Operations of Insurance Companies

The most important insurance company operations consist of the following:

• Ratemaking
• Underwriting
• Production
• Claim settlement
• Reinsurance

Insurers also engage in other operations, such as accounting, legal services, loss control, and information systems.

Rating and Ratemaking

• Rating is a process of multiplying a rate determined by actuaries by the number of exposure units, and then adjusting by various rating plans.
• In life insurance, the actuary determines the premiums for life and health insurance policies and annuities also determine the legal reserves a company needs for future obligations.
• In property and casualty insurance, actuaries also determine the rates for different lines of insurance and also determine the adequacy of loss reserves, allocate expenses, and compile statistics for company management and for state regulatory.

Rating and Ratemaking

• Ratemaking refers to the pricing of insurance and the calculation of insurance premiums.
• A rate is the price per unit of insurance.
• An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.
• The person who determines rates and premiums is known as an actuary. An actuary is a highly skilled mathematician who is involved in all phases of insurance company operations, including planning, pricing, and research.

Underwriting

• The insurer’s underwriting policy is determined by top-level management in charge of underwriting.
• The underwriting policy is stated in detail in an underwriting guide that specifies the lines of insurance to be written; territories to be developed; forms and rating plans to be used; acceptable, borderline, and prohibited business; amounts of insurance to be written; business that requires approval by a senior underwriter; and other underwriting details.

Insurance Service Operations services

Operating model enhancement: Assessing process, technology, and organization and performance management against other insurers as well the company’s own strategy and goals to help transform its operating model, including shifting of fixed costs to variable, shedding non-differentiating processes and technology, and increasing focus on growth, distribution, and product innovation objectives.

Streamlining legacy processes and supporting technologies: Identifying ways to help improve customer service, employee morale, and cost efficiencies by upgrading policy administration and other systems, streamlining processes, and creating an efficient customer experience across product lines and distribution channels.

Performance benchmarking: Evaluating carrier performance against industry leaders to identify areas for potentially improving operations and customer service quality while managing costs.

Improved inforce management: Leveraging data and analytic tools and techniques to support cross-sell and up-sell programs, help improve retention, and enhance risk selection capabilities.

Strategic underwriting: Helping insurers create a base of profitable customer relationships by executing more effective risk selection and sound underwriting decisions that help balance risk and price. We also help carriers grow the business by identifying potentially profitable and high-risk customer segments using predictive tools and analytic models.

Claims cost containment: Streamlining and automating claims administration, devising ways to anticipate potential claim losses, enhancing processes for managing third-party suppliers, creating processes to help improve litigation results, and employing advanced fraud detection processes to help mitigate losses.

Enterprise cost management: Developing sustainable, cost-effective approaches to managing resources in alignment with the company’s strategic goals, as well as striving to refine processes, simplify the organization, rationalize infrastructure, and improve spend management.

Potential bottom-line benefits

• Improve profitability
• Reduce operating expenses by up to 20 percent
• Increase process standardization and compliance
• Improve system reliability and accuracy
• Lower underwriting loss ratios by up to 7 points in an 18- to 24-month time frame
• Reduce claims costs through improved claims management
• Improve system reliability and accuracy
• Enhance the customer experience (for both policyholders and distribution partners)
• Increase ability to adapt to changing customer demands