Many Taking a Stepped Approach toward STP
Insurance Networking News, February 1, 2008
By some accounts, straight-through processing (STP) is becoming downright common these days. Donald Light, senior analyst at Boston-based Celent LLC, estimates that in the personal lines property/casualty and automobile segment of the industry, 70% or 80%—maybe more—of applications are being processed using STP. “You’ve got rating and pricing and processing algorithms pretty much all in place,” he says.
In the commercial lines P&C segment, the rate of STP adoption is quite a bit lower, and straight-through processing tends to apply to a more limited range of products, Light says. For life products, it’s lower still, and it’s being applied mostly to simpler term life products and accidental death and dismemberment policies. Investment-oriented life products are just starting out when it comes to STP implementation.
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Personal lines P&C is a concentrated segment of the industry, so saying that 70% or 80% of applications are processed straight-through is not quite the same thing as saying that 70% or 80% of personal lines P&C carriers process applications using STP. Todd Eyler, CTO of Fiserv Inc.’s Insurance Group, Brookfield, Wis., acknowledges that while there are significant pockets of STP implementation in P&C, it’s still early in the game for many insurers.
“Just thinking about the new business process, only a small minority of P&C companies have really modern, Web-based rating engines, for example,” Eyler says. “Many are working with 20-year-old or older policy admin systems that aren’t designed for the high levels of automation or integration that would really be required for STP.”
Usually, carriers implement STP either to attract new business or save money—or both. “Many of the products in the P&C segment are arguably commodities,” says Eyler. “If you want to differentiate yourself as a carrier, there is a finite set of things you can do. You can reduce your price; you can increase your commissions; or you can increase service. The first two options don’t necessarily have a very good impact on the bottom line, so really the best lever to pull is service.” Carriers can improve the buying experience for agents and customers, Eyler continues, by providing a more transactional, efficient, automated approach to service.
John Kellington, senior VP of the Association for Cooperative Operations Research and Development (ACORD), Pearl River, N.Y., sees STP as a way to wring costs out of carrier processes through more effective and efficient mechanisms. Coincidently, as STP momentum builds among carriers, the effects spill into other areas, too. “It makes the agents more effective,” he says. “They focus more on selling, as opposed to processing orders. This type of technology and this emphasis are healthy for everybody.”
“It’s about performance efficiency,” says Jamie Bisker, global insurance industry leader of the Institute for Business Value at IBM Global Business Services, and that ultimately means reduced costs. “You get efficiency in cost, in how you’re spending money to accomplish your goals,” he says. “At the same time, you’re reducing time—again, a component of the efficiency measure, which provides better service. We tend to think of service performance in terms of policyholders. However, it’s equally important to the internal service deliverers, whether they be agents, underwriters, customer service reps—they and the policyholder benefit when you’re talking about straight-through processing.”
Since it touches many processes, it’s tempting to view STP implementation as an enterprise-scale undertaking. Tackling STP as a single, organization-wide initiative potentially delivers the biggest bang for the buck, Bisker says, but “if you want to go about it in a more measured manner, it can be done.”
There’s nothing wrong with implementing STP one step at a time, as long as each step is consistent with past and future steps, IBM’s Bisker says. “It can be done, but it has to be done not thinking about making the first task the bright and shiny object. It’s got to say, ‘this powerful component of our value chain will be implemented in such a way as not to constrict or constrain the rest of our efforts as we proceed toward the strategic goal of improving our overall performance.’”
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