Straight-through processing (STP) has grown dramatically over the last two decades. Its two main components, digital process and automated decisioning, have become easier for insurers to provide thanks to advances in technology.
Despite a majority of insurers reporting in Novarica’s annual New Normal 100 study that they have some degree of STP capabilities for new business, it is far from universal. Carriers with strong STP abilities may only process a small portion of their business this way. While there are clear benefits to increasing the amount of new business undergoing STP, insurers must deal with several inhibitors to their progress.
The Benefits of STP
Relying on STP for new business can lead to real time (or near real time) quoting, which in turns drives business volume. It can also improve the consistency of decision-making and boost productivity of carriers’ employees. Insurance carriers report these benefits across lines of business.
But even carriers who report mature STP capabilities are likely to use what is called “triaged STP.” With this approach, incoming submissions are divided into three areas: flow, score and refer, and refer. Submissions with simple risk “flow” straight through the system, while slightly more complex risks might be scored then sent to a human for review before the policy is fully issued. In the third case, risks that require additional underwriting or have high complexity will be routed directly to a human expert.
When carriers are overly cautious with their triaging, they might receive a limited portion of the benefits STP has to offer. Ensuring the right balance of caution and automation means hitting what Novarica calls the “STP Sweet Spot.” The Sweet Spot exists when carriers understand the risks they handle well enough to generate appropriate modeling, when data is reliable and easy to access, when speed is at a competitive rate, and when margins are thin and productivity is high.
Factors Inhibiting Effective STP
Carriers who are not able to use reliable STP for their new business are likely facing some common inhibitors. Maybe they are relying on inadequate models, partially driven by underwriters who cannot (or will not) identify all of the factors they use to make decisions. Maybe they are working with insufficient or unreliable data, which limits the accuracy of automated decision-making.
Insurers may also be dealing with legacy systems that are not designed to handle STP and may still be working with batch processing. Underwriters, as noted above, can also view STP as a threat to their careers. Some carriers who have had success with STP have reported the opposite effect, however. STP can handle the gathering and review of information, freeing up underwriters to nurture relationships with clients and prospects.
Putting STP in Action
Given the Sweet Spot noted above, it’s no surprise that personal lines and individual life show the highest average use of STP for property/casualty and life/annuity lines respectively. But even in simple lines, the average rate of STP is around 35% for property/casualty insurers. Current rates are even lower for line/annuity carriers.
These rates aren’t destined to stay low forever, though, as data and analytics usage becomes more prevalent, core systems are modernized, and the industry demands improved consistency and speed. Underwriting is a vital part of the insurance life cycle, and increasing STP rates will free employees up for higher-value tasks. To learn more about how insurers are deploying STP across lines of business, read Novarica’s full report Straight-Through Processing in New Business: Current State.
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