Like perfection, Straight-through processing (STP) is something many insurance company IT departments are striving for but may find hard to call fully conquered.

"Straight-through processing in the insurance industry is not something you can buy and install," says Matt Josefowicz, an analyst with New York research firm Celent LLP. "It's the practice of integrating all your systems and adopting a consistent data standard and implementing that. It's something to aspire to, rather than something that carriers can just make happen with a single project."

Celent, says Josefowicz, puts STP among its three "technological foundations of advantage"-core, strategic issues on which insurers are focusing their IT efforts. "It's still top-of-mind and something they're working on and thinking about. But it's broad and encompasses a lot of things," he says. Insurance is far more complex than the securities industry, where STP originated and the technology first gained traction, and that's made it more difficult for carriers to achieve, he adds.

The data standard most often used in carrier STP projects is ACORD XML. Originally viewed as a standard for linking carrier and agency systems, today it's also being used to link carrier systems to each other.

"When ACORD XML started, the original intention was that it would be an inter-carrier or inter-partner solution. It has ended up having a lot of intra-carrier value as well-behind the carrier's own firewall," Josefowicz remarks.

Many Benefits

The benefits of STP are simply too attractive for many carriers to ignore. STP cuts errors because data never needs to be re-entered. Since there's no rekeying, and since uncomplicated underwriting and pricing get handled automatically, there are savings in time and labor, and that leads to faster turnaround and higher productivity. There are compliance implications, too: Since the same data is used throughout, there are fewer opportunities for it to be corrupted and lower risks of misreporting to regulatory authorities.

But some carriers are finding that the benefits of STP go well beyond that. For example, STP gives Companion Property & Casualty Insurance, a Columbia, S.C., subsidiary of Blue Cross and Blue Shield of South Carolina, a bigger share of mind among the independent agents who sell its workers' comp and other products.

"We compete with some fairly large national carriers in all the agencies we do business with, so we have always focused on making ourselves as easy as possible to do business with," says Helmut Tissler, director of e-Commerce. "We want to be able to have a footprint that gives us the same characteristics and abilities that very large carriers have."

Although STP isn't an off-the-shelf technology, many of the components that go into it at Companion are. Many of its systems come from El Segundo, Calif.-based CSC, and that has simplified tying them together, Tissler says. Most CSC systems-and this is true for many industry software suppliers-use ACORD XML both to simplify connections between their own products and those of other suppliers.

Agents enter policy applications into Companion's Web site using CSC's Agency Link. Underwriting and pricing rules are applied, and if the price is accepted, the application gets processed and automatically uploaded to the policy administration system. From there, it goes to a print processing system, and the finished policy goes out the door the next day.

Less Intervention

STP will probably never completely eliminate the need for human touches in creating new policies or endorsements. But insurers are finding that once underwriting rules are sufficiently developed and successfully embedded in their systems, a whole lot of the process can run on its own, without intervention.

"About 80% of our new business comes through the Web site, and of that, about 70% is processed without being touched by human hands," Tissler says. "The remainder is referred to the underwriters-there are some gray areas we want the underwriters to take a look at."

At Frankenmuth Financial Group, a personal and commercial lines P&C insurer based in Frankenmuth, Mich., the move to STP was driven largely by strategic considerations-by a conviction "that this was the way business would be done in the future," says Philip McCain, IT e-business manager. "We found that we could create workflows that would be true win-wins: better for the agent and better for us. Agents complain that a lot of technology efforts amount to shifting work onto them. With this kind of solution, the agents love it, and our internal staff loves it because we provide a benefit at both ends of the workflow equation."

Frankenmuth's agents can submit new personal and commercial business through the company's iBIS system, its agency portal. Much of the new business is quoted, underwritten and issued automatically, and where intervention by human underwriters is required, underwriters and agents can collaborate.

"We've been able to leverage, for example, the rating code that sits on our policy administration system, and that's used right down in our agency iBIS application," McCain says. "The agency can use our Web site, quote accounts, get dead-on accurate premiums, and know that they're good to issue and that they're not going to be changed on the back end by our underwriting staff once the business comes in. The data is then processed right up into the issuance system-there's no redundant entry."

Quite a few other services are available to agents via iBIS, too, including real-time policy billing and claims inquiry, online viewing of policy declarations and much more.

"We're basically paperless with our agents," McCain says. "They've got a whole set of tools to help drive their daily workflow. What they typically transacted from a piece of paper that showed up at their office they can now get from our Web site."

ACORD XML sits at the core of Frankenmuth's STP efforts. Its iBIS system communicates with external systems using the ACORD standard, and it's key in connecting internal systems and tying into comparative rating services. Frankenmuth has won awards from ACORD for its implementation of the data standard.

Illustration Tool

The commitment to STP at Allstate Workplace Division in Jacksonville, Fla., ultimately grew from illustration software called LifePortraits that the company acquired in the mid-1990s from Fipsco, which was subsequently acquired by Fiserv Inc, Brookfield, Wis.

Allstate Workplace Division sells supplemental health and life benefits products. "It was acquired by Allstate in 1999 with a view to expanding the parent company's financial services offerings," says Matthew Osborn, senior vice president and chief technology officer.

In 2002, the company began working with Fiserv to expand the illustration software to include business rules and forms and turn it into a tool-now called AllApp-that agents could use to capture application data in the field and transmit the information to the company. "With straight-through processing, the most important thing you have to do is get clean data," Osborn says.

"That data is transmitted to our home office through what we call a synchronization process, and once we receive that data, we move to the next step," he adds.

The next step is to run the data from AllApp through an automated underwriting at the home office in Jacksonville. The tool determines whether the application needs to be handled by a human underwriter. If it doesn't-and the goal is to underwrite 70% to 80% of business automatically-the data goes through a policy issue process and gets sent to an Allstate processing center in Illinois, where the policy is printed, assembled and mailed automatically.

"The only people we want touching this information are the agents at the time of sale," Osborn asserts. "If the collection of the information is done properly in the first step, everything should be automated from that point forward."

Like Frankenmuth, Allstate Workplace Division uses ACORD XML extensively for STP.

"Our middle tier [policy administration systems and an automated work distribution tool] is all based on ACORD XML," Osborn says. "The data that we receive from the AllApp tool is in XML format, so we can interpret that data inside our middle tier and send it to the appropriate systems."

From a technology standpoint, implementing STP isn't extraordinarily difficult, says Tissler. "All the technology is relatively mature at this point. It works; it hangs together."

Long-Term View

Much trickier, he continues, is nailing down the underwriting and pricing rules that underpin STP.

"A lot of that is knowledge that's contained in people's heads and on the backs of envelopes. Getting everything defined in such a way that you can write rules and program them is probably the most time-consuming task, and also the most iterative. We found that you have to go through it at least a couple of times before you get it right," he says.

"You have to have a long-term view," adds Osborn. "This is not a short-term project. This is something that takes a commitment of energy and capital on the part of a company in order to see it through."

Success takes a focused strategy, he continues, and although some changes and refinements are inevitable, "you must stick with the strategy or you will lose heart pretty quickly."

Further, adopting STP involves cultural changes, changes in the way people in the organization think about processing applications, Osborn says. "You have to get away from your paper thinking. This is an electronic process. We have to forget about the way we did it before and think about how we can innovate, coming up with better ways to streamline the processing of our business."

Bob Mueller is a business writer based in Grand Beach, Mich.

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