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Decision Management Evolution
Auto Club Group of Michigan (ACG) has been one of Michigan's largest auto insurance underwriter's for more than 75 years. As ACG began to expand outside of its home state into neighboring markets in Illinois, Indiana, Wisconsin, Minnesota, Iowa and Ohio, ACG saw a clear need to standardize core business processes in insurance underwriting. Similar to any business that has grown through mergers and acquisitions; ACG faced the challenge of integrating a myriad of different applications, business systems and separate processing systems.
Rather than conceding to technology constraints, ACG took a giant step forward to use technology to efficiently support market expansion and continued profitability. In this article, I would like to share with you how ACG is using a Business Rules Management System to create the opportunity for new business strategies. To conclude, I offer some recommendations that have served us well in achieving a business that is balanced and positioned for strong growth.
About Insurance
Independent agents have a variety of underwriting tools and quotation systems from competing insurance companies that they can use to provide customer quotes. Often, the easiest and most intuitive solution becomes used and adopted, thus, winning the business. We recognized that we needed a new Web-based front end quoting system that would compete for independent agents business and help our own internal agents be more effective throughout the entire insurance underwriting process.
Beyond our own challenges of integrating a number of dispersed legacy mainframe systems, ACG needed to create a reliable decision application that could call upon external data sources, such as motor vehicle driving records, and integrate those data inputs into automated decisions. The best solution to manage, interface and drive our dispersed decision application was a Business Rules Management System (BRMS) for which we selected Fair Isaac Blaze Advisor. Equally important, the team saw the BRMS as an opportunity to effectively manage future business changes, compliance issues, and spearhead the development of a strategic business framework.
What is a "Business Rule"? How is it Used?
Business rules are simply accepted or required practices for internal processing or external transactions - they are the rules that govern how business is conducted. In many cases, a corporation's business rules are defined in manuals or other documents, or possibly not defined formally at all-many organizations rely on business managers to interpret company policies and business strategies as business rules. This can be inefficient and lead to inconsistencies in the application of the business policies and strategies when trying to translate these into business operations systems. Business rules management technology gives business users and analysts the ability to centrally control the "business rules of a business" to make routine changes and updates to critical business systems while freeing IT resources to concentrate on higher value-add projects and initiatives. The ACG team saw that a BRMS architecture could allow underwriting decision policies and rules to reside centrally for a consistent decision approach to existing and prospective policies across all customer touch points.
To give you an idea of the types of business benefits that can be achieved with a centralized decision engine, here is a brief description of where ACG was, where we are and where we are going in our decision management evolution.
Where We Were
To begin, ACG's business process relied on 100 percent manual review of all insurance underwriting. This was a tremendously inefficient process that also led to an inconsistent treatment and rate quoting structure for agents. This was evident in ACG's different pricing across our historically separate businesses, and even from the same agent quoting the same business one day to the next.
Where We Are
An integrated system now calculates and assigns pricing tiers, then automatically executes an action such as making a pricing offer for desirable candidates or knocking out ineligible drivers that might have multiple violations reflected in their motor vehicle record.
As new regions and auto clubs become part of the ACG portfolio, we have benefited from the introduction of rule templates that allow for easy updates and replication of business processes and policies. Rule maintenance screens provide a simple way for ACG analysts who know insurance and business to easily update business rules and policies that power the analytic solution. This keeps ACG from having to rely on valuable developer resources to program system updates and allows them to work on more strategic infrastructure projects.
ACG has lowered expenses, improved processes and increased overall business results. As mentioned earlier, before the rules based system, 100 percent of all applications were manually reviewed. Now 99 percent are processed and bound through the automated system with 1 percent held back by underwriters for manual review. There has also been a 35 percent increase in applications processed, with three times as many independent agents as part of the ACG network. The rules-based analytic solution positions ACG as a strategic business practice, in which processing comparative insurance rate information in "real-time" and automatically providing a personalized competitive quote to internal and independent agents helps ACG win more profitable business and provide better customer service.
Where We Are Going
We have uncovered strategic opportunities that could have not have been dreamt of three years ago when the project began. ACG has some unique characteristics that were once seen across the insurance industry as a challenge that are now a differentiator. As a membership organization widely known for our information services and roadside assistance, ACG is now able to offer members unique insurance policy advantages by having three processing systems (membership, claims processing and insurance processing) tied together with the BRMS. New bundled services offers have been created such as the tremendously popular member/insurance benefit. Now, ACG members who also are also insurance clients can have one "at fault accident" on their record without seeing an increase in premiums. This has allowed a cross-selling opportunity that is a win-win for ACG and customers.
ACG has evolved the infrastructure beyond a rules-based framework. We can analyze the decision sequence from our BRMS and then refine the desired decision process to optimize the business outcomes. We have created a framework that any company would envy. We can profitably win the good business we want to win and lose the bad business we want to lose.
To begin to capitalize on automated decision management, here are a few general guidelines that have come from our success.
1. Understand your business.
While this might sound simple, it can be the most overlooked step in decision management. Begin by harvesting the knowledge of the experts throughout the company. These are the subject matter experts on specific processes, policies and guidelines. From a strategy perspective, work with key stakeholders on the leadership team who can articulate the strategic levers that trigger business advantages for you to capitalize on.
It is also important to get a broad perspective of the business. Who are your strategic partners; what inputs affect your business? What drives customers' decision processes?
The last but important step to understanding your business is actually to take a step back and remove yourself from the common industry practice. While "outside of the box" thinking is often encouraged, it is seldom achieved. Give your business a fresh look, get outside opinions and be open to suggestions. As we have described, we knew we had a different offering, but we simply couldn't identify any unique programs because we were so constrained by our IT limitations. Don't let today's boundaries limit your vision. Think big!
2. Know where you want to go and define a plan to get you there.
Build upon your vision of what is possible. Have a strategic vision and build a plan to achieve it. For ACG, this was our guiding principle. Three years ago we were scared that we had bitten off more than we could chew when undertaking our project using BRMS. Today, I can't overstate how important it is to have a vision for the future.
We are often mired in the pressing business issues that need to be resolved today. There will always be business issues that need to be resolved today. Put your systems architects to task and create a solution that will allow you to leapfrog on the order of magnitudes, not just multiples.
3. Seize low hanging opportunities to build momentum.
As you push your vision, pick projects and tasks for success. Achieving results builds momentum and boosts the confidence of your team. Success brings confidence, and a confident team is willing to take risks.
One of the first steps in creating the new underwriting solution was simply to identify which current underwriting processing systems we were going to keep and which we were going to replace. By making some decisions early on and beginning the process towards the project's completion, our project had a navigable path towards success which helped us make BRMS strides. We gained poise and started to take on more aggressive projects that ultimately led to some of our new discoveries and achievements.
4. Communicate the plan, communicate the accomplishments, share in the results.
Be sure to continually communicate the business objectives and aligning business strategy. Visionary projects can often become derailed in their focus if the objectives are not kept in plain view.
As milestones are achieved, be sure to share the team's accomplishments with other stakeholders. Reward the team for the incremental achievements.
Once the team completes the project, make sure to keep communicating the project results. Too often a final project is completed and the team members move on. Implement plans for regular program measurement and scheduled communication. We forecasted some aggressive expected results for our underwriting decision management application. By establishing a baseline for measurement, we gained a repeatable metric to continually gauge against. For instance, we expected to achieve 85 percent of underwriting applications to be automatically reviewed (15 percent manual); in fact we achieved 99 percent of automated underwriting (1 percent manual).
Organizations that are looking to extend the success they achieve with building a BRMS are candidates to look at how added layers and levels of embedded analytics in their operational systems can create new opportunities in decision management applications. At ACG, we have been able to reap the rewards of a decision management application that would be beneficial to all companies. The power to dynamically manage the business rules to drive customer strategy, maintain decision consistency and empower business agility have all contributed to the improvements to our operations and yielded great gains on our overall business performance.
Michael Koscielny is director of regional underwriting operations at Auto Club Group where he is capitalizing on his 20-plus year career in the insurance industry, which includes positions at Kemper Insurance and Safeco.
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