Life insurance carriers continually have to find ways to remain competitive, and one way is to improve operational efficiency via straight-through processing (STP).
This mechanism for automating the life application and administration process has the potential to transform the way new business is processed and serviced in the insurance and financial services industry. It can automate the policy life cycle from point of sale through underwriting, policy administration and service.
The concept has been in existence for years. It is firmly in place in the mutual fund and investment industry, where requirements to process trades within three days and the goal of one-day processing make seamless, automated processing a necessity. The banking industry, accustomed to transaction-based processing, also has embraced STP.
But in the insurance industry–where policy issue generally takes weeks, not days–STP implementation is still in the early stages, according to new STP research from LIMRA International.
But insurance involvement will be changing, because STP offers many advantages the industry can use. These advantages include cost savings for carriers, better service and faster payment for producers, and quicker issue for consumers. For instance, STP can reduce volume of printed documents and costs for storing them. It also can reduce application errors that often require corrections, because policy applications must be filled out completely and accurately before they can be entered into the automated processing environment.
Insurance companies are responding to these potential benefits, according to the LIMRA research. Most carriers are implementing or plan to implement STP–some for the entire policy life cycle, others for certain segments.
Most companies say they are including point of sale processes, underwriting and policy administration in STP. Fewer companies plan to include claims as part of the STP process, most likely because of the potential for fraud.
Initially, carriers are focusing their STP plans on simpler products that carry lower face amounts–term and whole life, in particular (see table). Ultimately, products such as variable and variable universal life will see it, too.
For the most part, carriers are furthest along at providing electronic illustrations and quoting at the point of sale. This may be driven, in part, by producers, who say they need access to quotes and illustrations from carriers in real time.