•Editor's note: Gilleland recently shared a paper he wrote, "Drilling Down High- Level Data for Forensic Study of Loss Runs to Improve Underwriting Territory Profitability." Chapter 1 is featured here, which describes the need for a better decision-making process-more to come in future issues of Underwriting Trends.

 •This article originally appeared in Underwriting Trends publication, Volume 15, Number 1, June 2003. A publication for the CPCU Society: Insuring your success. Visit online www.cpcusociety.org.
Editor U.K. "Rick" Becker, CPCU, CLU, ChFC

This article describes how and why underwriters should improve how they underwrite. Underwriters are encouraged and enabled to manage their territories more profitably. Improvement can result from the recommended process for: gathering information about their markets, learning what is not working well, and resolving how to underwrite more wisely in each market. Traditionally property and casualty underwriters have relied upon their company and/or regional exception underwriting eligibility guidelines whenever evaluating applications, renewals, referrals, and change requests. These guidelines are often set when a company or a product is initially rolled out. Most guidelines are not updated to reflect analysis of markets' performance. Therefore, rates are usually the only things that get updated/revised when loss ratios increase. Many underwriters assume their rates will be adjusted appropriately to market trends. We suggest guidelines be adjusted much more often than rates.

Guidelines are static; markets are volatile. Use of guidelines that do not reflect current market conditions will not enable underwriters to react to their markets' pressures, characteristics, events, or trends. Lack of market analysis and tailored underwriting action permits inception and continuation of negative underwriting result trends. Growth and profitability are the key underwriting results/objectives.

We need "acceptability" guidelines to help underwriters know how to react more profitably to risks that are eligible but have adverse characteristics or tendencies. Underwriters who manage their books of business in reaction to their markets' trends work to make eligible exposures more acceptable because they know what is and is not likely to be profitable in their markets. This article proposes that any book of business' growth and profitability should be managed in a new way. Our use of the term "managed" is meant to indicate we expect underwriters to:

Management techniques such as MBO, goal setting, process improvement, and statistical analysis should be considered for use when evaluating, planning, and working to improve any book of business. Underwriters should use much more than just program eligibility guidelines and gut feeling to underwrite. Underwriters should constantly develop market acceptability guidelines that serve specific purposes for limited times. Acceptability guidelines should change as markets change.

Read part 2.