Underwriting Administration New Business Process

A Modeling and Simulation Process Improvement Project

Client: International Life Insurance Company

Project Statement:
Use modeling and simulation to improve the Underwriting Process and improve the application cycle-time. The current process was taking several weeks to approve a new application. During this time premiums are not collected, thus each day process represents a day's premiums not collected.

How can modeling and simulation help make these types of business decision? It allows managers to use models to make better decisions based on predictions of how various controlling variables will influence the business system. These models represent complex business activities from a functional perspective, and focus on understanding and thus changing business practices.

A model mimics the operations of a business by stepping through the events in compressed time while displaying an animated picture of the flow. The simulation allows the manager to measure the processes, people, and technology within the model. The simulation model makes it possible for a manager to evaluate the company's current business practices and look for ways to improve them.

Within a simulation model, a manager can analyze time, cost, resources, throughput, capacity, and bottlenecks. The model also allows the manager to design and test improvements in resource allocation and system streamlining. Together with performance and financial data, these factors allow the manager to make informed business decisions.

CACI consultants followed their standard approach to modeling and simulation projects. The first step was to understand the current business environment by collecting system metrics (such as work schedules, hourly rates, number of applications per day, etc.) and talk to users of the current system. An "As-Is" model is then built showing life and disability applications being processed. This model undergoes verification and validation. The current cycle-time per application is believed to be three months with an issue rate of 77%. These numbers were used to check the behavior of the "As-Is" model.

Once the "As-Is" model is built, such questions can be answered such as:

• What is the application cycle-time?
• Where do delays occur in the system?
• What is the labor costs?
• What is the cost per application?

Once the "As-Is" model has been built and validated, the consultants began looking at various ways to improve the current business process. These improvements were incorporated into a new "To-Be" model that produced encouraging results.

CACI Services Involvement:
CACI consultants utilizing SIMPROCESS software to build the "As-Is" and "To-Be" models of this life insurance company's business practices.

Deliverables:
"As-Is" and "To-Be" simulation models built with SIMPROCESS software. Written documentation outlining the results of the project was also provided.

Results:
The "As-Is" model produced results that were similar to the predicted results. The average cycle time came out to 86 days (as compared to the predicted 90 days), and the application issue rate figured out to 76% (as compared to the predicted 77%). Therefore, the "As-Is" model was accepted as the baseline for the project.

The CACI consultants began to examine alternatives to the current business practices. Ideas were tossed around such as increasing the staffing levels, accepting applications and credit card numbers via email, and generating e-mail applications. All of the improvements were constructed with the following goals:

• Reduce application cycle time
• Increase quality
• Improve cost effectiveness

The following changes were made in the "To-Be" simulation model:

• Applications were accepted via email
• The underwriting rules and criteria for agents were modified
• An electronic underwriting worksheet was developed to allow for real-time status updates
• Increased staffing

After the "To-Be" model was run, there was a reduction in almost ten days in the application processing time (76 days down from 86 days). This reduction allowed for almost a 60% increase in the number of applications this company could process yearly. The "To-Be" scenario did raise operating costs close to 16% with the addition of the extra staffers. However, given the dramatic increase in the number of applications processed, this increase in cost was acceptable.