Hibernian Life & Pensions
Business Process Re-engineering (BPR) at Hibernian Life & Pensions (Ireland)
For Life insurance companies, the constant challenge is to maintain profitability and market share in a rapidly changing business environment, manifested by increased competition in the market place and the changes to insurance products required by the market.
In order to meet these challenges, Hibernian in Ireland had decided to re-engineer their existing Life Underwriting Process. Their main objectives were to reduce the cost of underwriting, to speed up the underwriting process and provide customers with a better service, and to target key distribution channels such as large brokerages and Building Societies with a unique 24-hour decision service.
Hibernian achieved their Business Process Re-engineering objectives in two stages. Stage 1 involved redesigning the New Business System, which is used to process new life insurance proposals, while the more recent Stage 2 involved increasing the level of automatic underwriting carried out by the original New Business System.
Stage 1 – Redesigning the New Business System
Management research and a survey of the branches throughout the Irish Republic identified the need to increase the speed with which life policy documents could be produced and the need to reduce the time taken on underwriting decisions. The process of redesigning the New Business System included a review of life proposal processing, data input and validation, quotations, printing, image processing and proposal tracking.
Generally all underwriting decisions had taken place at the Dublin Head Office – no small task when around 30,000 life proposals are processed each year. This had been a source of frustration for local branch staff, and added both costs and delays to the processing of applications. A decision was taken to implement an Expert Underwriting System as part of the New Business System, with the objective of automating the processing of 50% of life insurance proposals.
With the branch business being principally broker-driven, such automation would provide service improvements and reduce the delays with documentation, thereby helping capture more business and improve relationships with brokers. However, the move was also intended to release head office underwriters to concentrate on the difficult cases.
Implementation of the Expert Underwriting System
The New Business System was developed under an IBM mainframe. A decision had to be made regarding the implementation environment for the Expert Underwriting System. The use of conventional programming languages had been considered, but dismissed because of the difficulties in capturing and maintaining a sizeable set of rules in such languages.
The Hibernian parent company had already reviewed the use of mainframe expert system development tools for Life and Pensions, which provided a valuable set of underwriting rules. However, Hibernian in Ireland foresaw problems with implementing a mainframe expert system. The overhead of maintaining the mainframe development environment, in terms of computer and human resources, was considered too high. Furthermore, a feasibility study revealed an unacceptable performance overhead when interfacing the New Business System to the Expert System Module.
Hibernian then investigated a different solution based on XpertRule®, Knowledge Builder, a knowledge development and maintenance environment from XpertRule Software in the UK. One of the main attractions of XpertRule Knowledge Builder was its ability to deploy the rules under a wide range of platforms. The very first release of the Hibernian expert system was deployed on an IBM 3090 mainframe, which allowed the underwriting rules to be embedded seamlessly into the main New Business System. When Hibernian subsequently decided to move the expert system to run under a new web-based architecture, The Knowledge Builder Java Web-deployment option was chosen to deploy the same set of underwriting rules under the new environment.
Another attraction of XpertRule Knowledge Builder was the graphical knowledge representation and structuring, enabled the rapid development and maintenance of complex and constantly changing rules. Being highly graphical, XpertRule allowed the experts to specify and more easily maintain the hundreds of underwriting rules. Andy Ferrari, the Project Leader on the New Business System expressed his experience of using it: “XpertRule differs from conventional languages in that the maintenance and enhancement of the rules takes only a fraction of the system analysis time. Testing on the PC provides instant approval of the new rules and to date no problemshave been encountered with the generated code.”
Hibernian Underwriters were involved in rigorous testing of the expert system. David Dann, the Computer Services Manager at Hibernian at the time, accepts that of all parts of the New Business System, XpertRule gave the least trouble: “It went in and it worked.”
Stage 2 – Increasing the Level of Automation
The Expert Underwriting System had met its original objective of achieving 50% automated underwriting and was referring only 50% to head office. However, the continually changing business environment, with increased competition and a decrease in the percentage of savings policies among new proposals, has motivated Hibernian in Ireland to look for ways of further reducing costs and speeding up the processing of new proposals. Increasing the level of automated underwriting was seen as one of the keys to achieving this new objective.
Mining for More Underwriting Rules
Increasing the level of automation required additional underwriting rules that would increase the level of automated underwriting, without increasing the risk. However, Hibernian knew that such additional rules would be extremely difficult to capture from underwriters, since they represented the more complex aspects of underwriting. They would also need to reflect the trends and patterns in the current business process.
Hibernian again adopted a new approach and commissioned XpertRule Software to apply the technology of data mining, to discover the profiles of applicants whose underwriting risk assessment could be automated. Using XpertRule’s Miner data mining software, data from applications and the subsequent underwriting decisions were analysed by XpertRule consultants, working closely with the Hibernian.
While some improvement was expected, the analysis revealed surprisingly significant groups of applicants whose referral to underwriting at head office did not result in a change to the assessment of their risk (premium loading). The underwriting of these groups of applicants could therefore be automated by using their profiles as additional underwriting rules. The analysis also examined business from key accounts. This revealed further rules, which could be used for additional automation, to maintain and improve the special service provided to this important market sector.
The newly discovered Profiles were subjected to rigorous assessment by underwriters and actuaries to ensure that the rules did not represent an increase exposure to higher risk business. During this process, the actuaries were able to qualify the rules by further conditions and to test the effect of such qualifications on the quality of the rules. This was made possible by the nature of the data mining technology used in the analysis, which had generated the profiles in this form of rule, e.g.
IF (Age > 30) and (Age < 41) and (Height_Weight = Normal) and… THEN Probability of Increased Risk is 0.015
The new rules were incorporated into the Expert Underwriting System, increasing the level of automated underwriting from 50% to 70%. Extensive ongoing monitoring of the new automated rules was undertaken to ensure that the benefits these rules provided would be maintained over time. This confirmed the robustness of the new rules. A subsequent data mining analysis was then further able to increase the level of automated underwriting to 80%.
Hibernian has successfully applied the advanced technologies of knowledge based systems and data mining to re-engineer their New Business Process. Eoin Byrne, Operations Manager, Hibernian Life in Ireland said: “We used XpertRule software to help develop real BPR solutions in our new business processing area. What began as a modest conceptual exercise has led us to develop new ways of processing life proposals and these methods now underpin a cost effective and service sensitive new business process. However, all of our systems and particularly service sensitive systems such as New Business Processing must be dynamic. We review and evaluate the experience from our Expert System Processing at least once a year. We do this to identify further niches to make the system more cost effective whilst maintaining or improving service and underwriting quality. Put simply, without Expert System Processing we could not provide the quality service needed to survive in today’s market whilst keeping the operation cost effective.”