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The Long, Winding, Yet Worthwhile Road to STP

February 1, 2008

Foresight, and a focus on usability, will help those converting to straight-through processing reap dividends from the process.

The concept of straight-through processing (STP) is an especially enticing one to the traditionally paper-laden and process-bound insurance industry. Insurance Networking News asked Lana Macumber, director, new business development strategy, insurance services at New York-based Depository Trust & Clearing Corp. (DTCC), about the risks and subsequent rewards facing STP converts.

INN: Are there common misperceptions among insurers about STP?

LM: Most companies conceptually understand STP. The problem often begins with the current method of implementing it. Companies often try to automate the process with current system capabilities rather than targeting the ultimate STP environment. The focus should be on reengineering operational process and systems design based on the end-user experience. Insurers also struggle with the varying degrees of readiness exhibited by their many distribution partners. They are forced to support multiple levels of automation or lack of it.

INN: Where should one begin to implement an STP solution?

LM: An STP solution can be focused on one business event, such as commission payment processing, or it may be integrated processes that automate entire business operations. The beginning and the breadth of what a company chooses to implement should be based on factors such as their biggest pain points, their budget, the cost benefits, potential partnerships with a vendor or clearing firm that may already offer automation within their platform, and what a company wants its ultimate sales and processing environment to look like.

INN: Do certain lines of business lend themselves to STP more than others?

LM: The life insurance and annuity business is virtually the last industry to apply STP solutions to its operational infrastructure. This is due largely to product complexity with an evolving array of riders, service features and fund offerings. In addition, the products must have multiple versions based on state regulation. In the third-party distribution space, annuities are receiving the most focus, with life insurance a distant second. Additional products such as long-term care will continue to take a back seat until annuity processing can make significant headway. Collaborative initiatives through standards organizations and industry associations are focused primarily on annuity STP, specifically for new business processing. Due to heightened regulatory requirements for distributor oversight (Rule 2821), companies are allocating budget and resources to the annuity effort.

INN: How can insurers stay on track during project planning and implementation?

LM: Those leading the pack in STP design and implementation must deal with the likelihood that manual and partially automated processes will still exist well into the future. They must face the risk and probability of higher expenses in the beginning that will diminish over time with economies of scale. The focus should be on usability of the solution to avoid simply automating the paper process. Also, the scope of any project needs to be well defined and manageable, and project managers must mitigate scope creep to avoid significant delivery delays.

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