A well-executed watch list process can significantly benefit P&C insurance companies. From the initial establishment of the process, which includes identifying which exposures and claims to include, to the ongoing review of the process as new exposures and claim types emerge, actuarial, claims, and underwriting departments significantly impact the success of a watch list process. Open lines of communication among these departments can pave the way for a successful watch list process.
Creating a watch list
In order to make effective use of watch lists, a company should have a thoughtful and comprehensive process in place to determine which exposures to monitor and how management should consider this information. Watch list processes of leading companies typically include the following items:
• A vision statement to establish the goal of the watch list program;
• Clear ownership and lines of accountability;
• A defined process that includes:
-Identification of key risks to assess;
-Assignment of appropriate and available resources;
-Consistent reporting of facts, coverages, and issues;
-Exposure calculations under various scenarios;
-Specific reporting formats;
-Routine intervals for reporting;
-Process for updates as new information emerges;
• Open lines of communication for effective information gathering/sharing among underwriting, reinsurance, claims, actuarial, and risk management departments;
• Reporting of findings to internal stakeholders for potential remediation initiatives.
A clear vision statement serves as a guide in defining exposures or claims assigned to a watch list, including the key members of management (notably leaders from claims, actuarial, and underwriting departments) involved in performing a watch list assessment. While this component may appear obvious, a company should not underestimate the value of the vision statement in maintaining the proper focus of the watch list over time.
Critical to a successful watch list process is the determination of the process owner and the associated roles and responsibilities. The owner of the watch list process, typically a chief reserving actuary, a claims department leader, or another executive, plays a critical role in establishing accountability and facilitating the timely sharing of information among various stakeholders.
By guiding a consistent approach to identifying which exposures to include on the watch list and staying abreast of current developments and emerging trends, the process owner helps management better understand and execute the defined watch list process.
Leading practices also suggest that a company should formally document its watch list process and routinely review the process for necessary adjustments. A routine review facilitates up-to-date documentation that reflects existing resources and protocols as well as emerging issues that require assessment and reporting. An organizational culture driven by open communication across all stakeholders is well suited to develop and maintain an effective watch list process.
Identifying watch list exposures
The external environment, including changes in laws and regulations, drives the exposures selected to appear on a watch list. Much like organizational goals and objectives, which change over time, the evolving nature of watch list exposures necessitate routine assessment of and adjustment to the criterion underlying the watch list assessment process.
The criteria used to assess exposures for inclusion on a watch list may include:
• Types of coverage, time periods, and geographical regions of business underwritten;
• Limits and attachment points;
• Legal trends such as new court filings, rulings regarding legal interpretations and procedural requirements, and jury verdicts;
• New claim filings (inclusive of underlying carrier exposures), as well as reserve and payment patterns by industry, company, and carrier;
• New business strategies;
• Discontinued business exiting strategies.
Asbestos, pollution, health hazard, and other complex exposures are perhaps most commonly found on watch lists, but prescient companies effectively utilize their claims and actuarial departments to stay abreast of current trends and identify emerging exposures and new claim types to incorporate into their watch list process.
For the full article, refer to page 14 in the Winter 2017-2018 issue. https://www.airroc.org/assets/docs/matters/AIRROC%20MATTERS%20Winter%202017-2018%20vol%2013%20No.%203.pdf