It's been three years since Congress passed The Electronic Signatures in Global and National Commerce Act, essentially making electronic signatures equivalent to wet-ink signatures. Although the law explicitly applies to insurance, few carriers have signed up to implement e-signature technology.Only 5% of insurers are using e-signatures on a substantial level today, according to Celent Communications, a Boston-based research and advisory firm. And, while it's easy to blame the dearth of implementations on a lack of mature technologies, few insurers are using e-signatures because they're uncertain about compliance issues, says Craig Weber, analyst and author of a Celent report, titled "E-Signatures & U.S. Insurance."

Core technologies that enable insurers to capture electronic signatures and securely attach them to electronic records have been available since the mid-1990s, Weber says. Still, carriers "are concerned that if there's a dispute around an e-signature down the road-which there occasionally is today even with wet-ink signatures-that the courts will somehow construe this electronic process as being less concrete than a wet-ink signature," he says.

But those fears are unfounded, Weber says. Not only does the federal law clearly legalize e-signatures, but at press time 39 states had approved similar e-signature legislation called the Uniform Electronic Transactions Act (UETA). In addition, the Celent report notes, both online and point-of-sale e-signatures are already being used in at least 40 states for life, health and property insurance.

In fact, Celent names 17 carriers that have implemented e-signatures, including American General Life & Accident, Blue Cross Blue Shield United of Wisconsin, eHealthinsur-ance, Nationwide Financial Services, Prudential Insurance, Safeco, State Farm, Travelers and Zurich Life.

The results of some of these implementations are beginning to convince even the most skeptical carriers that it may be time to follow in the footsteps of early adopters.

American General Life & Accident Insurance Co., for example, has reduced life insurance issue time by 50% using e-signatures. And eHealthinsurance Services Inc., an online health insurance marketplace, has reduced the time it takes to submit a signed application to health insurers in its network from 21 days to 20 minutes.

Paving the way

E-signatures also provide the impetus for insurers to impose business rule validation in their online application process, Weber says. Business rule validation reduces processing time and rework significantly, since 75% of insurance applications are not filled out completely or correctly, according to Celent estimates.

Yet, despite impressive results for American General Life and eHealthinsurance, the road to drastically reduced cycle times wasn't paved when these two groundbreakers began their e-signature initiatives.

When eHealthinsurance first approached its carrier partners in 2000 about using electronic signatures on applications, the carriers were reluctant, says Nick Patel, vice president of regulatory compliance at the Sunnyvale, Calif.-based company.

"Nobody wanted to be the first, because the waters had never been tested. Once we got a few large carriers to buy into the concept and to start implementing e-signatures, other carriers followed," he says.

At press time, 16 health insurance companies had signed on to deploy eHealthinsurance's e-signature pro-cess, which enables consumers to sign an application online using a "clickwrap" technique. Key to eHealth-insurance's success was its carefully designed, patent-pending process that captures the applicant's "intent to be bound," and prevents the application from being altered once it is signed.

This is done in three steps. First, applicants click on a set of checkboxes, which indicate their intent to be bound. Then, they type their name twice-and hit an "I agree" button-to electronically sign the application. When the applicant hits "I agree," the application is "locked down" with a date and time stamp and an encryption key that prevents any information from being altered without detection.

"That was the tricky piece. We had to create a process that encrypts the information so if it were ever altered, we could prove it," Patel explains. In other words, he says, eHealthinsurance had to develop a process that assured its carrier partners that applications signed online would hold up in court.

The locked-down, encrypted process enables insurance carriers to prove that the application a person signs and submits online is the same one the company uses to underwrite the policy. If a carrier denies a claim because an applicant didn't reveal an existing condition on an application, any later tampering is evident.

Similarly, when Nashville, Tenn.-based American General Life & Accident Insurance implemented point-of-sale e-signatures for life insurance policies in 1999, the carrier explained the process to regulators who wanted to ensure that e-signatures collected by agents on a stylus-based computer cannot be "lifted" from a new business application for fraudulent use elsewhere.

Focus on the process

After hearing the details about how the biometric signature technology-from Redwood Shores, Calif.-based Communication Intelligence Corp. (CIC)-enables the carrier to detect any tampering with the document or the signature, Tennessee approved the process, followed by 28 other states and the District of Columbia.

"Regulators really focus on the overall business process that a carrier is using to collect e-signatures, not the technology," says Jeff Sandler, vice president of worldwide sales at CIC. "They want to make sure it's direct, straightforward and cannot be manipulated."

In fact, the two most popular e-signature techniques in use today in insurance-clickwrap and digital point-of-sale-are straightforward. For online applications, clickwrap is the simplest approach, he says. "It fits in with all the existing Web tools, so you don't need any special expertise to build it, and it's easy to add to existing applications."

For most online applications that collect data, adding a clickwrap signature is a trivial change, he says. "It takes hours, which in the insurance world is revolutionary."

A simple clickwrap approach (clicking "I agree") is appropriate for low-risk transactions-such as an address change, according to Celent. Complex clickwrap techniques-which combine "I agree" with entering identifying information such as a password, name or address-suffice for health and property sales, because these lines have lower risk and stronger controls on claims, the report states.

For most high-value, higher-risk transactions such as life insurance sales, point-of-sale biometric signatures are a good fit, Weber says, because they "look and feel" like traditional signatures. "There's an electronic pad, which the agent slides across the table to the proposed insured, who signs it."

In addition, e-signatures collected by agents retain the existing safeguards for verifying an applicant's identity. They're also easy to set up and maintain, Weber says, unlike public key infrastructure (PKI), which is expensive and involves distributing digital certificates and managing passwords on users' PCs.

Indeed, although PKI received much attention when the e-signature law was passed, it hasn't been adopted for most insurance applications.

"PKI is great if you have a business partner who is going to sign something every day for three years," Weber says. "Then, you can spread the cost of that implementation out, and the user won't be forgetting his password because he's using it every day." With insurance, however, most signatures are captured only once to bind a policy, and then infrequently to make policy changes.

Where it makes sense

Some insurers are using e-signatures for policy changes, as well as agent appointments. But the majority of activity at this time is focused on sales, according to Celent.

"Customer acquisition is . . . an area where carriers and agents expend energy on business that will never become paid business, particularly in the life insurance arena," the report states. "For many companies, processing illustrations for proposed insureds and 'informal underwriting' are enormous drains on productivity. Applying technology to streamline those processes makes sense."

It certainly made sense for eHealthinsurance. Not only has eHealthinsurance dramatically reduced application-to-underwriting time, it has also doubled its close ratio. For all but a few carriers working with eHealthinsurance, applicants can pay their first month's premium online with a credit card, says Sam Gibbs, senior vice president and general manger of eHealthinsurance. "So we're bringing the business in sooner and we're bringing in more of it-because we're able to close the sale at the time the application is completed."

Before implementing e-signatures, eHealthinsurance printed out applications submitted online and mailed them to applicants to sign. "You know how that is. A big packet sits on the kitchen table," Gibbs says. "We'd e-mail them. We'd call them. But the process took about two weeks."

When eHealthinsurance finally received the application back from the customer, it took a couple more days to mail it to the carrier, and a few more days after that for the carrier to underwrite the policy.

"Now, as soon as that customer hits 'I agree,' that application is immediately available to the carrier online," Gibbs says. Carriers can view and print applications as Adobe PDF files on an extranet, or receive the data directly into their underwriting systems using extensible markup language (XML).

Most resistance from carriers at this point isn't about e-signature compliance, but about changing their internal IT processes to accept applications in XML, Gibbs says. "That's what it has evolved to. We're talking about getting their IT departments involved in some technology transfer," he says. "Traditionally health insurance doesn't spend a lot of money on IT, so... we've done a lot of the work up front to make it as easy as possible for them."

Data-entry errors can be eliminated and even more cycle time reduction is possible with straight-through processing, sources say.

Carriers that accept application data in XML from eHealthinsurace do not have to rekey that data from PDF applications into their underwriting systems, for example.

"In extreme cases, such as an e-signature application that allows straight-through processing for term or auto insurance on the Web, application-to-issue cycle times can be reduced from several weeks to 15 minutes," according to Celent.

Favorable ratings

In addition, using XML in straight-through processing enables insurers to comply with the Health Insurance Portability and Accountability Act (HIPAA), says Tedd Determan, managing director, insurance market for NxLight, an Orem, Utah-based electronic transactions software provider.

"With HIPAA, if you're gathering health information about someone, that information can be seen only by the people who have responsibility for making a decision," he says. Unlike a PDF image of an entire application, using XML enables a carrier to develop business rules that block out specific portions of that application protected under HIPAA to all but the people authorized to view it.

"We're really starting to see the alignment of the carriers, the consumers and regulators, and that's why e-signatures are going to take off," Celent's Weber says.

Prudential Financial Inc., Newark, N.J., launched an electronic application and signature process this May; 93% of agents in a pilot gave it a favorable rating. At eHealthinsurance's site, 65% of applicants choose to use the electronic signature process.

Two eHealthinsurance carriers-Wellpoint and Kaiser-have implemented similar e-signature processes on their own sites. And, in 18 months, eHealthinsurance has never had an application invalidated or repudiated.

Still, despite a lot of interest among insurers and a huge influx of inquiries, Celent's Weber predicts e-signature penetration will only reach the low double digits in the next year.

The reason? Carriers are notoriously slow in executing, he says.

"Even if interest now translates into approved e-signature processes in the next three months, how many will be in full production in the next 18 months? Probably not many."

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