Straight-through Processing in Insurance: Principles and Practices

Insurance organizations process countless terabytes of data across thousands of individual transactions daily.

With straight-through processing, insurance companies can design snappy, “always-on” digital customer experiences while reducing paper processes, manual rekeying of data, and human intervention.

Straight-through processing (STP) describes the ability of financial services systems to process electronic transactions without manual intervention.

STP-enabled systems ingest data digitally and complete transactions based on decisions governed by algorithms, including predictive models and simple business rules. STP can streamline payment lifecycles (e.g., claims), automate data intake, reduce transaction time, and push data through various core insurance systems for processing.

Straight-through processing makes it easier and faster for customers to obtain coverage and helps agents write more business by streamlining the application review process, quoting, and rating.

Paired with technology like optical character recognition (OCR), key data from RFP documents in PDF or image formats can be straight-through processed into a carrier’s core quoting system, creating an initial shell quote that can be fine-tuned.

By streamlining underwriting, STP can help insurers win and retain more business. 53% of consumers say they are more likely to buy life insurance with simplified or accelerated underwriting processes. For example, in life insurance underwriting, insureds usually must undergo medical exams (e.g., testing of bodily fluids). This is no longer necessary in many cases, thanks to accelerated underwriting principles applied using STP-enabled technology.

Minor errors here and there might not seem like a big deal, but with today’s interconnected digital ecosystems, a single mistake can be replicated across multiple applications at every stage of the insurance value chain.

Even the most minor mistakes can add up. One financial company’s cumulative invoicing errors resulted in years of overpaying vendors and cost them millions of dollars.

In group insurance, manually entering information into core systems results in missing data, errors, and time-consuming back and forth. In fact, employee benefits carriers can reduce input time and auditing errors from 25% to less than 1% STP-enabled systems.

Built-in STP rules can enforce quality. For example, if a date of birth is missing or a year is entered incorrectly during onboarding, the software will flag the error and require the user to fix it. This ensures data integrity and accurate rating.

Before straight-through processing was common in insurance, each transaction was received by paper and needed various manual steps before completion. For example, agents sent out a confirmation via phone, prepared the transfer across many departments, and waited several days before the money was sent to the recipient.

Today, most solutions integrate directly with insurance core systems and automatically track payment transfers and settlements digitally. As a result, agents and brokers have better control and visibility of transactions, which limits the number of touchpoints, enables faster payment processing times, and improves customer experiences.

In 2016, Lemonade’s digital assistant set a world record for the fastest-processed insurance claim in history. The chatbot received a $979 claim, checked the claim against the policy, ran 18 different anti-fraud algorithms, and made the payment – all in under three seconds. 

Frictionless claims are crucial to maintaining customer loyalty and improving profitability. In fact, automation can reduce the cost of a claims journey by as much as 30%.

In order to straight-through process quotes, claims, renewals, and more, insurers must cultivate a digital ecosystem of modern applications that are tightly integrated using modern API standards.

Often, it takes extra work to get legacy systems to communicate with other core insurance systems. They are less flexible, and often data must be re-entered multiple times in different tools – the opposite of straight-through!

Adopting microservices and a best-of-breed technology approach can solve this problem. According to Cristian Marcov, Global Enterprise Architect at Global IQX: “Breaking down software into smaller components can lead to better modularity, reducing the implementation effort because smaller portions of the system have to be changed.”

Insurance leaders must then prioritize their data flows, and find the most efficient way of managing them. In group insurance, for example, several insurance carriers are using IQX Exchanger, an integration platform for group benefits systems, to quickly change or update the data structure that flows through the pipeline. This keeps their digital insurance ecosystems flexible while remaining capable of supporting complex business logic.

Carriers using IQX Exchanger were able to support bi-directional communications between their core new business and underwriting systems and Salesforce cloud applications. Users could initiate “ratable quotes” and receive final rates whenever these are made available by the carrier’s rating system.

Despite the immense benefits of straight-through processing in insurance, few carriers have enabled straight-through processing to their core systems.

There are various reasons why insurers haven’t fully embraced straight-through processing. In some lines of business, the complexity of claims processing has limited opportunities for automation. Some carriers are locked into legacy systems that don’t have the capabilities to support STP. Indeed, some insurance providers are still comfortable using paper for transactions and other processes.

While the insurance industry continues to deploy automation, most processes will never be fully automated. there will always be some unique claims scenarios or unexpected risks that will require human intervention. However, that’s what makes STP so valuable: when technology handles straightforward processes, high-skilled workers have more time to focus on their most important tasks.