Contrary to what some technology vendors would have insurers believe, enabling straight-through processing (STP) is not simply a matter of deploying a next-generation policy administration system. However, the benefits promised by service-oriented architecture (SOA) and other next-generation technology -- including lower total cost of ownership, reduced time to market, faster decisions, better response time and improved usability -- derive from the greater ease of operations they deliver.
The goal of STP is to make doing business easier by reducing human intervention in processes. STP incorporates rules that decide which cases require intervention and which can flow unimpeded. The rules must be monitored and their results measured over time to ensure their efficacy. Analytics is the mechanism for determining whether the decision rules are producing the desired results. Skilled technicians can use analytics tools to identify patterns in the data from past decisions and create more- accurate rules. One essential tool for minimizing human intervention in any process flow is predictive modeling, which applies scoring models to predict results.
Capturing and monitoring statistics at all phases of the process flows over time enables a carrier to forecast the company's future performance. The accuracy of the predictions largely depends on the volume and accuracy of the data collected, particularly in automated underwriting and claims adjudication. By monitoring metrics at aggregation levels such as agent, territory, claims adjuster and time period, analysts gain greater insight into the book of business and business trends. Armed with this knowledge, they can predict the performance of the business earlier and more accurately and spot problems such as adverse selection, internal fraud and customer attrition.
An SOA policy administration system can replace dozens of legacy systems, and there is no better time to incorporate analytics into business processes than when replacing legacy systems. Whereas using analytics on the data in legacy systems often requires ad hoc data extraction or the construction of a data warehouse, which takes time and resources, SOA has the advantage of central access to data and analytics models and can access analytic applications as part of the normal processing flow.
Automating With Analytics
Incorporating analytics in the flow helps automate and optimize many aspects of the flow of business. A personal lines carrier might choose to have the system call up a scoring model in the underwriting flow for new business. A rule governing the gathering of third-party data might incorporate an initial risk score to decide whether to order such information as a motor vehicle report, vehicle inspection or loss history report. A good risk score might make obtaining some reports unnecessary, thereby speeding approval while lowering underwriting expense.
The architecture of the new systems enables carriers to use common back-end processes for a variety of front-end applications. The single processing foundation simplifies system management for IT departments, which can alter systems from a single point of control. Being able to share models in a common repository reduces the total cost of ownership and simplifies use of analytics.
The modifications to legacy systems required for the adoption of a unique pricing model prevent many carriers from pursuing this avenue to greater profit. First movers that adopt next-generation policy administration systems, however, can employ statisticians skilled with analytic tools to radically alter pricing models quickly and thereby boost their competitive position.
Incorporating analytics in the process flow is not required for implementation of a next-generation policy administration system. Many carriers will be quite satisfied with the improvement in speed to market, reduced total cost of ownership and greater usability they gain even without analytics. However, those companies that devote attention to incorporating analytics will gain the upper hand over the competition.
By improving the speed and consistency of decisions, analytics opens the possibility of self-service applications for producers and the insured, including claimants. The result will be a dramatic improvement in the ease of doing business with the carrier. Providers of next-generation policy administration systems that include analytics engines will have a more complete, robust and beneficial product offering.