Digital Experience Insurance Rating

ISO ERC: Digitization of ISO Rating Content for Insurance

Insurance Services Office (ISO), a subsidiary of Verisk Analytics, has been at the forefront of providing advanced tools, data, and analytics for the Property & Casualty insurance industry since 1971. The rating content, one among ISO’s broad spectrum of services, has become an industry standard and indispensable source of information for Property & Casualty insurers.

Significance of ISO rating content for P&C insurers

ISO rating content helps P&C insurers to stay on top of the loss costs trends, new product forms, and regulatory changes for both personal and commercial lines. ISO content bundles all necessary rating information based on industry developments and ISO updates to advisory loss costs, rules, and forms.

This rating content is critical for insurers to keep their existing line of products current with the market trends and rapidly launch new products while ensuring regulatory compliance.

Manual Implementation of ISO circulars

Initially, ISO used to publish the rating information in the PDF format, which are known as circulars. For insurers to incorporate these circulars and make necessary changes to their products, a team of skilled resources would analyze and interpret these circulars. However, such a manual method of interpretation and implementation of ISO circulars was extremely inefficient and hampering P&C insurers’ business goals.

Shortcomings of manual implementation

Maintenance and management of ISO rates, rules, and forms using the manual method is complex, labor-intensive, time-consuming, and expensive. Moreover, it is a herculean task for insurers to manually implement the huge number of circulars released by ISO, 75+ circulars a week on an average.

Novarica, an industry-leading analyst, surveyed insurers who were implementing ISO circular content manually and stated in their report that it takes over 560 hours, i.e. more than 23 days for an insurer to process a single circular. As per Novarica’s report, the insurers who adopted the manual method of implementing ISO circulars spent a considerable share of the total time i.e. 30% on analyzing and interpreting the changes in the circular and 40% of the work effort is spent on implementing the ISO changes into their systems. Also, those insurers are at least two years behind their effective dates to respond to circular changes. Such a lag is impacting insurers’ productivity negatively due to premium leakage and loss leakage.

The Solution-Digitization of ISO Rating Content

A few years ago, ISO set out to solve this problem by digitizing its rating content and came up with a solution called ISO Electronic Rating Content™ (ERC).

Mark Sheehan, head of ISO Rating Solutions at Verisk stated that ISO ERC enables insurers and vendors to receive pre-interpreted and pre-defined content electronically from ISO. It is a significant leap in accelerating the process of interpreting and implementing ISO changes.

Using the electronic method, the number of steps involved in implementing ISO rating content came down to just three from earlier eight with manual implementation.

Infographic comparing steps involved in manual implementation of ISO circulars with ISO ERC suite

The digitization of ISO rating content made it easy for insurance companies to keep with the latest market trends. A brief overview of the three steps of ISO ERC are as follows:

  • 1. ISO circular received, ERC downloaded and integrated
    After receiving ERC, the insurer can pick and choose which recent rating content to adopt. A compatible modern rating software can fully automate this and help insurers visually select which circulars they would like to implement and automatically update the system with just those circulars and the associated changes to rates, rules, and forms.
  • 2. Company deviations built and tested
    As the next step, insurers can apply the company-specific deviations on top of ISO base rates to retain, enhance, or modify company exceptions.
  • 3. Changes moved to production
    In this last step, the changes are propagated to a test environment for user acceptance testing and subsequently to production. Insurers need to note that this step does not involve coding the changes, as was the case in the manual method.

Merits of embracing ISO ERC

ISO ERC, when combined with the right technology, can help P&C insurers overcome all demerits of the manual method and significantly speed up the adoption of ISO to meet the needs of policyholders.

A comparison study done by Novarica had shown that insurers who embraced ISO ERC could reduce average work hours by 39% over the insurers who adopt manual implementation.

The biggest cost savings is in IT modification, which stands at 58% and a cut down of 35% in the overall cost. Additionally, insurers who work with ISO electronically were on an average 7 months more current than those using ISO with a manual process.

The key strength of the ISO ERC solution is that it includes ISO’s own interpretation of the rating content. ISO ERC bundles automated representation of ISO content directly form ISO’s actuarial and insurance line experts. This content includes: 1. rating data—advisory loss costs and a list of valid limits and deductibles), and 2. rules for acting upon that rating data—for premium calculations, forms attachment logic, statistical code assignment, and validation messages. ISO ERC provides support for a broad spectrum of commercial lines of insurance along with worker’s compensation, and is available in both Microsoft Excel and XML file formats. Leveraging ISO ERC, P&C insurers and MGAs can gain significant operational advantages, as well as launch new products and enter new markets quickly.

The ISO ERC Difference

No doubt that ISO ERC has been a technology innovation for insurers. With its ability to consume ISO rating content automatically and fully, ISO ERC saves significant time and effort. Some key benefits of ISO ERC are:

  • Improved time-to-market with new products and product changes
  • Higher productivity with the automation of manual processes
  • Cost reduction with analysis and implementation of ISO changes
  • Regulatory compliance

Unfortunately, the full benefits of ISO ERC still seem elusive to many insurers primarily due to the lack of appropriate companion technology. Hence, insurers must carefully consider various technological and business aspects when procuring or upgrading to new technology and choosing the IT vendor partner for implementing ISO ERC.

To learn how we can help insurers achieve business agility by leveraging ISO® advisory loss costs and rules, visit our BizDynamics Bureau Rating & Analytics page.