Remember when Johnny Carson would become Karnack the Magnificent and answer the question before he opened the envelope holding the question? Well, here is the answer: You will save time and money and improve customer service as well as compliance. The question: What will Check 21 do for me?Congress enacted Check 21, or more formally known as Check Clearing for the 21st Century, in 2004 at the behest of the Federal Reserve. Recall that when 9/11 occurred, all aircraft were grounded and could not fly. The small planes that would fly checks from various cities to Federal Reserve locations as a part of the check clearing and settlement process were not exempt. As a result, the Federal Reserve decided to implement new processing rules and utilize technology, coining this process as Remote Deposit Capture (RDC), to digitize checks and remove the physical check from the clearing process.

With Check 21 requiring the digital transformation of a paper check into a scanned, digital document, the opportunity exists to radically transform and improve payment processing. Much like the scanning and digitization of claims or underwriting documents has improved workflow and business processes, check scanning also delivers process improvements. An advantage of the digitization process of checks for insurance companies is to move the digitization-the check scanner-into the field, where the check is first given to the insurer.

For example, an insurance agent or financial advisor meets with a recently retired client who would like to place $25,000 in an annuity. Historically, the agent will complete the application, take the $25,000 check and send the application with the payment to the insurance company. It may take several days for the annuity application and the check to reach the insurer and another day or two for the insurer to process the application and deposit the check.

Now take that same example with Check 21 and RDC: The agent meets with the client, completes the application and accepts the $25,000 check. The agent takes the check, scans it into the RDC system where the check is automatically endorsed and routed directly to the insurer's bank account. The funds from the deposit are accessed by the insurer immediately and begin earning interest in favor of the insurer days ahead of what would transpire in the former check deposit process.


There are other benefits as well. With an RDC system, the check can be processed remotely, at the carrier or its service center using desktop software that integrates seamlessly into the carrier's accounting software. And, the RDC system also should provide enhanced usability in the check deposit and bank account reconciliation process.

For insurers that sell and service commercial insurance policies, the process is much the same and the benefits equally impressive. Consider the typical commercial business that buys a BOP with a commercial auto policy with a separate umbrella policy. While there is a single check coming into the company, that payment must be allocated between separate policies and policy numbers. RDC technology can provide a single screen, giving users the capability to allocate or break down the payment between separate policy numbers or separate accounts. This entry also serves as a real-time update in the general ledger system, ensuring accuracy.

Many commercial insurers have moved heaven and earth to be able to send a single bill or invoice for various commercial coverages. Typically, when that check arrives in the home office, it is photocopied numerous times and is delivered to the various lines of business for posting into that particular line of business' accounts receivable system. For large agents/brokers, that payment allocation process can be performed in the agency via the Internet, enabling access to the carriers' remote deposit capture system.

Another benefit of RDC and Check 21 is the transformative nature of the technology. Most insurers have as their key business requirements the objectives of improving customer service, ensuring compliance with regulations, reducing the cost of operations and increasing revenue. Surprisingly, the regulatory changes implemented via Check 21 can deliver improvements into each of those issues. For example, to comply with Sarbanes-Oxley, each corporation must define and create controls around all financial processes. One key financial process is the receipt of checks. For many organizations, the receipt of the check from mailroom to posting is not a clear straight-line process. With check scanning, the check can be scanned at the point of receipt and placed in a work queue for accurate posting by accounting staff, eliminating the possibility of fraud and/or lost checks, ensuring accurate posting and reconciliation, and controlling access to the entire check posting/deposit process.


Insurers can reduce the overall cost of their operations by improving back office processes, reducing banking redundancies (multiple accounts and bank relationships) and gaining faster, more accurate data entry. Most important, using this technology enables access to deposited funds to be accelerated by several days, allowing the insurer to realize increased interest earnings on deposited funds, improving revenue. Reduction in float can be significant-a $2 billion company that cuts float by two days can realize between $12 and $15 million in interest income.

Banking fees are an ever-present cost for insurance companies and Check 21 is an opportunity for insurance organizations to address those escalating costs. Additionally, because the check is imaged and not paper, the per-check processing cost is less than with traditional check processes. In a business process-re-engineered Check 21 environment, the cost of processing a check is significantly reduced.

Finally, many carriers presently use electronic bill presentment and payment via a bank lock-box and feel they don't need Check 21 or remote capture. While check volume will decrease over time, insurers will still process billions of checks each year.

John Sarich is executive vice president of Omaha, Neb.-based RemitPro Inc.

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access