The Paperwork Butterfly Effect: A Ripple Felt All The Way To The Carrier
A seemingly small error on a new account application can have amplified consequences for the agent and all the way to the carrier.
The Butterfly’s Path
To understand the impact that a small mistake can have on an insurance application, first consider the application process and the channels through which the application runs.
A client and agent meet. The agent runs the quote, and a company and product are selected with the forms provided by the brokerage general agency (BGA). The agent completes the forms with the client and sends necessary paperwork to the BGA. The BGA keys in additional information and sends forms to a paramedic firm. The paramedic firm contacts the customer to conduct necessary testing. The paramedic firm reports back to the BGA. Finally, the BGA provides the information for the carrier. Simply: Agent > BGA > Paramedic Firm > BGA > Carrier.
There are several places in this process where the butterfly effect can occur. Any hand-off in the process, any time the baton is passed, there is an opportunity for the butterfly effect to strike. Between an agent and BGA, the baton can be dropped, sending a chain of events into motion. The same goes for the movement of paperwork from a BGA to a paramedic firm or from a BGA to a carrier.
Depending on when and where the breakdown occurs, there are different causes and consequences that can arise. Following is an example of the butterfly effect from each phase in the chain.
Case 1: A Butterfly Flutter
During the Baton Pass from Agent to BGA
An error passed from agent to BGA can occur in several forms, e.g., missing or incorrect data, outdated forms, etc. These types of changes are virtually impossible to keep on top of with manual and paper-based processes; oftentimes, illegible handwriting exacerbates the issue. A BGA should be able to identify these types of errors relatively quickly and send the application back to the agent. However, other errors, such as an incorrect birthday or phone number, might not be so easily identified early in the process. If this type of error continues all the way to the carrier and the application is rejected, the agent must start the application process all over, turning a one-week process into a multi-week process. Such a situation means negative consequences for both BGA and agent.
BGAs receive “incentives” based on business that is sent to the carrier in good order. This type of issue affects the not-in-good order (NIGO) rate for the firms BGAs represent, thus, a carrier that will pay less. The same goes for an agent, whose commission on a new account will be delayed for weeks until the application is underwritten and processed.
Case 2: A Butterfly Break
Between BGA and Paramedic Firm
If incorrect data is included in a form and it passes from BGA to a paramedic firm, the butterfly effect can impact the client’s experience. For example, an incorrect phone number on a form provided can prevent a paramedic firm from being able to contact the client for required testing in order to get the insurance application processed.
Paper-based systems often require the same information to be entered in multiple places, introducing a chance of error each time the same phone number is written or rekeyed from one stage to the next. Automating workflows helps make sure that information is correct in customer relationship management (CRM) and then consistent as it is utilized from one step to the next.
When the break occurs between a BGA and paramedic firm, a BGA’s commission for the account is delayed. Additionally, the rest of the processes from that point on are impaired because the application is not able to pass on to the next step. Instead, the application is kicked back to the advisor, who must correct the information and start the application process again.
Case 3: A Butterfly Bumble
Between BGA and Carrier
A common issue by the time an application makes it from BGA to carrier is an error introduced when rekeying information.
For example, a transposed Social Security number or date of birth might prevent a client from being able to withdraw money from his account at retirement age when age of 65 is mistakenly inputted as 56. An error such as this can even jeopardize a beneficiary’s ability to collect on a policy.
A carrier’s goal is to get correct information in order to accurately underwrite a policy. The challenge is that without correct information, a carrier can’t underwrite it, which again, cuts into how soon a policy can be issued.
Putting the Butterfly in a Jar
There are several consequences from a butterfly breakdown in the paperwork process, including delayed payment and processing time, NIGO issues and potential loss of a customer’s business. The goal is not to take such a problem all the way to a carrier. Ideally the job of a BGA is to resolve those issues so all a carrier has to do is underwrite and issue the policy.
Developing industry standards has been proposed as one possible solution to manage the avalanche of paperwork the butterfly effect creates; however, that has never been successfully accomplished. The insurance industry spent years developing standards for variable annuities, but proposed standards were never accepted and put into place.
To be successful, a second possible solution might be increased transparency and checks on information in order to benefit everyone in the processes—BGA, paramedic firm and agent. If there’s a hang-up in the application, it should be identified immediately so that a client can be contacted to correct it. This might come through increased automation or checks and balances in processes which verify that key information is included and correct on forms.
Straight through processing can also help to reduce errors by automating workflows and leveraging existing data and systems. Combining that automation with better NIGO checks to make sure errors don’t get passed through each step of the process allows companies to put the butterfly in a jar.
Author’s Bio Robert Powell is the vice president of sales and marketing, Laser App software. He has a bachelor’s degree from California Polytechnic State University in marketing management. During the last 10 years, Powell has managed the implementation of seamlessly integrated solutions at several of the top custodians and most independent broker/dealers.