Newsletter Sign-up

In a recent research note to clients, Karen Pauli, Tower Group senior insurance analyst, reported that property/casualty companies were behind their financial services industry peers in adopting electronic signature technology. Despite it having been more than seven years since Congress approved of electronic signatures as legally binding, property/casualty companies have been slow to adopt the technology. Pauli spoke with Cyril Tuohy, managing editor of Risk & Insurance®, and tried to explain why.

Q: Clearly the insurance folks are laggards compared with the other financial services companies, but are you surprised?

The challenge really is for those people where the distribution system is with the independent agent--it's leveraging out to there and people who don't have a Web presence or people who have a very limited Web presence or direct writers who don't have the same punch as a Geico or an organization of that size.

Q: Of the direct writers who are using it, are they also using it for commercial policies, or small commercial policies?

Pauli: It's primarily personal lines where we've seen the application just because of the volume of transactions. It makes sense to leverage the technology into that because relatively speaking how many mid-market commercial lines are there versus auto policies?

There are just a lot more auto policies. Commercial lines are still dominated by the independent agent. Currently, independent agents are not using e-signature technology so that accounts for a lack of penetration in commercial lines.

Q: So do the agents have to adopt a new system as well as the carrier if they are going to use digital signatures?

Pauli: Well surprisingly it's not really a matter of a whole lot of other technology. In other words, these are Web products so there is some software involved, but they are Web-based products so it's not like you have to take your agency management system and throw it away and get all new laptops or something like that. It's not that issue.

It's really a case of facilitating the workflow process and there are hosted solutions for the e-signature products. From a hosted solutions standpoint it's literally no commitment from a technology standpoint for the people who need to actually sign something.

I've talked to the agency management system vendors and most of them are saying "nobody's asked us for it yet," so it's more of a strategic issue for the agency management system vendors. Carriers can facilitate it to Web portals so there are lots of ways to make it happen.

Q: What sort of investment are we talking about say, for an agency with 10 producers? What kind of investment would it require?

Pauli: Usually a hosted solution has a pay-per-use fee structure. But I don't think it's an individual agency purchase. You need to be a pretty big agency because it does cost something. You need to be a larger agency but it's a case of the agency management system vendors who really need to understand what they need to do strategically to help their customer base.

Q: Just because nobody's asked them for it doesn't mean that ...

Pauli: You go back to the analogy of in 1955 if you asked a bunch of housewives what they wanted they wouldn't have said a microwave. They didn't know. They had no clue. They just wanted a bigger stovetop. So from a strategic standpoint, you can't ask people because they have a day-to-day thing to solve, not "what do I need to have a year from now."

That's why the agency management system vendors need to take a more strategic view of this and what they need to do to help their customers compete in the new economy that's different.

Q: It sounds like there's quite a bit of money to be saved. It's really very easy. No fax machine.

Pauli: Right, absolutely. When you look at the insurance process, especially when you do get to commercial lines and there are multiple signers or you get to a claim and you have all those authorization forms, especially if it's a bodily injury case or workers' comp case where you are constantly having to release things, you have to have the insured sign a release.

Signing a release electronically rather than having something go back and forth in the mail means you get the medical records a week and a half, two weeks earlier and that's always better. You can always manage the claim better if you have the information quicker.

Q: But digital signature technology still sounds fairly complex.

Pauli: The technology behind it is complex and that's why in my report I'm very dedicated to the fact that you need to partner with somebody who understands this because I don't think it's a case of somebody building from scratch a good solid electronic signature solution because all of the security technology behind it and all of the processes behind it is very complex.

Q: Then I suppose the agency management folks can be excused for being a little bit reticent, could they not?

Pauli: Well, they could partner with somebody just as easily. There are about three really strong players. The agency management system vendors really need to transition from the position they've been in historically which is, "We listen to our user group, we partner with our user group."

Vertafore, which owns AMS, has just hired somebody. She is senior vice president of strategic development, or she may be a C-level person, but to me that was encouraging that somebody is going to look out for the strategic development.

Q: So, with the agency management folks, they are telling the marketplace we really haven't heard from them. Do you buy that explanation? Or is that an excuse to stall?

Pauli: I don't think that's the issue. I really do think that fundamentally they respond to what their customers are asking for. They are customer-driven, customer-focused, and there's nothing wrong with that. The technology vendors are the ones that push the insurance industry to newer and greater heights and I think from an agency management system vendor standpoint they need to recognize that they are getting some pretty stiff competition from people who don't use their products.

Q: Such as ...

Pauli: Direct writers don't use them and the e-commerce type of organizations don't use agency management system products either. So if they want to protect their market, they need to get more strategic because they have to facilitate their customers being at the same customer service level as the e-commerce people, as the direct writers are. They've got to do it. They need to take a new view of this.

Q: And the direct writers are typically the ones like Geico and Progressive ...

Pauli: And Amica and USAA-type of organizations. We know direct writers who found that without electronic signatures they lost too much business because they gave people too long a period of time to wait for the application to come to them in the mail and they changed their mind or found some other deal. So having that capability while having somebody on the phone ... and the independent agent needs to have that same competitive advantage to level the playing field.

Q: The use of electronic signatures then is a valid tool for large commercial policies where you have maybe 10 signatories to that?

Pauli: Absolutely. Every time you move the document from one place to the next some of the more sophisticated technology pieces lock the process and lock the chain of custody. In those cases you can literally move a document through 10 signing processes very quickly--just a couple of hours would do it versus a four to five week deal just FedEx-ing things all over the place.

Q: Have you noticed this happening among large commercial brokers--Marsh and Aon--or does that not even come up?

Pauli: It's not a technology that they've adopted yet but it's something that they need to do because you've just got to shorten the cycle time.

Q: Some of these large policies take months.

Pauli: Absolutely. And you need to stay within the workflow of your best customers. They are all in an e-commerce environment so why drive them over to paper just to sign an insurance obligation? That's kind of crazy.

Q: Outside the United States, are large commercial carriers just as slow as the U.S. in adopting electronic signature technology?

Pauli: In terms of being able to use e-commerce kinds of vehicles you get a little more traction in other parts of the world but so far the e-signature vendors are largely U.S.-based and they are now just expanding. So it's one of those things where it's not going to take long because you do get a little more aggressive use of technology in certain parts of the world than you do here where you have a tendency to get a little slogged down.

Q: Is there a form of electronic signatures that is dominant? Your report mentions biometric readings at the top of the electronic signature technology spectrum.

Pauli: Yes, that's pretty complex stuff. Right now it's mostly the click-to-sign. The first couple of technologies are very easy to institute. Every time we go to Target you use the tablet capabilities and the click-to-sign and all of that stuff. That's quick and easy to put in place.

The complexities of the upper level technologies--really it's a case of figuring out what the value of your transaction is and what level of security you have to have. So the really complex stuff at this point isn't in insurance. It may be once you start getting into some things like big jumbo commercial lines accounts.

Q: Now that the federal government and the state governments have all passed laws allowing for electronic signatures, have any of these laws been challenged in court?

Pauli: Yes. In fact there was an insurance related one that was successfully adjudicated within the state and federal court system.

Q: So, in effect, the document was signed electronically and it held up in court?

Pauli: Absolutely. Insurance isn't so unique in this particular instance. It's the legality of the signature, whether it's insurance, whether it's a securities and investment issue, whether it's a banking transaction, it's the legality of the signature.

That's gone up and down all sorts of courts. People in insurance want to have insurance precedents because they feel it's somehow going to be different, but it's the overarching subject of the legality of the signature and that's been signed, sealed and delivered and now we have an insurance case.

Q: It's interesting that it is the agency management systems folks who are a little bit reticent.

Pauli: But it's also the mainline carriers too. Until you start looking at an e-commerce world which the typical mainline insurance carrier is just kind of getting into right now. I mean, take a look at AIG, they just started an e-commerce line of business. Hartford's just starting one. Those mainline carriers, until they really start looking at those e-commerce types of technologies it just doesn't pop into their head.

So I don't want to slam the agency management systems vendors too hard here because the carriers should facilitate it through their portals. They are all developing portals now so they need to facilitate it too, not just the agency management system vendors. Everybody's got a piece of the action here.

Q: As it stands now, the agency vendors bridge to the carrier portal and look for quotes and get numbers and terms and then they fax the document.

Pauli: Right. They fax it to the agent and the agent turns around and faxes it to the customer. So the carriers can just as easily install the software in their technology environment and send an e-mail to the Karen Pauli insured and say, "here, sign this."

There are some complexities here relative to the independent agent because there are still some states that state that the legal document of record has to be maintained by the agent but in an electronic environment that's a little bit easier to do than keeping a zillion pieces of paper or image it.

CYRIL TUOHY is managing editor of Risk & Insurance®.

April 1, 2008

Copyright 2008© LRP Publications