Straight Shooter

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

Lincoln Financial Group implemented straight-through processing last December for new business sent to the carrier electronically, according to Don Mockler, who leads Lincoln Financial's customer-facing operations areas with responsibility for new business, contact center, and operations services. "Over the course of the last year, we took some baby steps along the way where [the carrier'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 go directly into our policy system."

Lincoln Financial has been receiving electronic order entry from a number of key broker/dealers for more than three years, continues Mockler. Initially it started with the broker/dealers keying in data on their side and Lincoln rekeying the data because there was no bridge. "Over time we've had economies of scale in terms of what we were keying in electronically to make it worth it for us to make that investment to build the bridge between the two," he says.

At The Hartford, independent agents can quote directly through the carrier's systems–running all the rules and decision-making, explains Jim Rogers, director of agency interface and technology strategy for the insurer. Submissions are sent to the carrier and processed and returned to the agents with the proper pricing for the risk, and a policy is issued. Error-free transactions are the goal of The Hartford, and Rogers reports the company has been able to accomplish that feat because of its ability to provide clear specifications to the agents. "We have a dedicated team that works with our distribution partners to make sure they understand the data elements," he says.

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

While these are success stories, a senior analyst for Celent believes there are several factors keeping the vision of STP from becoming widespread reality. Donald Light asserts the use of rules-based analytics has not progressed far enough for carriers to be comfortable using them. "There's also the question of being able to access all the information that has been deemed necessary from both internal and external sources," he says. "Sometimes there are difficulties in getting hold of that information in an understandable form." A third barrier, according to Light, involves having adequate workflow and decision rules capabilities to be able to sequence events and transactions and to make the right decisions in a completely automated way.

Since 2002, Safety Insurance, a Boston-based property/casualty carrier, has offered its independent agents a Web-based new-business-entry application. "We gave them the ability to do server-side rating on the system," says Jim Berry, Safety's vice president of insurance operations. "We were able to quote policies in real time, but we weren't able to complete the loop and issue policies."

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

Traditionally, insurance transactions at Safety have been a batch event, so the carrier would make policy changes at some time during the day, the batch cycle would run that night, and the next morning the policy would be issued, explains Berry. "Instead of having 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 selling a policy, cost is a huge part of the dialogue."

Having real-time rating creates efficiencies not only for the agent selling the policy but also from the company standpoint. "Our predominant quality-assurance tool is whether the rate [in the issued policy] matches what the customer thought it should be," he says. "So, on the spot, we can verify the transaction was done properly."

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

Carriers may turn to STP for more generic lines of business and require more touch points for complex lines. "There has been progress on the carrier side to begin implementing STP, but there are certain lines that are just more complex in nature, and I'm not sure carriers feel technology is at the point where they can implement it for some of the more complex lines," says Trae Jones, vice president of the Appix consulting group. "You are going to find some carriers where the whole idea makes them nervous. They may be willing to streamline certain aspects of the process, but at the end of the day, they want the underwriter to review things before they sign off."

Nervousness among carriers comes from the belief their core competency is analyzing and understanding risk, particularly with commercial lines, Jones indicates. "By streamlining the process and utilizing the rules engines, are they truly going to be able to assess risk and not miss something?" he asks, adding acceptance will come with time. "The more carriers utilize rules engines for STP, the more carriers are going to be willing to embark on that initiative," he says. "A lot of folks in the insurance industry don't necessarily want to be on the bleeding edge. They don't want to be the guinea pigs."

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

For a carrier to accept or reject a risk based on certain circumstances, Light contends it has to achieve a level of confidence the decision is right. "Having that level of confidence depends both on the amount of data you have and the confidence you have in the analytics that are applied to that data," he says. "You tend to fall short in either or both of those areas more on the commercial 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 exactly what they are going to get back," he says. "We are not going to touch [the data] in between or have an opportunity to change it in any way, which really drives the accuracy."

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

STP also has set up Lincoln's ongoing business strategy. "Once we have the contract in-house and the business on the books, we also want to be easy to do business with when it comes time to being the retirement income/security company [for customers] in the future," says Mockler. "While it's not necessarily the key focus of NAVA's STP initiative, it's the key focus for Lincoln to automate the process and be easy to do business with when people are ready to 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 financial instruments."

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

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

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

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

One area in which the cause of straight-through processing has been advanced is on the vendor side, where most of the policy-systems vendors have developed some type of rules engine that allows for a more streamlined underwriting process, according to Jones. But regardless of the advancements in technology, "each carrier is going to have different levels of comfort in relinquishing the manual processes and embracing true or partial STP," he says.

The Hartford is well along the curve. Agents working with The Hartford expect to get a quote back from the carrier within 15 to 20 seconds, explains Rogers. "If it's the product they want with The Hartford, they expect to answer a couple of [underwriting] questions and it's done," he says. "For personal lines, we definitely are there. For commercial lines, we are getting more toward STP. We do it for some small-commercial-type accounts." Rogers adds carriers struggle to make STP work when the policies become more complex.

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

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

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

Those carriers looking to add rules engines to existing systems face more complex issues, asserts Jones. "[Rules engines] certainly are not plug-and-play implementations," he says. "There is complexity there, but at the same time, these are not insurmountable challenges, either. I think there are some solid players in the rules-engine market right now offering products."

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

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

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

Jones also credits the flexibility of XML technology for allowing real-time upload to be a more viable alternative for carriers. "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 a bridge between agency management systems and the carrier. "The challenge we've seen with one carrier that is implementing this real-time upload approach is its ability to pull the data from its agency management system into that middle tier and to map it appropriately to the policy system database," he says.

There are products in the market that ensure the XML mapping gets done properly, reports Jones, who looked at that issue with a client because he felt the benefits would outweigh the risks associated with such an important piece of a carrier's business–data from agents. "There are huge advantages from giving your agents the ability to streamline their process for getting new-business quotes, but there are huge risks associated with that initiative, as well," he says. "If you end up with bad data coming in, it can have catastrophic consequences. You have to be very careful, but there really are some nice products and competent vendors in the market that can assist carriers with ensuring the data is coming through."

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

It continues to be a dream to get all business completed with straight-through processing, but Light advises carriers to focus on what is achievable. "Making important decisions that are untouched by human hands or the application of human intelligence is never achieved at a very high percentage," he says. "It becomes more of a goal you are striving toward. Maybe you'll never get to 100 percent, 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 an efficiency measure than a way to attract new business. "The quality of our output is better, we have more accurate policies, the turnaround time is better, and claims are issued with the right coverages," he says. "[STP] allows us to better service our customers. Once the transaction has been moved to real time, it creates a lot of opportunities that [carriers] can exploit."