The basic premise behind straight-through processing (STP) isinsurance carriers are able to process policies through theirsystems untouched by human hands and without the intervention ofhuman intelligence. It's a lovely concept and offers efficienciesfor agents and carriers, but is it a goal worth striving for?Insurers on both the property/casualty side and the life/annuitiesside affirm it is but also will remind you automation can take themonly so far within certain lines of business.

Lincoln Financial Group implemented straight-through processinglast December for new business sent to the carrier electronically,according to Don Mockler, who leads Lincoln Financial'scustomer-facing operations areas with responsibility for newbusiness, contact center, and operations services. "Over the courseof the last year, we took some baby steps along the way where [thecarrier's broker/dealers] had to key a few items into our system,"he says. "Now, we are able to automate the last step so policies godirectly into our policy system."

Lincoln Financial has been receiving electronic order entry froma number of key broker/dealers for more than three years, continuesMockler. Initially it started with the broker/dealers keying indata on their side and Lincoln rekeying the data because there wasno bridge. "Over time we've had economies of scale in terms of whatwe were keying in electronically to make it worth it for us to makethat investment to build the bridge between the two," he says.

At The Hartford, independent agents can quote directly throughthe carrier's systems–running all the rules and decision-making,explains Jim Rogers, director of agency interface and technologystrategy for the insurer. Submissions are sent to the carrier andprocessed and returned to the agents with the proper pricing forthe risk, and a policy is issued. Error-free transactions are thegoal of The Hartford, and Rogers reports the company has been ableto accomplish that feat because of its ability to provide clearspecifications to the agents. "We have a dedicated team that workswith our distribution partners to make sure they understand thedata elements," he says.

The Hartford provides its agents schema files, sample files, andworkflow diagrams that show the agents the order of questions andhow things are asked. "We've learned the clearer we can be withthem, the less back and forth we have," comments Rogers. "Sincewe've built those capabilities, it's mostly just a maintenanceeffort [to keep them running]. Our next challenge is to continue toprovide that service but at a lower cost of ownership and, at thesame time, connect to more distribution platforms."

While these are success stories, a senior analyst for Celentbelieves there are several factors keeping the vision of STP frombecoming widespread reality. Donald Light asserts the use ofrules-based analytics has not progressed far enough for carriers tobe comfortable using them. "There's also the question of being ableto access all the information that has been deemed necessary fromboth internal and external sources," he says. "Sometimes there aredifficulties in getting hold of that information in anunderstandable form." A third barrier, according to Light, involveshaving adequate workflow and decision rules capabilities to be ableto sequence events and transactions and to make the right decisionsin a completely automated way.

Since 2002, Safety Insurance, a Boston-based property/casualtycarrier, has offered its independent agents a Web-basednew-business-entry application. "We gave them the ability to doserver-side rating on the system," says Jim Berry, Safety's vicepresident of insurance operations. "We were able to quote policiesin real time, but we weren't able to complete the loop and issuepolicies."

When software partner CSC developed the capability to processthe transaction as it occurred, Safety took a keen interest."Ideally we wanted to see the insurance transaction become, as ouragents have called for, a real-time transaction," says Berry. "Whenthat function became available, we were pretty excited and wantedto upgrade as soon as possible. Everything downstream from thetransaction becomes much more efficient having thatstraight-through capability."

Traditionally, insurance transactions at Safety have been abatch event, so the carrier would make policy changes at some timeduring the day, the batch cycle would run that night, and the nextmorning the policy would be issued, explains Berry. "Instead ofhaving to wait a day, straight-through processing allows [insurers]to issue policies on the spot," he says. "Probably most important,the rate is right in front of [everyone]. When an agent is sellinga policy, cost is a huge part of the dialogue."

Having real-time rating creates efficiencies not only for theagent selling the policy but also from the company standpoint. "Ourpredominant quality-assurance tool is whether the rate [in theissued policy] matches what the customer thought it should be," hesays. "So, on the spot, we can verify the transaction was doneproperly."

As of now, Safety's agents have indicated they would like to seethe download remain a batch event. "I would expect that is more forworkflow than anything," remarks Berry. "They've centralized thatfunction in their agency. They want to do some things consistentlyfrom carrier to carrier. Until everybody is doing [STP in] realtime, they probably want to keep it all the same."

Carriers may turn to STP for more generic lines of business andrequire more touch points for complex lines. "There has beenprogress on the carrier side to begin implementing STP, but thereare certain lines that are just more complex in nature, and I'm notsure carriers feel technology is at the point where they canimplement it for some of the more complex lines," says Trae Jones,vice president of the Appix consulting group. "You are going tofind some carriers where the whole idea makes them nervous. Theymay be willing to streamline certain aspects of the process, but atthe end of the day, they want the underwriter to review thingsbefore they sign off."

Nervousness among carriers comes from the belief their corecompetency is analyzing and understanding risk, particularly withcommercial lines, Jones indicates. "By streamlining the process andutilizing the rules engines, are they truly going to be able toassess risk and not miss something?" he asks, adding acceptancewill come with time. "The more carriers utilize rules engines forSTP, the more carriers are going to be willing to embark on thatinitiative," he says. "A lot of folks in the insurance industrydon't necessarily want to be on the bleeding edge. They don't wantto be the guinea pigs."

Personal auto is the line insurers have pursued with STP morethan others, followed by homeowners and commercial auto, accordingto Light. From there, things get harder. "It's not so muchcomplexity of policies but the range of information you have toobtain in machine-understandable form," he says. "If you get asafety inspection report [on a commercial property], how do you getthat to a point where it becomes data? It takes time and effort todo that."

For a carrier to accept or reject a risk based on certaincircumstances, Light contends it has to achieve a level ofconfidence the decision is right. "Having that level of confidencedepends both on the amount of data you have and the confidence youhave in the analytics that are applied to that data," he says. "Youtend to fall short in either or both of those areas more on thecommercial lines side than on auto or home."

The main reason STP is important to Lincoln, points out Mockler,is it makes it easier to do business with the carrier."[Broker/dealers] know what they key into the system is exactlywhat they are going to get back," he says. "We are not going totouch [the data] in between or have an opportunity to change it inany way, which really drives the accuracy."

STP increases the speed of Lincoln's turnaround time forpolicies. "[Broker/dealers] know as long as [the policy] passesthrough the system, they are going to have a contract in the mailthe next day," says Mockler. "It helps drive business. They don'thave any surprises if someone calls in the next day [with aproblem]. The system will catch errors and not allow them to moveon until they key that information into the front-end order entry,"he notes.

STP also has set up Lincoln's ongoing business strategy. "Oncewe have the contract in-house and the business on the books, wealso want to be easy to do business with when it comes time tobeing the retirement income/security company [for customers] in thefuture," says Mockler. "While it's not necessarily the key focus ofNAVA's STP initiative, it's the key focus for Lincoln to automatethe process and be easy to do business with when people are readyto retire and are looking for new options."

Mockler believes STP makes it cheaper for carriers to operate."It lowers the cost of doing business for our industry," he says."It makes us more competitive with other financialinstruments."

Lincoln's underwriting usually is handled by the broker/dealers,who judge whether the investment is suitable for a particularclient based on where the client is in his or her financial life."All the firms that offer electronic order entry provide a routingthrough the process that allows the supervisor for that broker tosign off on whether a policy is a suitable investment," saysMockler.

Once it has been deemed a suitable investment, Lincoln'sunderwriting is relative to the carrier's own product rather thanthe customer. "We build a PPFA [product profile for annuities],which is an ACORD standard format that outlines all the rules forour product," says Mockler. "The information we receive from thebroker/dealers runs against that [PPFA] file. As long as it iswithin certain tolerances, it goes straight into our system."

If the contract minimum is too low, Lincoln's system would kickout a work item, and one of the carrier's processors would contactthe broker. "We publish all the standards online with thebroker/dealers," Mockler says. "Typically [the broker/dealers] havelooked them up as part of their selection process in deciding whichproduct to put their client into."

The PPFA is a standard format developed and ratified by themembers of ACORD as the way the industry would share information,explains Mockler. "From a Lincoln standpoint, all those rules areinherent in our systems somewhere," he says. "We have a tool thatbuilds the file within those parameters and keeps it refreshed withour electronic order-entry partners as well as with DTCC."

One area in which the cause of straight-through processing hasbeen advanced is on the vendor side, where most of thepolicy-systems vendors have developed some type of rules enginethat allows for a more streamlined underwriting process, accordingto Jones. But regardless of the advancements in technology, "eachcarrier is going to have different levels of comfort inrelinquishing the manual processes and embracing true or partialSTP," he says.

The Hartford is well along the curve. Agents working with TheHartford expect to get a quote back from the carrier within 15 to20 seconds, explains Rogers. "If it's the product they want withThe Hartford, they expect to answer a couple of [underwriting]questions and it's done," he says. "For personal lines, wedefinitely are there. For commercial lines, we are getting moretoward STP. We do it for some small-commercial-type accounts."Rogers adds carriers struggle to make STP work when the policiesbecome more complex.

On the back-office side, The Hartford has worked to standardizeits rules engines so the carrier is on one rules platform acrosspersonal and commercial lines. "We're continuing to leverage thelearning from the personal lines, and we've looked at those modelsso we can apply some of that automatic decision-making into thecommercial arena, where the risks are more complex from anunderwriting point of view," says Rogers.

The Hartford has an enterprise architecture and standards bodythat covers all the divisions of IT. By eliminating the differentrules engines the carrier used, Rogers maintains it allowed TheHartford to eliminate issues such as users interpreting rulesdifferently, inputting rules into different platforms, andexecuting inconsistent rules. At the same time, this allowed thecarrier to lower maintenance costs and total cost of ownership. "Itgives us the scale we need," he says. "It's not different acrossbusiness units."

As vendors update their rules engines, The Hartford wants to beable to do that effortlessly. "Having it all standardized allows usto continue to upgrade our products and platforms with ourpartners," says Rogers. "We not only have the vendors send us ACORDXML transactions, but we actually use [the standards] internally,as well. If you are going down a standards-based approach, you needto use it internally and externally."

Those carriers looking to add rules engines to existing systemsface more complex issues, asserts Jones. "[Rules engines] certainlyare not plug-and-play implementations," he says. "There iscomplexity there, but at the same time, these are notinsurmountable challenges, either. I think there are some solidplayers in the rules-engine market right now offeringproducts."

It is more likely to find rules engines installed when a carrierperforms a full system-replacement initiative, Jones indicates. "Alot of policy-systems vendors have invested their R&D dollarsin their products to enable users to utilize the rules-basedapproach toward their underwriting processes," he says. "Some[carriers] picking vendors with modern platforms are finding theyare getting the capability of building a rules-based approach totheir workflow in the system they buy."

Jones observes an increase in the level of interest fromcarriers rolling out real-time upload, real-time inquiry, anddownload functionality. "Carriers have been focused on ensuringtheir own core systems are operating efficiently and effectively,but those carriers that have embarked on policy-system replacementinitiatives and are now live with them are thinking about what theycan do next to differentiate themselves," says Jones.

Within the small-to-midtier market, less than 10 percent ofcarriers have implemented real-time upload from independent agencymanagement systems (AMS), Jones estimates. "That leaves a bigmarket for other carriers to embark on those initiatives," he says."The more carriers that give their agents that ability to quote newbusiness in a streamlined fashion, the more other carriers aregoing to feel the need to follow suit."

Jones also credits the flexibility of XML technology forallowing real-time upload to be a more viable alternative forcarriers. "It's a differentiating factor," he says.

There are a number of software vendors in the market today,Jones points out, whose primary offering is helping to build abridge between agency management systems and the carrier. "Thechallenge we've seen with one carrier that is implementing thisreal-time upload approach is its ability to pull the data from itsagency management system into that middle tier and to map itappropriately to the policy system database," he says.

There are products in the market that ensure the XML mappinggets done properly, reports Jones, who looked at that issue with aclient because he felt the benefits would outweigh the risksassociated with such an important piece of a carrier'sbusiness–data from agents. "There are huge advantages from givingyour agents the ability to streamline their process for gettingnew-business quotes, but there are huge risks associated with thatinitiative, as well," he says. "If you end up with bad data comingin, it can have catastrophic consequences. You have to be verycareful, but there really are some nice products and competentvendors in the market that can assist carriers with ensuring thedata is coming through."

Jones estimates vendors Applied and AMS control 80 percent ofthe agency management system market. "You can't forget about theother 20 percent, but carriers think if they can offer 80 percentof their agency force the ability to go directly from their agencymanagement system, click a couple of buttons, and have the datapopulate their own systems, it is worth the effort."

It continues to be a dream to get all business completed withstraight-through processing, but Light advises carriers to focus onwhat is achievable. "Making important decisions that are untouchedby human hands or the application of human intelligence is neverachieved at a very high percentage," he says. "It becomes more of agoal you are striving toward. Maybe you'll never get to 100percent, but if you get to 70, 80, or 90 percent, that's good.Companies are starting to share that objective."

Berry characterizes Safety's efforts toward STP as more of anefficiency measure than a way to attract new business. "The qualityof our output is better, we have more accurate policies, theturnaround time is better, and claims are issued with the rightcoverages," he says. "[STP] allows us to better service ourcustomers. Once the transaction has been moved to real time, itcreates a lot of opportunities that [carriers] can exploit."