Canadian Underwriter

Taking a Closer Look

March 1, 2005   by Terry Neilson

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Underwriting discipline” continues to be the dogma of the property and casualty insurance industry. The fear of another cyclical turn towards soft market conditions and relaxed pricing is widespread amongst insurance companies who do not want the tough gains of risk management frittered away by a heedless pursuit of “cash flow” underwriting.

To this end, insurance companies are relying heavily on the risk assessment aspect of the underwriting process. A big part of doing so involves access to information, especially inspection reports. Loss control and inspection, which may have been devalued in the prolonged soft market of the 1990s, are now essential components of insurance company underwriting practices. This applies to all aspects of insurance, but particularly commercial and personal property.

Insurance companies have used inspection reports for underwriting purposes for decades. Inhouse or external inspectors collect vital information about the risks insurers want to potentially underwrite. In everything from marine to home to commercial property, these inspection reports flood underwriter offices everyday.

But, are insurance companies using – and integrating – standardized inspection reports and loss control information as effectively as they could? This is a question that has slipped through the workflow and operational efficiency cracks of many insurers. In one review done by a major reinsurer, missing loss control reports, or reports that failed to adequately address potential property exposures, were a major source of underwriting weakness among primary insurance companies. To thoroughly evaluate an account’s operations and controls, underwriters need to have a solid understanding of any hazards unique to the individual risk. This is especially true for risks with substantial property values, or where occupancies such as manufacturing, warehousing or cooking can generate a significant fire exposure.


Some inspection reports provide only general property information and do not consider more serious potential loss exposures that could be generated by the operations or occupancy of the location. Examples include hazards presented by older buildings (especially electrical and plumbing systems and roofing) and adequacy of fire suppression systems like sprinklers. Other exposures may involve control of special hazards, such as welding, plating, spray painting or woodworking, and combustibility or damageability from contents like chemicals, paint, building material or tires. It is not just how the inspection report is done, but how it is used in the underwriting process that poses a challenge for insurance companies. As it stands right now, inspection reports, whether provided by third-party services or inhouse inspectors, can vary in formatting and consistency. They also are poorly integrated into the underwriting process due to double entry of data and paper-based formats.

Typically, the inspection report is input by an inspector on-site on paper or a laptop computer, with photos of the premises also taken. The report may be finalized or re-input into a standard program by the inspector and couriered or emailed to the insurance company. The underwriter reviews the report and usually hands it off for clerical re-keying into the insurance company database. This process can take anywhere from three days to three weeks. This lag can delay the underwriting process, which when dealing with a large commercial account, may even be a deal-breaker.

This traditional process is riddled with delays, inefficiencies and higher costs. Inspectors often record information and collect data twice – once onsite, and again back at the office. A paper-based inspection routine relies on excessive printing, copying and data, or photo collation. In some cases, underwriters require verification of information or more data because of the lack of standard formatting in inspection reports. The absence of any integration between the inspection process and the insurance company database means double entry of information, delays and higher costs.

The biggest problem with these inefficiencies is that insurers are not getting thorough, accurate information about risks as quickly as possible in a format that will improve the underwriting decision-making process. This impedes their ability to evaluate the quality of business coming in from brokers or agents. How does this affect “underwriting discipline” in today’s marketplace?


Fortunately, there are portable, easy to use technology solutions that can transform the way insurance companies handle inspection reports and the underwriting process. Here is what insurers should be looking for in any potential solution.

First, mobile technology should include something like a “PC tablet” that can integrate information, data and photos into a standard, accessible format. Inspectors using these tablets can record information and send reports to a company server from remote locations. That means inspectors fill out only one report onsite. Early estimates show that the PC tablet can double the productivity of inspectors and allow them to make the most out of down-time in the field.

This data should be easily uploaded into a central database from remote locations via the Internet in order to give underwriters immediate access to the completed inspection. More importantly, the presentation of the collected data should intuitively present the assessment of the risk and direct the underwriter’s attention to deficiencies without having to read the entire detailed report. This type of solution eliminates the need for paper inspection forms and redundant data entry. Inspectors can document and record critical information on site and feed the information directly into an insurer’s underwriting database, cutting costly errors and clerical re-entry.

Management reporting on risk assessment trends, typically unavailable with paper-laden processes, is enabled by the use of a central inspection database. Insurers can now evaluate the quality of business by each agent or broker to aid further in the underwriting decision process.

These types of inspection tools cover virtually all lines of business, from commercial property to marine. But if you look one of the most common inspections – residential homes – you can get a sense of the benefits of a new approach to loss information. Many insurers simply do not perform inspections on personal property business because the cost of an inspection simply cannot be justified based on the amount of premium. By streamlining the end-to-end inspection process, the benefits of inspecting residential business begin to dramatically outweigh the cost.


It is clear that the underwriting and inspection process has not yet benefited greatly from advances in technology. In some cases, insurers have chosen to invest in other business areas or are satisfied that paper or document-intensive reports are simply part of the cost of doing business in the industry.

However, access to loss control information, when coupled with an effective integration tool, presents a powerful, competitive tool for today’s underwriters. If information really is power, why are more insurance companies not realizing the advantage of automating inspection reports to support the goal of underwriting discipline?

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