Insurers that offer convenient, fast and low-cost customer service for life insurance applicants, through electronic applications and electronic issuance, are finding that the unit costs associated with handling new business are dropping enormously, as are the percentage of "Not in Good Order" rates and new business cycle time, according to “Understanding The Benefits Of Electronic Applications And Policy Issue,” a new report from Celent.
According to the report, the unit costs to handle new business dropped to $187 per application received, from $299, representing a 37 percent reduction; and per policy issued, from an application start point, unit costs fell to $233 from $940, a 75 percent reduction. The percentage of "Not in Good Order" (NIGO) rates dropped to 16 percent from 70 percent for term life; and whole life dropped to 19 percent from 70 percent.
The average new business cycle time for term life was reduced to 30 days from 50, a 40-percent reduction, and for whole life the cycle time declined to 24 days from 49 days. The biggest benefits came to those organizations with closely held distribution channels, but also that for companies with independent agents, opportunities exist for improvement.
Just fewer than half (47 percent) of the 48 insurers received all of their applications on paper, according to a separate report, “Improving the New Business Process Survey,” from the Society of Actuaries Subcommittee And manual processing leads to high Not in Good Order (NIGO) rates, as well as delays in the underwriting and new business processes. Electronic applications can improve the process by reducing or eliminating errors, as well as the need to print, manage, mail or fax, store or image paper. Producers also spend more time selling and less time processing application packets and managing incomplete applications.
Celent cautions that a significant proportion of the benefits are likely the result of “effective house-keeping” for product management, and the company said that to maximize the return on investment for eApplication and ePolicy delivery projects, insurers should include an end-to-end business process redesign, as well as operating model efficiencies and automation.
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