Straight-through processing (STP) is becoming more common in insurance underwriting and claims, and it is likely to remain a priority for insurers seeking to improve the ease of doing business for their distribution partners and create more convenient customer experiences for their policyholders.
Generally speaking, STP refers to insurers’ ability to automatically process transactions without manual intervention or input. The system ingests data digitally and completes the transaction based on decisions governed by algorithms, including predictive models and simple business rules. STP offers insurers benefits in speed, consistency, productivity and application throughput while making the customer experience quicker and more convenient.
Technological improvements over the past two decades, such as the internet, modern insurance core systems, and data/analytics capabilities, have been a major factor in the rise of STP. These have made it possible to process applications without human oversight.
STP in underwriting is most common in personal lines and individual life; more than 80% of insurers selling these lines have at least some level of automated underwriting, and many personal lines insurers process straight through more than three-quarters of the time. For most insurers, STP in claims is fairly uncommon. Nearly 60% of insurers have no STP in this area. Claims STP is likely to become more common, especially in personal lines and individual life, as insurers continue to improve their core system capabilities and as the availability and quality of third-party data improves.
Generally, STP is most effective when four factors apply to a particular line of business or transaction:
- Risks are well understood, which makes modeling easier
- Data is easily accessible and generally reliable
- Speed is at a premium to be competitive
- Margins are thin, so productivity and throughput drive profitability
Figuring out where to enable STP isn’t always a question of looking at specific lines or products and determining whether these factors apply. Insurers can also use these principles to design new products, especially for direct distribution.
While the industry as a whole is trending toward greater automation, most insurance will never be completely straight through; there will always be some complex claims scenarios or unusual risks that will require human intervention and review. That itself is part of STP’s value, though: When technology handles the easy processes, humans have more capacity to focus on higher-value work.
Enabling STP has an upside for those human actors, as well. Investing in better data creates resources human underwriters can use, and better connectivity eases integration and improves ease of doing business for distribution partners.
This post is adapted from a larger article at Insurance Thought Leadership. To learn more about the usage of STP in insurance, read Novarica’s report Straight-Through Processing in Underwriting and Claims.
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