Using EDM to achieve Straight Through Processing in Insurance

A colleague passed me this link - Straight Shooter on National Underwriter. Robert Regis Hyle does a nice job discussing the idea of having policies pass through the underwriting process untouched by human hands - Straight Through Processing. He talks about the Hartford's use of rules and XML/ACORD to do this - the Hartford is a long time rules customer of ours - and nicely summarizes some of the challenges, especially those in terms of data. While the ruthless definition of interfaces and data formats can help ensure STP for electronically submitted requests, Robert correctly notes that capturing data, especially for complex lines, is a complicated problem.

A couple of things occurred to me. Firstly, it is important to note that STP requires both process automation and decision automation. BPM alone will not get it done, you must be able to automate, manage and control the decisions within the process too. Secondly the best way to manage these kinds of decisions is with a combination of business rules (for regulatory compliance, policy enforcement) and predictive analytics (risk prediction particularly). Add the fact that constant change is the norm for the insurance industry these days and the final requirement is for adaptive control and agility. This approach is what we call Enterprise Decision Management or EDM. Combining EDM (through the construction of decision services) and BPM to get highly automated processes, even in complex and regulated environments, is very effective (check out this post for instance). STP in underwriting is a great example of a transaction-centric process.

If you look at other insurance companies working to STP, you can see the need to capture the right data reinforced alongside this use of rules and analytics. ACG, for instance, used rules to automate the decision and a rich interactive application to capture the right data (this is the kind of thing SmartForms is intended for). Don Light is quoted and wrote a nice paper on this topic. Though he makes some good points regarding the challenges, things are progressing and more and more carriers are automating underwriting, often starting with Auto policies as he notes. There's also a nice podcast with Don.

If you want to see how some insurance carriers are doing, you could check out Celent's model carriers. Remember that, even if this seems hard to you, others have predicted a grim prognosis for those who don't adopt analytics and Gartner recommends adopting rules sooner rather than later so don't take too long thinking about it.

Last comment, I would qualify Robert's statement that STP means "without the intervention of human intelligence" a little and say "without the intervention of human intelligence on a transaction-by-transaction level". Clearly you need human intelligence to make sure the right decisions are taken, you are just applying that intelligence to the decision process not to an individual decision.

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