PART 2 - Metrics That Matter
Effective reporting to alert underwriting management to discrepancies.
In Part 1: Perils in the Particulars - Understand and Operationalize the Contracts & Agreements Governing the Business Relationships, we reviewed the foundational parts of the contracts, agreements, impacted operational stakeholders from the MGA and carrier lens.
After the program is successfully onboarded and in production, the focus shifts to portfolio growth and management.
Once the terms and conditions governing the program are documented, the best path to monitoring performance and accountability lies in building an effective reporting and monitoring framework. Beginning with the end-in mind, identifying what metrics or (key performance indicators (KPI’s)) are needed for the business to understand how it is performing against expectations set by the stakeholders.
When most people think of performance metrics in insurance, some of the first things that come to mind are premium and loss related data such as loss ratio or combined ratio. Of course, these are critical but in the case of delegated authority business, there are many performance indicators that signal performance deterioration ahead of poor portfolio results. Below is a sampling of metrics, reporting and data attributes that when used proactively are informative for any program or line of business, and separate best-in-class from aspirational operators.
Data driven performance indicators
Timeliness of *MGA/DUA Reporting – the measure of how quickly required reports are received by the due date.
MGA/DUA Payment – the measure of how quickly premiums are paid.
Discretionary Pricing – New versus Renewal – how is new business priced against the renewal portfolio?
State/Territory Mix – the review of how the portfolio is distributed and developing by the attribute variables relevant to the program’s unique value proposition.
Rate Change – measuring the cost of “exposure dollar” as the portfolio matures.
Premium by Class Code – observing whether one part of the portfolio is subsidizing the rest, and whether that is acceptable to the stakeholders.
Losses by State/Territory – expected or curious loss/claim activity whether that is driven by geographic concentration or known litigious territories.
Losses by Cause of Loss – expected or unexpected peril-based losses.
Premium and Loss by Policy – This can be one of the most difficult reports for a carrier to produce because often, the source data is coming from at least two different entities. Premium reporting comes from the MGA/DUA and losses may come from its internal claims organization or from a third-party claims administrator (TPA). In mature programs, there may be multiple claim TPA’s sending data.
From the carrier’s standpoint, exposure-based reports, including rate change, are generally the most complex and underdeveloped. This will be explored further in Part 3 of the series.
Behavioral-based performance indicators
Significant change in staff – The talent in any business is often the most valuable asset.
Bind ratio out of sync with market – Understanding what “normal” bind ratio is for the niche/segment.
*DUA means delegated underwriting authority
*MGA means managing general agency
Next up:
Part 3: Trust AND Verify: Managing programs through systematic audit including data analytics and human behavior to identify potential authority deviations.