melakukan field underwriting)
• A field underwriting manual or field underwriting guide is a document, develop by an insurance company, that 
1. present specific guidance for a producer's assessment of the risk represented by a proposed insured and (menyajikan specific guidance untuk produser atas penilaian risiko yang diwakili oleh proposed insured)
2. guides the producers in assembling and submitting the application and the evidence of insurability needed for the underwriter to evaluate the risk. (memandu producer dalam menyusun dan mengajukan permohonan serta bukti pertanggungan yang dibutuhkan oleh underwriter untuk mengevaluasi risiko.)

Tele-underwriting

In addition to field underwriting, some insurers use tele-underwriting, which is a method by which the insurer takes responsibility for gathering most of the information needed for underwriting. (selain field underwriting, beberapa insurers menggunakan tele-underwriting, yaitu suatu metode dimana insurer mengambil tanggung jawab untuk mengumpulkan sebagian besar informati yang dibutuhkan untuk underwriting)

When tele-underwriting is used, the producer and the applicant complete a abbreviated application, which includes only basic information about the proposed insured, and the insurer then interviews the proposed insured to gather the additional information required for underwriting. (ketika tele-underwriting digunakan, producer dan pemohon melengkapi permohonan secara singkat yaitu hanya informasi dasar tentang proposed insured, dan insurer kemudian melakukan interview kepada proposed insured untuk mengumpulkan tambahan informasi yang dibutuhkan dalam underwriting)

The interview is conducted by telephone or interviews online via their internet site. (Interview dilakukan melalui telephone atau interview online via internet.)

The person who gathers the additional information for insurer may be

1. an underwriter, 
2. an employee of the insurer specially trained to gather the information, or
3. an employee of a vendor (penjual)

When tele-underwriting is used in appropriate case, it creates benefits for producers, applicants, and insurers (ketika tele-underwriting digunakan sesuai kasusnya, tele-underwriting menciptakan benefit untuk producer, pemohon dan insurer)

The following advantages can result from the use of tele-underwriting:

• The underwriter is presented (disajikan) with complete information because there are no unanswered questions or incomplete answers as may be present otherwise (atau sebaliknya)
• Producers do not have to spend time completing application and thus have more time available to locate (mendapatkan) new customers and sell insurance
• Applicants sometimes feel more comfortable providing personal information to a stranger over the telephone rather than to the producer who may be a friend or neighbor. The more comfortable a applicant fells, the more likely he is to provide complete and accurate information. (semakin comfortable pemohon) semakin besar kemungkinan pemohon untuk memberikan informasi yang complete dan accurate)

Gathering Additional Information

• Applications an insurer receives are assigned a number or code for identification and tracking (lacak) purpose, and a case file is created. (permohonan yang diterima insurer ditandai dengan nomor atau code untuk tujuan identifikasi dan melacak serta dibuat case file)

• Certain manual or automated checks are performed to ensure that the applications meets requirements common to all applications. (pengecekan manual atau otomatis di lakukan untuk memastikan bahwa aplikasi sesuai dengan persyaratan )

• A staff member also searches the insurer's records for any information the insurer already has about the applicant and/or proposed insured. (staff member juga mencari catatan2 perusahaan atas informasi yang dimiliki tentang pemohon)

• The staff member forwards the application and any additional information to underwriting. (staff member melanjutkan permohonan dan additinal information untuk underwriting)

• Most insurers develop a table of underwriting requirements, often referred to as an age and amount requirement chart, to specify the kinds of information the underwriter is to consider in assessing the insurability of a proposed insured. (banyak insurer mengembangkan table of underwriting requirement, sering disebut sebagai age and amount requirement chart, untuk menentukan jenis infirmasi yang perlu dipertimbangkan dalam menilai insurability of a proposed insured)

The Numerical Rating System

• An underwriter assess the risk presented by a proposed insured by examining all relevant information concerning the proposed insured. (underwriter menilai risiko yang diajukan proposed insured dengan memeriksa semua informasi yang relevant dengan proposed insured.)
• To make risk classification and premium rate decisions, underwriters typically use a numerical rating system, which is a risk classification method in which a number is assigned to an individual proposed insured according to the degree of risk he presents to the insurer. (untuk membuat risk classification and premium rate decision, underwriter menggunakan numerical rating system, yang merupakan risk classification method dimana nomor diberikan kepada individual proposed insured sesuai dengan tingkat risiko)
• This number is then used to determine the appropriate risk class in which to place each proposed insured. (nomor ini kemudian digunakan untuk menentukan appropriate risk class untuk menempatkan setiap proposed insured.
• For life insurance, the numerical rating system assigns a positive or negative number to characteristics that have been determined statistically to have a positive or negative impact on the mortality risk presented by individuals. (untuk life insurance, numerical rating system memberikan angka positive atau negative untuk karakteristik yang telah ditentukan secara statistik memiliki dampak positive atau negative pada mortality risk yang diajukan oleh individu2.
• The sum of these numbers is the total numerical rating a proposed insured receives, which determines his risk classification. (jumlah dari angka angka ini merupakan total numerical rating yang diterima oleh proposed insured, yang menentukan klasifikasi resiko )

The higher the total numerical rating, the higher the degree of risk presented by the proposed insured. (semakin tinggi total numerical rating, semakin tinggi tingkat risiko yang diajukan oleh proposed insured)

The numerical value of the average, or standard, mortality risk is set at 100, indicating 100 percent of standard mortality. A proposed insured's medical and nonmedical characteristics that have favorable effect on mortality are sometimes assigned 'minus" values (such as -25) and are called credits.

The net effect of credits is to lower the number indicating a proposed insured's predicted percent of standard mortality.

Therefore, the lower a proposed insured's numerical value, the lower the risk she presents to the insurer.

If a proposed insured maintains a desirable weight, has no family history of certain diseases, or has a good driving record, she may be assigned credits

In contrast, a proposed insured's medical and non medical characteristics that have an unfavorable effect on mortality are assigned "plus" values (such as +25) and are called debits. 

The net effect of debits is to increase the number indicating a proposed insured's predicted percent of standard mortality.

In other words, the higher a proposed insured's numerical value, the greater the risk she represents to the insurer.

If a proposed insured has suffered complications from recent surgery or is overweight, she may be assigned debits.

Underwriting Manual

The debits and credits that insurers assign to insurance risks vary from one insurer to another because of differences in assumption about expected mortality. (Angka debit dan credit yang diberikan perusahaan asuransi untuk insurance risk bervariasi dari perusahaan yang satu ke perusahaan yang lain karena perbedaan asumsi tentang expected mortality)

The information an insurer uses to assign relative values to life and health insurance risk is contained in a document known as an underwriting manual. (informasi yang digunakan perusahaan asuransi untuk menetapkan nilai relatif atas life and health insurance risk terkandung dalam sebuah dokumen yang dikenal dengan underwriting manual).

Whereas in the past underwriting manuals were provided in paper form, now they typically are provided to the underwriting staff on CD-ROM or are located on the insurer's intranet. (jika sebelumnya underwriting manual diberikan dalam paper form, sekarang staff underwriting menerima dalam CD-ROM atau terletak di Intranet perusahaan).

An underwriting manual typically provides descriptive information on impairments and serves as a guide to underwriting action. (manual underwriting memberikan informasi yang descriptive atas gangguan dan pelayanan sebagai panduan utnuk underwriting action)

The underwriting manual typically includes 

1. a descriptive of various impairments and diseases associated with each organ and system of the body
2. a list of debits or credit, or both, for specific impairments and characteristics
3. a statement of the amount of flat extra premium to be charges for certain impairments and characteristic, and
4. extra percentage tables to be used for table rating
5. a series of questions to guide an underwriter in evaluating conditions that can range between mild and severe. (serangkaian pertanyaan untuk memandu underwriter dalam mengevaluasi kondisi yang berkisar antara ringan dan berat.
6. an index listing synonyms and derivative terms for characteristics
7. laboratory section that lists basic laboratory test data and a normal range values for the most commonly used laboratory test.
8. a glossary of symptoms and medical terms, as well as a list medical and insurance abbreviations and definitions

Making an Underwriting Decision

After all relevant information has been gathered, the underwriter is prepared to evaluate the application and made an underwriting decision - to approve the coverage as applied for, to modify the extent or amount of coverage, to rate the policy, or to deny the coverage.

Whatever the underwriter's decision, that decision may be reviewed by another, more experienced underwriter, depending on the original underwriter's authority level and the type and amount of coverage that was requested.

If the underwriter approves the application, the underwriter releases the file to the policy issue department. 

If the underwriter deny the application, then the underwriter communicated that decision to the producer and the applicant; is the applicant paid the initial premium, then the premium is retuned to the applicant.

Some jurisdictions require insurer to provide applicants with a written notification of an adverse underwriting decision.

Even when not required by law, insurers typically send a letter to the applicant explaining as specifically as possible what the application was denied, a copy of that letter is provided to the producer.

When communicating information to a producer, underwriter must be carful to protect personal information they have about an applicant and/or proposed insured.

If a denial is based on information contained in a medical report, consumer report, or other report from a third party, the underwriter usually does not disclose any such information to the producer.

Policy Issue (penerbitan polis)

After an application for insurance has been approves, the underwriter transfers the relevant documents and electronic files to the insurer's policy issue staff. 

Policy issue is the functional area within an insurance company that prepares the insurance policy as approved by the underwriters and facilities delivery of the policy to the policyowner. 

In some companies, underwriting and policy issue are separate, but closely related, departments. 

In other companies, underwriting and policy issue activities are combined into one functional unit.

Using automatic systems, most policy issue area can produce complete policy documents promptly and accurately for delivery to producer or applicant.

When a producer is involved is a sale, the policy issue department send the policy documents to the producer, who then delivers the documents to the applicant.

If no producer was involved in the sale, the policy issue department sends the policy documents directly to the applicant.

Reinsurance Underwriting

The activities involved in reinsurance underwriting, while similar to activities associated with any other type of underwriting, are different in one significant way - reinsurance underwriting is subject to the terms of the reinsurance agreements. (aktivitas yang meliputi reinsurance underwriting, meskipun sama dengan kegiatan underwriting lainnya, secara signifikan berbeda - reinsurance underwriting tunduk pada terms of the reinsurance agreements.)

The reinsurance agreements specified which of the direct writing insurer's policies will be reinsured and how the insurer and reinsurer handle underwriting those policies.

Although reinsurance agreements take a variety of forms, the three basic types of indemnity reinsurance arrangements are as follows:

• In automatic reinsurance, to the direct writer agrees in advance to cede  and the reinsurer agrees in advance to assume all cases that meet the specifications in the reinsurance agreement.
• Under facultative reinsurance, a direct writer chooses whether to cede a risk and the reinsurer chooses whether to accept that risk.  Both the direct writer and the reinsurer have the opportunity to underwriter cases and decide whether to accept the risk
• Facultative obligatory (fac-ob) reinsurance is an arrangement under which
1. the direct writer may choose to submit cases to the reinsurer and
2. the reinsurer must accept the submitted cases based on the direct writer's underwriting, up to a stated maximum monetary amount, as long as the additional risk does not exceed the reinsurer's capacity, which is the total amount of risk that the reinsurer is able to accept and remain financially able to pay claims and to maintain adequate reserves and surplus.
• Under facultative reinsurance
• Facultative Obligatory reinsurance

Underwriting Technology

The primary activities of underwriting - like the activities of most other functional area in an insurance company - make extensive use of technology, this providing the insurer with a means of managing its business process more efficiently and effectively. (menggunakan teknologi secara extensive, hal ini memberikan sarana perusahaan asuransi untuk mengelola proses bisnis menjadi lebih effecttif dan efisien.

For example, by automating underwriting activities, insurers are engaging (terlibat) in business process management, which is a strategy for optimizing business processes or adapting them to meet changing needs. (yang merupakan strategi untuk mengoptimalkan proses bisnis atau melakukan adaptasi untuk menyesuaikan perubahan )

The goal of many insurers that focus on business process management is straight through processing (STP), which is the electronic processing of every step of a transaction without manual intervention.

Pure STP would result in a paperless environment in which all forms and records are maintained electronically.

For insurers, STP entails processing new business completely electronically from application to policy issue. (untuk insurer, STP menyebabkan proses bisnis lebih complete secara elektornik dari mulai permohonon sampai terbit polis.

Insurers desire STP for the following reasons:

• Increased efficiency in the policy issue process and this reduced expenses
• Decreased error rate because of the decreased need for human input
• Increased underwriting consistency and quality
• Increased ability to handle more cases.
• Customer benefit form automated processing because policies are issued more quickly than with manual processing.
• Producers benefit because the faster a policy is issued, the faster commission are processed.  

Data Mining

Data mining is the examination and analysis of large amounts of data to ascertain patterns and relationship. (pemeriksaan dan analisa dari sejumlah besar data untuk memastikan pola dan hubungan)

For example, data mining technology might bring together payment history  data and claims experience on all of an insurer's covered insureds to discover relationship characterizing a profitable proposed insured. (data mining technology dapat menyatukan payment history data dan claim experience semua tertanggung untuk menemukan hubungan  yang mencirikan profitable proposed insured)

These characteristics can then be incorporated into an insurer's underwriting guidelines. (karakteristik ini kemudian dapat dimasukan ke dalam insurer's underwriting guidelines).

Data can come from internal and external sources. 

For example, whereas information on other policies owned by the proposed insured would come form the insurer's internal records, additional data could come form external sources such as credit bureaus. 

Data mining systems are often Web-based, such that information gathering is automatic and instantaneous. (berbasis web, sehingga pengumpulan informasi dilakukan secara otomatis dan seketika)

Predictive Modeling

Predictive modeling is a automatic technique for predicting future behavior or events.

The predictive modeling process involves collecting the patterns and relationships unearthed(digali) by data mining, formulating a statistical model, and generating (menghasilkan) predictions based on the model.

Underwriters use predictive modeling to develop company-specific models that take into account (memperhitungkan) the company's policy, underwriting, and claims data, as well as data from outside sources.

Such models can forecast mortality and morbidity by predicting the development of medical conditions and the onset of illnesses, as well as the likelihood of losses due to risky profession and avocation (hoby).

Thus, predictive modeling improves risk evaluation and selection, as well as premium rating.

Business Rules Engines

A business rules engine (BRE) is software that automates the decision-making process by creating and applying rules to all available information. (mengotomatiskan proses pengambilan keputusan dengan membuat dan menerapkan aturan untuk semua informasi yang tersedia)

Any decision-making process that can be stated in an "if...then..." format can be automated. (setiap proses yang dapat dinyatakan dalam formati "jika...maka..." dapat diotomatisasi)

For example, a BRE would be able to process the decision that if a proposed insured has a certain number of medical conditions, then he should be declined coverage.

BRE are particularly useful in the underwriting decision-making process, which is characterized by the application of certain rules to certain facts and combinations of facts. (sangat berguna dalam underwriting decision-making proses, yang ditandai dengan penerapan aturan tertentu pada fakta dan kombinasi tertentu)

In fact,  hard copy underwriting manuals are noting more than rules books.

However, whereas an underwriting using an underwriting manual may be able to take into account quite a few variables, BRE, supported by data mining and predictive modeling, can take into account hundreds of variables.

In addition, BRE can assure the consistent processing of these variables, leading to more equitable underwriting decisions.

By using BRE, insurers can engage in exception-based underwriting in which rules are applied to process all cases except the most difficult ones that require an underwriter to take part in the decision-making process.

Document Management Systems

A document management system is a type of technology that stores, organizes, and retrieves documents that have been converted to digital images. (jenis teknologi yang menyimpan, mengatur dan mengambil dokumen yang telah di ubah menjadi digital images).

Insurers can enter documents into a documents management system in two ways:

• They can create documents electronically and convert them to digital images, or
• They can convert paper documents to digital images through imaging.

Imaging, also known as scanning, is a process of converting printed characters or graphics into digital images on a computer by inserting paper documents in a type of hardware called a scanner, which resembles a photocopy machine.

The scanner "reads" the documents and "translates" them into an electronic file, which is then converted to digital images and stored in the insurer's  computer system.

After documents are stored in a document management system, employees can use a computer to search for, view, print and share documents.

When staff members process application or transactions, they view the digitized version of he document on their computer screen.

Document management system provide:

• staff members with computer access to a variety of company specific forms and documents
• computer access to correspondence and other documents from outside the company
• help insurers avoid the expense and complicated logistic of storing thousand of paper documents
• increase efficiency 
• reduce the frustration, delays and wasted time that result form lost and misfiled document
• facilitate documents sharing because several employees can view the same document at the same time on their computer screen

Automated Workflow System

Document management system often used in conjunction (bersama) with automated workflow system.

Automated workflow system, also called a workflow application, is a technology used to create computer-based records pertaining to (berkaitan dengan) the status and processing of specific transaction.

One way to think of an automated workflow system is to envision a tracking sheet that accompanies a transaction through the entire workflow process from initial receipt through completion and filling. (satu cara utk memikirkan automated workflow system adalah dengan membayangkan tracking sheet yang menyertai transaksi melalui seluruh alur proses dari awal penerimaan sampai penyelesaian dan pengisian.)

The automated workflow system shows 

• the type of transaction (jenis transaksi)
• the person to whom it was assigned, when it was received (orang yang bertugas menerima transaksi)
• question that arose (pertanyaan)
• actions taken (langkah yang diambil)
• document created (dokumen yang dibuat)
• completion dated and times, and so on (tanggal dan waktu penyelesaian) dst

Rather than include this information in a paper file, however, an automated workflow system stores it electronically.

An automated workflow system can route documents automatically to staff members for processing, placing the jobs in work queue so that the jobs are available when staff member are ready to work on them. (automated workflow system dapat merutekan dokumen secara otomatis kepada staff member untuk diproses, penempatan pekerjaan  dalam antrian kerja sehingga pekerjaan tersedia ketika staff member siap untuk mengerjakan)

After staff member has finished working on a case, the workflow system then routes the job to the next staff member who needs to work on the case.

Automated workflow system can increase accuracy by creating an audit log, which is a record of the work that has been completed on a case. (dapat meningkatkan akurasi dengan membuat audit log, yaitu catatan pekerjaan yang telah diselesaikan pada suatu kasus.

The Insurer can use the audit log to make sure that all the proper procedures are followed on each case.(semua prosedur telah dilakukan dengan tepat sesuai dengan tiap2 kasus)

 

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