Two experienced underwriters analyzing the same stack of submissions will evaluate risk, class of business and price differently. That is due to the fact that underwriting is, to a great extent, an art that revolves around experience, knowledge and talent for understanding both overall insurance and specific lines of business.
For that reason, true straight-through processing (STP) in insurance will be less about imaging paper and more about collecting and digitizing that knowledge to drive efficiency and consistency in the underwriting process. Only by mining the knowledge of the best underwriters can insurers begin to understand not only what questions to ask, but why they need to be asked.
Ostensibly, that makes STP more of a business issue than a technology issue.
While the main driver behind STP initiatives today is ease of doing business -- particularly in small comp, auto, homeowners and term life -- the end goal for insurers should be optimization of the underwriting process so that real intelligence can be driven into every facet of that process to further drive profitability.
Currently STP initiatives revolve around demands by the agent force, which equates ease of doing business with speed of doing business. While automating workflow among agent systems and policy administration systems to expedite quotes is a nice first step, it ultimately does not address the need to improve the process of underwriting.
"Right now companies are approaching this from the producer's point of view, as well as a means to minimize the stuff that is not in good order," says Steve Kendrick, SVP of business development for Edison, N.J.-based insurance solutions outsourcing provider MajescoMastek. Kendrick notes that as much as 25 percent to 30 percent of exceptions are kicked out because of incomplete applications.
As a result, carriers will go through different phases of STP before getting into driving intelligence into underwriting through advanced rules sets and analytics. The first phase is to improve agency interfaces for enhanced upload and download capabilities, followed by the adoption of workflow tools and externalized rules to the front end of the process. As insurers figure out the business processes involved in various submissions, they will meet the demands for ease of doing business, yet keep an eye toward next-generation underwriting.
That next generation of underwriters will up the ante with pricing precision, more sophisticated pricing strategies and forays into the pricing of risks that are not already part of portfolios. All of these factors will converge to foster profitable and organic growth for insurers on the leading edge of underwriting automation.
"IT executives often ask us to look at STP from a new-business or underwriting perspective, but when we speak to the business people, STP is fourth or fifth on the list. They want to be flexible enough to manage changes to the market," says Mark Gorman, strategic research adviser for Needham, Mass.-based TowerGroup, which is undertaking research on how underwriting will be affected by automated decisioning, SOA, and information and knowledge management. Gorman concedes that "The study thus far reflects a trend where insurers and vendors are developing piecemeal solutions that basically replicate human processes."
But, "Having machines performing the same human processes means you end up making the same mess, but faster," contends John Belizaire, copresident and CEO of FirstBest Systems, a Lexington, Mass.-based underwriting management company whose recent whitepaper, "Profit From Better Underwriting," indicated CEOs of midtier insurance companies would like STP initiatives to focus more on changing agent and consumer perception of their organizations rather than just imaging paper. "We sometimes call STP 'poor man's automated underwriting' because machines just end up replacing human beings when they should be enabling the 'repurposing' of human beings," says Belizaire.
While most STP projects today are focused on reductions in manual handlings for price or cost savings, Belizaire and others believe the focus will ultimately shift to profitability gains through new revenue streams and deeper intelligence in the underwriting process. New revenue streams, according to experts, would be generated by expanding into new risk segments and by improving the perceived value delivered to customers -- whether agent or consumer.