Organizations in the insurance industry are seeking to improve customer service, even as they are under considerable pressure to reduce the expenses associated with loss administration. One oft-cited area of opportunity is to make the move from paper to digital (i.e., electronic correspondence and communications via digital document delivery).
Most carriers have taken some steps in the direction of digital document delivery, making use of electronic forms or e-mail, for instance; some have even begun to put together elements of a strategy for electronic correspondence. Yet the results to date have been disappointing, and the question arises: What have been the barriers to achieving success with electronic document delivery?
The answers to this question are best phrased as the questions that Doculabs' clients have been asking of us - questions such as: Are our agents and customers ready? What are the costs and benefits? What about regulations? While these concerns are very real, it's worth pointing out that other sectors of the financial services industry, such as investment management and retail banking, have experienced considerable success with electronic document delivery. Indeed, a study recently published by the Electronic Document Systems Foundation (EDSF) and coauthored by the University of Illinois, Chicago, and Doculabs, found that more than 75 percent of organizations, across all sectors, plan to increase their use of electronic document correspondence in 2005 compared to 2004. So how can a carrier surmount those barriers to success?
What organizations in the insurance industry need is a better understanding of the impacts that electronic document delivery can have on distributors and customers - plus a solid grounding in the economics of making the paper-to-digital move.
User Expectations And Acceptance
Among our clients considering the use of electronic correspondence, the "user acceptance" question is at the top of the list. For insurance carriers, it's important to distinguish between both authors and recipients, and policyholders and agents among the user population.
Internal authors literally can be mandated to use electronic correspondence, when appropriate. Some training will be required - with claims representatives, for example, to get them comfortable with written communication and appropriate tone and style. From the recipient standpoint, agents are dramatically more receptive today to receiving electronic documents. In addition, many agency management systems now offer some form of electronic document storage and retrieval, and if not, the agents themselves know how to view, update and save electronic forms and PDF files.
Policyholders' preferences, however, run the gamut and mirror many published statistics concerning online connectivity, demographics and income levels. In the EDSF study, which included 350 organizations, respondents indicated that approximately 20 percent of their clients were willing to accept digital documents exclusively.
Thus, the tide is changing - perhaps thanks to the insurance industry's investment management and banking counterparts. The EDSF study found that only 18 percent of the firms surveyed had experienced a decrease in customer willingness to accept electronic correspondence.
Preferred Modes Of Delivery
Once the concept of electronic document delivery takes hold, many organizations then struggle with the appropriate method, or combination of methods, by which to deliver their messages. Do we send e-mail with a link to our Web site? Do we host electronic forms on our portal? Do we distribute documents via PDF or another format?
The EDSF study found that a combination of all of these methods should be considered. For example, agents are more likely to leverage sophisticated analytics on a Web site, customize a document and then generate a PDF for transmittal to a client, such as a proposal or quote. Policyholders, on the other hand, might resist the notion of having to log on to a secure portal, retain a password and provide confidential information, thus requiring the delivery of static PDF files via e-mail.
Thus careful consideration of user preferences and desired modes of delivery is critical to ensuring adoption.
The Transition From Paper to Digital Delivery
Among Doculabs' clients in the insurance industry, we have identified various opportunities to leverage digital document delivery. These include agent commission statements, policy applications, claim forms and cancellation notices.
In considering applications for electronic delivery, the first step an organization should take is to inventory the different types of documents that may be candidates and then undertake a prioritization and impact analysis. Which documents cost the most to produce and mail? Which documents provide nominal value in paper form? The answers to these questions should result in a short list of documents ripe for transition.
Table 1 (at right) outlines the factors to consider in such an impact analysis for four document types being assessed for digital delivery.
The results of the prioritization and impact analysis should then lead to an assessment of the return on investment (ROI) for each of the document types assessed above. If it costs $.10 to print and $.30 to mail each of 1 million documents, the total "output" cost is $400,000. If, in addition, nearly 25 percent of these mailed documents are returned, the result is further costs (for scanning, indexing and performing data entry); put the cost for these activities at an additional $.50 per item - which means another $125,000 is added to the total "output" cost. The financial case for paper versus electronic delivery quickly becomes quite interesting, as shown in Table 2 (next page).
In consulting engagements with several clients for whom we have performed such analyses, the estimated "future state" electronic costs (comprising items such as network costs, programming costs and CPUs) typically are only one-third the cost of the current print-and-mail delivery. In the example above, current costs for this document alone total $525,000, while the electronic costs total $75,000 to $150,000, depending on volumes.
One objection that always surfaces in the discussion of electronic document delivery is the regulatory environment. While concerns over regulations are very real, it is important to distinguish between mandated regulations, internal policies and operating practices.
Regulations (such as those requiring a "wet" signature) do limit possibilities for electronic correspondence. But internal policies, such as contract language stating that paper statements will be provided annually, can be modified by a carrier, perhaps updated upon renewal.
Also recognize that many regulations were authored in the 1950s, 1960s and 1970s, thus antedating digital delivery, and are nondescriptive in their direction concerning digital delivery. In these instances, an organization's interpretation can be aggressive or conservative, but the choice is the firm's.
Finally, operating practices, such as a firm's preference to mail marketing or up-sell documents to a policyholder's home address, may be for marketing purposes. Many of these factors get confused in terms of considering change, and in conjunction with the document inventory referenced earlier, we recommend that, during the analysis effort, an organization make a distinction between which regulatory "hurdles" are real and which are only perceived.
A Formal Approach to Digital Migration
Despite an increased interest in adopting electronic methods for document delivery, few insurance firms have formal budgets or have assigned central responsibility for electronic document distribution. In the EDSF study, approximately half (47 percent) rely on funding from other departmental budgets and approximately one-third (30 percent) have their costs included in overall information technology budgets (see chart below, left).
Moreover, when participants in the EDSF study were asked about where the responsibility for document output strategy resided within their respective organizations, the results indicated that responsibility for document production and output seems largely to be distributed across different departments for more than 45 percent of our respondents (see chart below, right).
Thus, if an insurance organization wants to increase its use of digital communications, consolidating the budget and assigning central responsibility both need to be achieved if the initiative is to be successful.
Begin the Transformation
Over the next few years, customer communications and document delivery strategies will be in flux. Both insureds and agents have voracious appetites for service, and their expectations will continue to change. While organizations are making great strides in improving their document communications, much more needs to be done.
Consider the facts. Print budgets are constrained, but rising slowly. Digital delivery budgets barely exist; however, digital delivery efforts, as well as customer acceptance, are growing.
Insurance firms need to begin their transformation to digital document delivery by following the simple, proven process: First, consider user acceptance patterns and preferred methods of delivery inventory and assess the potential impact of transmitting electronically; next, build the business case and address regulatory concerns; finally, take steps to centralize responsibility for the document output strategy. Taken in combination, the steps of this process help an organization to take a more strategic approach to moving specific communications from paper to digital delivery.
Certainly that movement will be incremental at first - a few types of documents to a subset of constituents. But as many organizations are finding, acceptance is growing - and in the insurance industry, both carriers and policyholders will be the beneficiaries of this significant change in document delivery: carriers benefiting from the cost reduction, and policyholders from the positive customer experience.
James Watson Jr. is president of Doculabs, a research and consulting firm that helps organizations reduce the risk of their technology decisions.