Indus
try Insight: Contr
olling Expense Ratios
Industry Insight:
Rising Expense Ratios Threaten Profits
A company’s ability to effectively track and control expenses is crucial to its survival, especially in a soft economy. A recent report by Conning Research, Property/Casualty Expense Management: Trends and Guiding Principles for Holistic Benchmarking, revealed that insurer’s expense ratios have recently skyrocketed to a 40-year high.1 This finding is particularly alarming in a tough market, where every policy makes a difference to the bottom line.
The study advocates that insurers must look beyond premiums when calculating their expense ratios. Additionally, with salary and employee-related expenses ranking highest on the list of growing expenses, it is clear that adding operational efficiency through investment in technology is one solution that insurers should consider. A bigger picture with accurate real-time data offers a clearer view of the business as a whole.
“There are many levels of risk associated with seeking expense efficiency for the insurer, particularly in loss control and in meeting ever-changing customer expectations,” the report said. In other words, a reckless slashing of expenses aimed at controlling expense ratios could end in an even worse outcome for the company. After all, when the cost of doing business is high, the cost of losing it is even higher. Without a clear picture of workflow, a company could inadvertently cripple the backbone their business—their ability to service customers better than the competition.
Another key study on the topic, Underwriting and Policy Management, by Ward Group, compared expense
ratios at high performing companies versus average carriers.2 The study analyzed business practices of
51 insurance carriers in the U.S. and Canada. The survey group was made up of 30 personal lines-focused carriers and 21 commercial lines-focused carriers whose premium volume ranged from $12 million to $4.5 billion. Survey responses combined with publicly available financial data were used in the analysis. In order to analyze high-performing carriers’ business practices clearly, benchmarking groups were established for personal and commercial lines companies that were in the top 25 percent by profit margin over a three-year period.
In high-performing personal lines companies, the study revealed that lower expense ratios were the primary driver of profitability. The average underwriting expense ratio for the high performers was nine points lower than the average overall expense ratio of the remainder of the personal lines group. In the group of commercial lines high performers, expense ratios for workers compensation were similar between high performers and the general group, however they were 5.3 points lower for all other commercial lines. Commercial lines high performers also had newer software, averaging 6.3 years old versus 8.9 in the rest of the commercial lines group.
Industry Insight: Controlling Expense Ratios
“After a competitive analysis of vendor products, we decided that
Vertafore’s ImageRight product provided the best ‘out-of-the-box’
solution
for our business.”
— Frank Lally, manager of imaging, Harleysville Insurance
Case Study
Optimizing Harleysville Insurance’s commercial underwriting document and workflow capabilities presented formidable challenges, according to Frank Lally, manager of imaging for Harleysville. Implementing an enterprise workflow tool that would serve a large number of users across 16 locations required integration with legacy production systems and an extensive backfile conversion of existing paper files.
No new hardware was required to install ImageRight, and the technical dimension of the implementation was a “relatively painless” process that raised no major issues, according to Lally. The rollout extended to all of Harleysville’s major underwriting and claims operations, where the ImageRight product now supports ongoing workflow evolution to meet constantly changing business requirements, according to Lally.
The system currently supports over 1,400 workflow users, including all 16 commercial underwriting locations and four claims centers.
Lally reports that the ImageRight solution has facilitated efficiency improvements by providing enterprise-wide real-time access to policy information regardless of the location of underwriting and claims staff, as well as enabling communication with external customers.
“The application provides excellent integration between desktop and workflow, as well as strong workflow design capabilities and the ability to interact with external systems,” said Lally.
“Our access to qualified ImageRight staff facilitated timely and successful implementation,” said Lally. ImageRight now provides Harleysville Insurance with the ability to react to a changing business environment with flexible workflow capabilities, and Lally says he expects Vertafore will continue to improve capabilities into the future.
Technological Solutions For Expense
Ratio Control
Technology serves as a primary tool in reducing expenses. By automating key processes that were historically performed by people, entire departments no longer exist. Computerization and the use of technology have replaced the tasks of raters, typists, billing clerks and a host of other manual processes. As a result, the people who performed these tasks can be reassigned to higher-value roles, such as direct customer support and sales.
Enterprise content management (ECM) and intelligent workflow are two technologies that have been shown to significantly reduce expenses and streamline processes. The ECM component eliminates the need for paper files and, along with any corresponding electronic files, organizes them and makes them readily available to anyone with the authority to access them—with just the click of the mouse. The intelligent workflow component automates the flow of documents and data in the processing of transactions. It ensures compliance with company policies and procedures and reduces the time for hand-offs between steps in a process. Intelligent workflow can make decisions, integrate with other applications and provide a seamless platform for transacting business. An integrated reporting module tracks work in process, backlogs, productivity and performance against company service level standards, allowing managers to react quickly to problems in real time, not days or weeks later. Vertafore’s ImageRight® solution is an example of an ECM and intelligent workflow solution that is used by many successful carriers.
“We have relied on ImageRight to
transform our business processes,
because of its insurance-specific
design.
The solution has been a
game-changer for us
and we are excited for
future enhancements that will help
take our business to the next level.”
— Tammie Miller, director of automation, Risk Placement Services, Inc.
MaryBeth Robinson, commercial lines lead processing specialist,
Industry Insight: Controlling Expense Ratios
ImageRight Users Outperform the Industry In
Expense Ratios
To further explore the effects of expense ratios on ImageRight
customers, Vertafore® completed a study that compared the
performance of companies in the U.S. property and casualty industry based on their enterprise content management software system. The study used 2011 financial data from A.M. Best Company.
The data represents companies that have implemented enterprise content management solutions from a multitude of vendors along with a host of additional technologies: policy administration systems, ratings systems, expert systems and more. The Vertafore study revealed that, of the number of enterprise content management solutions in the industry, ImageRight has the greatest impact on reducing expense ratios.
As illustrated in the chart to the right, ImageRight customers out-perform most of the industry in the category of expense ratios. Another interesting conclusion of the study is that, regardless of the primary line of insurance written, the ratios of ImageRight customers remained consistently better than the industry average.
It is clear that expense management is vital to achieving higher profit ratios. With effective data and workflow
systems in place, carriers can distribute resources efficiently and successfully analyze the razor-thin margins that will ultimately lead them to success or failure.
To learn more about ImageRight and see how real companies are using it, contact your Vertafore Account Manager at 800.444.4813 or visit us online at vertafore.com.
ImageRight Customer Expense
Ratios vs. Industry Average
ImageRight Expense Ratio Compared with Industry AverageKey Findings
1. 73 percent of ImageRight users have lower expense ratios than the industry average
2. ImageRight customers’ expense ratios average 25 percent lower than the industry average
3. Regardless of the type of insurance written, ImageRight users expense ratios remain consistently better than the rest of the industry
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0 IMAGERIGHT LOWER RATIOS INDUSTRY HIGHER RATIOS
Expense Ratio Averages by Major Lines of Insurance
40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0 27.2 25.6 27.8 36.5
IMAGERIGHT COMMERCIAL LINES IMAGERIGHT PERSONAL LINES IMAGERIGHT REINSURANCE INDUSTRY AVERAGE
ImageRight customer expense ratios are an average of 25 percent lower than the industry average.
Source: Vertafore ImageRight Expense Ratio Study, May 2012
73 percent of ImageRight customers have lower expense ratios than the industry average.
Source: Vertafore ImageRight Expense Ratio Study, May 2012
ImageRight customer expense ratios are lower than industry average across multiple lines of business.
Source: Vertafore ImageRight Expense Ratio Study, May 2012
27.2
36.5
73%
“ImageRight does what no other solution
did by emulating and improving the
insurance paper process and files. It
uses drawers, folders and documents
and uses familiar industry terminology.
It is totally focused on the needs of the
insurance industry.
We didn’t have to
make any sacrifices. The only changes
we made to our processes were
beneficial ones.”
11724 NE 195th Street
Bothell, Washington 98011 800.444.4813 vertafore.com
Vertafore delivers software and services that transform the business of insurance. Unique to the industry, more than 20,000 customers rely on Vertafore to provide integrated technology that connects the entire industry with the most complete source of solutions—agency management, rating and connectivity, content management and workflow, research solutions and producer lifecycle management—so their businesses run better and are more profitable. For more information about Vertafore, please visit vertafore.com.
