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Group benefits underwriting: Stodgy?

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Some benefits brokers may like being able to send similar group life or group disability cases to the same insurer and get a lower rate for one than the other.

Roger Soppe, an insurance industry specialist at Pegasystems Inc. (Nasdaq:PEGA), argues that the underwriting arbitrage opportunity is a symptom of underwriting problems that are bad for both the insurers and for the employer clients.

Soppe has an ax to grind: Pegasystems, a company in the big-company software market, recently introduced a property-casualty underwriting system. Last week, it added a group benefits underwriting system.

But Soppe said in an interview that group benefits underwriters clearly need new automation tools.

Issuers of true group benefits do not usually get to ask an employer’s employees about their health, but the underwriters do get files from brokers that show the employees’ ages, titles, salaries, job tenure and location, and the employer’s Standard Industrial Classification (SIC) code.

Managing that data is trickier than it sounds, and many of the biggest group benefits underwriting units are still using homegrown systems that are similar to the systems they were using 20 years ago, Soppe said.

He said some still have to send data from one system into a completely different system three or four times. At some companies, underwriters still rely heavily on homemade Microsoft Excel spreadsheets, he added.

“Someone was joking that our real competition is in Redmond, Wash.,” Soppe said.

Carriers have invested heavily in sales, enrollment and claim administration system upgrades.

The lack of investment in underwriting automation leads to delays and inconsistency in pricing, and it hurts insurers’ ability to analyze their group benefits operations, Soppe said.

See also: Systems Forum Update