Inefficient, outdated business processes cost everyone money. Today’s leading adviser practices must operate as modern, professional businesses if they are to continue to grow and prosper.
It is simply common sense to have back-office support, operating systems and processes all integrated effectively within the advice and sales process to maximise efficiency and productivity. After all, no-one wants to lose money because of outdated, inefficient or disjointed processes.
However, this is just half of the story. Inefficiencies in new business processes used by insurance companies writing a policy can also cost an adviser practice dearly. Advisers should fully consider the value that is being lost as a consequence of outdated or inefficient processes on the part of the insurer.
The results, or in other words, the value destroyed, can be quite stunning.
There are three key areas where value can be destroyed in the new business process:
> applications not proceeded with (NPW) — any application that doesn’t complete is a sale lost for an adviser;
> the time taken to get business on the books — the longer it takes to complete a policy application, the less time the commission payments spend in an adviser’s bank account; and
> productivity lost through ‘managing’ cases in suspense — the less time spent on this activity, the more office administration costs can be reduced and the more time can be spent on productive activities such as writing more business.
It’s worth considering each of these items in turn.
Applications not proceeded with
Put simply, the longer it takes to complete a transaction process, the greater the number of potential customers lost. Customers may become disillusioned with the process or simply change their minds. Either way, when they decide not to proceed, all the time, effort and money invested up to this point is wasted.
Studies have shown that the longer it takes to get an insurance policy on the books, the greater the chance of a customer deciding not to proceed to completion. In an industry where it can often take six to eight weeks to assess and issue a new policy, this is a significant issue. It’s perhaps not surprising that with a traditional paper-based process, NPW rates of 25 per cent are not uncommon — one in every four customers! That is a lot of money walking out the door.
Can this leakage be stopped? The simple answer is yes.
Some insurers are now beginning to use automated underwriting engines to provide fast decisions on certain straight-through-processing (STP) cases. Shortening the application time for these cases can save up to $85,000 of this lost value.
However, automated underwriting engines are still only able to make decisions on a minority of cases — typically 20 to 40 per cent. The remainder of the cases are then placed into the traditional back-office process, with a large proportion requiring further evidence. The majority of cases still take a number of weeks to process and are therefore subject to high NPW risk.
UK experience has demonstrated that an effective tele-underwriting process sitting behind an automated underwriting engine can virtually eliminate the need for further evidence. This can dramatically shorten the overall processing time for the vast majority of applications. Such a process can actually save an adviser $250,000 of the value mentioned above that is lost from NPWs.
Time taken to get business on the books
Considering the three processes mentioned above, there are differences in the time taken for advisers to receive their commission payments. It’s reasonable to assume that it may take eight to 10 weeks for a traditional paper-based process, four to six weeks for an STP-only process and one to two weeks for a ‘best practice’ STP/tele-underwriting process.
The value ‘lost’ for an adviser practice through lost interest earnings could range from almost zero for the best practice process to up to $20,000.
Lost productivity
If a case takes a long time to complete, it follows that an adviser (or member of staff) will spend time managing it through the suspense process. We all know that time is money. Any time being spent managing cases in suspense is destroying value for the business. It is far better for an adviser to spend this time on more productive activities, such as writing more new business or providing service to existing customers.
Overall assessment
Considering all three aspects together, outdated or inefficient processes on the part of an insurance company can cost an adviser practice an awful lot of money. The total value lost as a consequence of the insurance company’s new business process ranges from $416,000 for a traditional paper-based process to $297,000 for an STP-only process and $83,000 for a fully integrated STP/tele-underwriting process.
In other words, a traditional paper based process would lose the practice $333,000 compared to an STP/tele-underwriting process. An STP-only process would lose the practice $214,000 compared to an STP/tele-underwriting process. These numbers clearly represent a significant component of a practice’s potential revenue and profit.
Successful adviser practices are now seeking to optimise all aspects of their business. It’s just a matter of sound business management for these practices to partner with insurance companies whose processes minimise lost value. Any other choice simply costs the business too dearly.
Brett Yardley is the head of alliance business at Tower Australia.
