Not long ago I covered part one in my series of Internal vs External Underwriting Audit and I discussed whether or not They Both Have their Place in Today's Successful Life Insurance Market. As a refresher, we weighed the pros and cons and determined that, YES, a regular balance of internal underwriting audits and external third party audits was the key to success. Today, however, I'd like to highlight some cautionary factors that are important to be aware of when deciding to take the "external" route.
External reinsurance audits are a necessary and required exercise, especially when it comes to strengthening the business relationship and understanding the direct insurer’s underwriting processes and procedures. However, they are not entirely independent. The reinsurer has a client relationship to maintain with a direct company, and in light of this relationship, there may be a tendency on the reinsurer’s part to soften the message on the audit results. In addition, reinsurance audits can also tend to be both line of business and product focused, which may deter from providing a holistic or accurate picture of risk assessment.
However, there are quite a number of benefits to having external third party underwriting auditing completed.
A good third party external audit can provide you with:
- A fresh perspective or bird’s eye view on how your underwriting shop assesses risks (how they do it, why they do what they do) and how they apply and interpret policies, procedures, guidelines, processes, practices and the overall underwriting approach) which can bring to light issues that would not otherwise be apparent to an internal resource.
- Appropriate auditing resources so there is no tapping into internal resources which may result in the loss of an experienced production underwriter for audit related work.
- Objective results.
- Access to industry underwriting standards and best practices. Audit analysis summary and reporting suited to the C-suite.
- Multifactorial analysis and scoring method based on the results which provide quantitative and qualitative results.
- Solid recommendations around areas for improvement.
- Independent review.
- Experienced underwriting auditor(s) that are well-seasoned and educated by all accounts, having underwritten in both large and small shops, clinical background, many years of underwriting experience (with multiple companies, countries, lines of business, and markets).
- A team of auditors available to perform a robust audit with a large number of cases (where a lead auditor manages the overall audit) and within a specified time frame.
- Technical abilities to process large audits in concentrated, short periods of time with firm deadlines and deliverables.
- A selection of various types of audits geared to your objective that allows you to analyze and understand your business.
- Ability to work in a secure environment remotely which can save you costs.
Now, the big question! What to look for in an external audit vendor?
Jennifer Miller is Senior Underwriting Specialist at LOGiQ3
- Here is a list of my criteria to choose an appropriate auditor for your auditing needs:
- An audit team of highly experienced auditors with multiple line, company and international experience.
- Technical aptitude - cutting edge technical capabilities.
- Proven ability to perform an objective, holistic review with a track record (i.e., references, testimonials).
- Personable, well represented with abilities to present to executive audience.
- Ability to provide a secure data environment.
- Unparalleled, quality reporting (ask for a sample report).
- Detailed scoring & trending - quantifiable results.
- Ability to make observations and recommendations for areas of improvement.
- Ability to provide an overview of overall underwriting process.
- Experience with interviews of underwriters, key leadership, compliance & privacy, support staff.
- Flexibility to tailor the audit to the needs of company & leadership team – asking the right questions to identify objective of the audit.
- Offers specific focus.
- Good communication skills.
- Availability for on and off-site work.
- Focus on cost-effective, value-added results.
- Offers a secure environment for data.
So what does all of this boil down to? Well, it's important to internally audit where possible, but equally (if not more) important to obtain objective third party views of where your underwriting shop lands in relation to the industry at large.
Where does your company stand in comparison to this? From what I've seen and what we believe here at LOGiQ3, a healthy combination of internal underwriting audits in addition to strategic external third party audits will spell SUCCESS in today’s competitive underwriting shop.
To find out more about underwriting audit or to help align your business processes and implement a suitable Underwriting Audit Program, feel free to set up a free consultation with us!