What do Super Bowl-winning quarterback Aaron Rodgers of the Green Bay Packers and straight-through processing (STP) have in common? They both took a while to catch on, they finally got their chance to go prime time, and now they're considered mainstream-although their greatest promise still lies ahead.
Like Rodgers, who spent three seasons as the bench-warming understudy to uber-quarterback Brett Favre, STP has been around the insurance business for several years, and although it has become almost mainstream technology for some lines, it's still got a ways to go in others. Analysts agree that the industry has achieved pockets of success with STP.
As a part of the insurance business' modernization over the last decade, STP has been achieved in a couple of ways. Carriers have elected to either upgrade their systems with a Web portal, or build or buy a front-end application to handle the workflow and connect with their back-end system.
For the most part, midsize and large carriers have implemented the software applications and built the portals needed to enable STP for the quote-and-bind process. As an example, Penn National Insurance, a large, regional carrier based in Harrisburg, Pa., tapped its 110-person IT shop to build an agency portal containing expert underwriting rules that enable the carrier to pre-qualify the risk on each quote request.
Penn National uses several software packages from vendors, including one for business rules and another as a ratings engine. The company's back-end system is an older policy administration system that is connected to the agent portal. "We built the portal and a scorecard ourselves," says CIO Bill Jenkins.
A large regional carrier with $500 million in premiums, Penn National was able to reduce the size of its underwriting staff in the field by 15%. The company went from automatically processing 18% of quotes for personal automotive to 86%. "At the same time we increased business by about 15% in the first year, and another benefit was the ability to get the right price for the right risk," Jenkins adds.
The upside was so good, in fact, that Penn National recently began started rolling out STP for homeowners, and has begun using the technology for small commercial accounts, too. "With small commercial, we will bring in data from third parties such as Dun & Bradstreet, motor vehicle reports for all drivers on the insured company's payroll and personal driving records of those drivers," Jenkins says.
Nonetheless, just as the industry has been slow to adopt some other technologies such as download tools, property/casualty carriers have been slow to embrace straight-through technology for commercial lines. "In midsize commercial, there's very little STP happening, and it may never be there," says Deb Smallwood, founder of Strategy Meets Action, strategic advisory firm in Boston. "It may be that the underwriter will always have to touch it."
The reasons for this are obvious. For one thing, mid-tier commercial policies typically have premiums in the $100,000 range, cover multi-location risks and are more complicated overall, making them difficult to automate from a rules standpoint.
One company that has made inroads in this area is EMC Insurance Cos., based in Des Moines, Iowa. "EMC has already entered the commercial lines STP arena," says Rick Gass, SVP for productivity and technology at EMC. "Today, EMC agents come directly to our agency portal, which allows STP-from quote to binding and application. We've also recently begun real-time rating, starting with business owners, and additional lines of business will be made available to our agents as they are developed."
Actually, even personal lines' homeowners have yet to fully adopt STP. As a test, Smallwood says her firm requested a quote from 10 P&C carriers that offer homeowners coverage. "Only one was able to provide an automatic quote," she says. "The rest said they'd get back to us in 24 hours."
Smallwood predicts that the next frontier for STP will be homeowners. "You have all these Gen Y-ers that bought their car insurance online, and once they start buying homes, they're going to want homeowners insurance to be online, too," she says. "That will push its adoption."
DISTRIBUTION DRIVER BEHIND STP SHIFT
The business drivers behind the shift to STP are many. Ensuring the ease with which agents can submit a quote request, receive the response and automatically bind a new policy is probably the single biggest reason most carriers have implemented this technology.
"STP is getting a new business application in to the carrier without having anyone touch that application," says Martina Conlon, principal in the insurance practice at research advisory firm Novarica, New York. "Now, most midsize and large carriers have STP. The result is fewer errors and less rework. You get a big return on that investment."
EMC's Gass says the carrier's portal offers greater ease of use while ensuring that quotes are accurate. "This allows ease of maintenance for our vendor partners as system changes occur," he says. "There are no delays, and changes are made simultaneously to the portal and real-time rating partners, thereby alleviating any issues for our EMC agencies. And agency partners receive an accurate quote for their prospect."
Besides making the quote-and-bind process easier for agents, and yielding process improvements for carriers, another big reason for the industry's adoption of STP is the need to remain competitive. If the other guy has a capability that many agents are using, and still more are clamoring for, the carrier had better get on board.
That's certainly the case in personal auto. "The industry has really mastered STP in that area," Smallwood says. "It's almost as if you can't compete in personal auto without having STP."
The reason is clear-in order to stay competitive, agents absolutely want and need the capability to get a quote right away. "Progressive raised the bar 12 years ago with predictive analytics and straight-through processing," Smallwood says. "They forced the industry to move very fast on this."
Today, with customers demanding self-service, most carriers have STP for their auto lines offerings. Adds Smallwood, "There are even comparative raters, so the agent can send out a request and it goes to multiple carriers for a quote."
Many carriers already are harnessing predictive analytics in the quote process. "On personal auto we see rate segmentation," Smallwood says, "So that some carriers now have hundreds of rate pricing options."
CHALLENGES FOR CARRIERS
Okay, so what's the downside of STP? "It's an investment," says Smallwood. Adds Conlon, "There are implementation challenges, such as which rules do we automate? What some companies find when they begin using STP is that the book of business will drop initially, and then it will pick back up," she explains. "That's because sometimes the computer program will turn (business) away."
Another potential drawback of STP is the change wrought on the carrier's staff, in particular the underwriting corps. In some cases they are asked to become more relationship managers than risk assessors. "It becomes a cultural shift with the underwriters letting go," Smallwood explains. "They become portfolio managers, having a different relationship with the brokers. Not all underwriters can make that shift."
Convincing agents to get with the STP program generally hasn't been a major hurdle, insurers say.
For instance, Penn National went out to its agent community first to get their input-and in a sense, buy-in-on what their portal's capabilities and features should include. The company established an Agents Technology Council whose members "told us what they wanted, critiqued our system and helped us build it," Jenkins says. Getting agents involved had another payoff, too. "We also were able to garner their commitment to use our systems, which is important, because we use independent agents," Jenkins points out.
CONVINCING AGENTS
From the agents' point of view, STP also has been a blessing-although it hasn't quite worked as many wonders as for the carriers. The reason is that agents may need to input the information contained in a quote request into the portals of numerous carriers-sometimes a dozen or more.
To avoid this, agents can use "upload"-software that enables them to put the information into their agency management system once, and then upload it to several carriers. "That way, they don't have to re-enter all that information several times over," Conlon says. "Agents can automatically populate the carrier's site with a click," adds Jeff Yates, executive director of the Agents Council for Technology (ACT).
"STP has helped at our agency," says John Heinsz, owner and principal at Heinsz Schaefer Garwitz Insurance Services, an agency in St. Charles, Ill. "There's no doubt that STP has made it much easier. We can get the rate by clicking a button, and click again and the policy is ready to go. We don't have to mail it in."
Doug Bartholomew is a freelance business writer based in Berkeley, Calif.
