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.
However, the real potential for cost and time savings comes from systems that actually process applications. These systems are not as far along in implementation but are definitely in the plans.
Electronic applications have the potential to reduce errors and processing time dramatically. While most carriers will offer electronic applications within two years, most that were surveyed still require manual processes to submit an application into the STP process. Here, too, carriers are implementing electronic applications for simpler term and whole life products first. (Term products have the highest incidence of Internet or intranet submission. However, almost half of carriers still submit at least some portion of their term business by fax.)
Electronic payment options and needs analysis software are the next set of processes carriers are considering. For those with electronic payment options, most offer automatic check handling.
Electronic signatures are further down the road. Only 16% of the surveyed companies have implemented e-signatures, but more than half are in the process of implementing them or plan to within two years.
In terms of STP in underwriting, a majority of carriers have achieved connectivity with the Medical Information Bureau and are imaging their documents electronically, with other elements of underwriting to follow. For the most part, they are not planning to include interfacing with credit information and pharmacy data as part of STP.
Currently, most carriers fully underwrite at least a portion of their STP applications, although a few companies issue all of their term or whole life policies as guaranteed or simplified issue. These are simpler products that lend themselves more to automated processing.
Carriers are most likely to have automated commissions to producers and policy production. Progress with automated submission to new business systems already has occurred, with four in 10 carriers having completed this process and another 22% currently implementing. Within two years, three out of four carriers will be able to issue and deliver a policy electronically.
Most carriers do not plan to incorporate suitability or claims systems into their STP initiatives.
Going forward, STP will be an imperative for insurance carriers. Streamlining operations to automate the life cycle of a policy will help process business faster and with fewer errors. This increased speed and accuracy will enable them to remain competitive in a financial services industry that is increasingly operating in an automated and/or real-time environment.