An e-signature update for US insurers

Most insurance carriers are on a quest to optimize their business processes and technology. They know that they must transition from manual processes and a paper- based world to automated or strongly facilitated processes in an image-based world, or risk being left behind by competitors.

But it is clear that this transition has taken more effort and gone more slowly than expected. Certain traditions seem to be lingering in insurance, for any number of reasons. Celent believes the tradition of putting ink on paper as a way of signifying users’ intent is one of those lingering traditions. The question is why.

The following report updates an earlier Celent report, E-signatures in US insurance: overview, issues, and case studies, which was published almost five years ago. It examines the current issues that insurers are facing as they move toward straight-through processing, enabled by process automation and punctuated by use of e-signatures. As noted, it is based on our discussions with North American insurance carriers, plus a survey administered to Celent research contacts in August 2007.

Why e-signatures?
E-signatures have the same functions as wet-ink signatures, albeit by slightly different means. They signify the signer’s intent to consummate a transaction, in a variety of ways.

They memorialize the terms of the transaction, typically by technologically ‘locking down’ the transaction once the e-signature has been applied.

They provide a reference point in case there is ever a question about who e-signed the transaction. (This function is achieved by the technology used, by the process surrounding the technology, or a combination of both.)

Despite these similarities, e-signatures offer some compelling advantages over wet-ink signatures. At a high level, the advantages common to virtually every e-signature application include:

• Improved cycle times. By helping carriers transition from paper-based, manual processes to electronic, highly facilitated, or automated processes, cycle times are often drastically reduced.
• Reduced process costs. Enabling process automation also drives down process costs dramatically, particularly if a percentage of all transactions can be converted to ‘no touch’ processing.
• Improved service levels. Effective e-signature applications streamline clunky processes and make it easier for producers and customers to transact their business with insurance carriers.

Adoption trends
Celent believes that e-signature adoption is picking up steam, although this transition has taken much longer than we expected when we first looked at the issue five years ago. The insurance industry is slowly dispensing with the myths surrounding e-signatures, and consumers and agents are starting to drive carriers toward adoption, rather than simply allowing themselves to be pushed down the e-signature path. Carriers that are waiting for early adopters to work through any remaining issues before they would consider offering e-signature capabilities need to plan for this shift. They need to get the ball rolling.

But despite the progress made to date, e-signatures have still not reached ubiquity in any segment of the insurance industry. In a recent Celent survey, 62 percent of respondents said their companies were not using any form of e-signatures in their dealings with customers or agents. By line of business, 59 percent of Commercial Lines P/C respondents, 75 percent of Personal Lines P/C respondents, and 47 percent of Life/Health respondents said they were not using any form of e-signatures in their dealings with customers or agents.

While some commoditized lines of business such as personal auto have been a good testing ground for e-signatures’ impact on insurers, other commoditized lines of business such as annuities or low face term insurance have seen relatively little action. That is not to say that no insurers have gone down the e-signature path for these products. But there is still no critical mass for e-signatures in these lines.

So unlike other recent technology-driven innovations such as communicating with agents and customers by email, or the use of agent portals to facilitate common service requests, use of e-signatures remains the exception rather than the rule.

Impediments to progress
If e-signatures deliver benefits on so many levels, why haven’t we seen a flood of e- signature projects? The answer appears to stem from the carrier view that e-signatures are not yet a competitive necessity. In the world of competing priorities for technology investment, e-signatures remain below the cutoff line. While the potential benefits are compelling, many carriers have not pressed the issue because their peer companies have not yet done so, either. For example, 63 percent of respondents to our survey called e-signatures a nice-to-have today, while another 19 percent said they will always be a nice-to-have. Another 5 percent said e-signatures do not have any impact on a carrier’s competitive position.

Celent agrees that e-signatures are still a nice-to-have, but we do not expect this status will remain true for long. There is critical mass among top tier carriers, especially, that will soon create an expectation around e-signatures among agents and customers. Leading property/casualty carriers have drastically streamlined or automated car insurance purchases with an e-signature ceremony on the end of their online processes, enabling real-time underwriting and issue. Leading life/annuity carriers have streamlined and automated life insurance purchases, both online and at the point of sale.

These approaches are being used in high volumes, and the benefits are being exposed to tens of thousands of agents and millions of insurance consumers each year. Of course, e-signatures are not for all customers or agents or products. But they have delivered the goods for some customers and agents and products, and thus the cycle of increased expectations has been set in motion.

Drilldown on areas of concern
There are some similarities and some subtle differences between the obstacles posed by customer-facing e-signature applications and agent-facing e-signature applications.

For both types of applications, survey respondents were most concerned about how agents and customers would feel about security of personal information. State DOI concerns were also rated as important obstacles for both types of applications. On the other end of the spectrum, cost and availability of technology were both rated as less important obstacles.

For customer-facing applications, respondents ranked agent concerns about technology’s role in the process as fairly important. This makes sense, because most agents say their success hinges on their ability to manage customer relationships, and their concern is that technology might inhibit their ability to manage relationship subtleties. (Never mind that many agents are single-finger typists with occasional disdain for rules about required forms and mandatory form fields.)

Respondents also ranked agent and customer willingness to use the technology as a fairly important obstacle. Celent believes this was once true, but in the last five years has changed significantly. For example, one small carrier with a point-of-sale e-signature process reports that agents who were initially skeptical about the process now submit over 90 percent of their business through it, with their only incentives being quicker case turnaround and reduced rework. Paying bonus commissions on business submitted electronically could jump-start an e-signature program, but apparently the other benefits to agents are sufficiently compelling.

Moving forward
The insurance industry has a reputation as a slow mover when it comes to technology, and in some sense this is true. Traditions die hard in insurance, particularly for product lines like life insurance that have extended life cycles measured in decades. But the industry also faces serious competitive pressures that demand action, and technology trends like the emergence of SOA and an explosion of user-configurable tools specifically for insurers are enabling fundamental business changes to a degree that was never possible before. That is why we are bullish on the prospects for e-signature adoption. The time is right for e-signatures to finally take off.

Survey data support Celent’s belief that a wave of e-signature adoptions is just around the proverbial corner. Agent-based and direct/online applications for insurance were rated as ‘highly likely’ or ‘somewhat likely’ areas for e-signature implementation in 2007 or 2008 by 58 percent and 46 percent of respondents, respectively. Interestingly, customer service forms edged out agent licensing/appointment as the next most likely area for e-signature implementation.

These results were even stronger when respondents were asked to assess the likelihood of e-signature adoption in 2009 or 2010. Agent-based and direct/online applications for insurance were rated as ‘highly likely’ or ‘somewhat likely’ areas for e-signature implementation in 2009 or 2010 by 71 percent and 63 percent of respondents, respectively. Even the least likely area for adoption, claims, totaled 47 percent of respondents across the Highly Likely and Somewhat Likely categories, combined. If survey respondents have a sense of the industry’s changing attitude toward e-signatures, these numbers would translate to literally hundreds of e-signature applications over the next 24 months.

Our conversations and survey results suggest that there is also a growing level of awareness about the value of e-signatures in solving business problems. This, too, bodes well for adoption.

Conclusions
Will e-signatures finally take off in insurance, as Celent predicted several years ago? Will the rather dramatic adoption predictions voiced by survey respondents be realized? The answer will depend on how carriers evaluate the competing forces summarized in Table 5. Celent believes that the majority of Tier 1 through Tier 3 carriers will put e-signatures in production for at least some business processes within the next 24 to 36 months.

None of the constraints below are deal-stoppers, although all must be addressed. The constraint with the most impact on adoption trends is the high-level culture within many insurers, which results in a steady stream of incremental performance improvements but relatively few earth-shattering improvements.

But as the word ‘disruption’ comes into vogue, this attitude may shift. The insurance industry as a whole will shift from its current product and price focus to a true service focus, where making dramatic improvements in the service experience of producers and customers is highly desirable. In this context, there is a clear need to enable electronic processes, and adoption of e-signatures will be an essential component of that effort.

Craig Weber is the Senior Vice President responsible for insurance practice at research and consultancy firm Celent.