Going Paperless.

More insurers are moving toward paperless systems, which can help them save money, work more efficiently and offer better service to customers.

Before Southeastern Security Insurance Co. began using an electronic imaging system to manage its documents, half of its 15,000-square-foot office was used to store files, and outside storage cost the company $1,000 a month. When customers called with inquiries, there was no telling when they might get an answer, because employees first had to locate and retrieve the files.

"Turnaround time may have been anywhere from 10 minutes to an hour. Sometimes, we wouldn't even find the file," said Chip Craze, senior vice president of the Alpharetta, Ga.-based auto insurer, which was purchased this year by Everest Reinsurance Co. of liberty Corner, NJ.

"We were being swamped in paper," he said.

In 1996, Southeastern Security began using an imaging system, which allowed the company to combine electronic documents and digital photographs with scanned paper documents, pictures and faxes and store them all in an electronic file folder. The company cut costs in several ways:

* Outside storage costs were eliminated.

* With less storage space needed, the company moved to an 8,000square-foot office.

* Because files are at employees fingertips, lengths of phone calls were significantly reduced as were long-distance charges.

* The company was able to handle the same amount of business with onethird fewer employees.

Since the beginning of the computer age, pundits have predicted the arrival of the paperless office. In the office of the future, they said, paper would be obsolete. Documents would be stored in electronic directories and transmitted from computer to computer. There would be no file cabinets, reference books or stacks of outgoing mail.

That vision of a paperless office has been harder to realize than originally thought, but insurers are demonstrating that they can significantly reduce paperwork--and sometimes eliminate it--for most business processes.

The advent of the Internet has propelled insurers and other paper-reliant industries toward paperless systems. Customers, agents and brokers are using the Internet to get policy quotes, file applications and check the status of claims. For insurers, converting to paperless systems has less to do with conserving natural resources than with improving the bottom line. Insurers are finding that paperless systems can help them save money, work more efficiently and offer better service to customers.

"The reason for going paperless is to eluninate the expense of dealing with paper--buying it, storing it--those can become huge expenses," said Patrick Watts, assistant vice president of the Alliance of American Insurers. "It's driven by competition--can you provide the service faster and better than your competitor? If there are people doing this because it's more environmentally sound, I haven't heard of them."

Two Pounds a Day

Per-capita paper consumption in the United States has grown 43% since 1980, according to the American Forest and Paper Association, a trade group for the paper industry. Americans consume, on average, about 2 pounds per person per day. Ironically, computers have contributed to this growth. The increased availability of photocopiers, fax machines, computers and the internet has resulted in a dramatic increase in the use of office paper, according to the association.

Southeastern Security still holds on to some of its paper files, but not indefinitely; underwriting files are destroyed after a month. AU the company's electronic files are backed up on hard drives and CD-ROMs, which use much less space. Some 2.5 million documents are stored on about 175 CDs at an off-site location, Craze said.

Harford Mutual Insurance Cos. developed its own archival imaging system about 10 years ago. "We'll do everything that makes sense to do electronically, if it reduces paper;' said Philip Raub, president, chairman and chief executive officer of the Bel Air, Md., commercial-lines insurer.

Most insurers can't put a dollar figure on the savings realized by going paperless, hut Raub said the switch to electronic imaging had contributed to Harford Mutual's expense ratio falling from the high 30s in the early 1990s to about 31 now. It's not about paper so much as it is about helping employees work more efficiently

"Over the last five years, we've gone from 131 people writing $55 million of premium to 114 people writing $77 million of premium;' Raub said. "Technology has allowed us to do that by automating processes that used to be labor intensive."

Before the imaging system, Harford Mutual had six or seven employees who "scurried around the building retrieving files and getting them to the people who needed them," Raub said.

One of the benefits of an electronic imaging system is that everyone can access files simultaneously, said Kenneth McCardle, assistant vice president of information systems for Southern Farm Bureau Casualty Insurance, Ridgeland, Miss. As soon as applications are submitted, people in the underwriting department can view them. At the same time, field agents can view them remotely and applicants can call a customer-service representative, who can check the status of the application. When claims are made, lawyers from all parties can easily access files.

"Now, we have this virtual file folder that holds everything to do with the insured," McCardle said.

Keeping Paper Pushers at Bay

Cotton States Insurance Group, Atlanta, has been working toward a paperless system for about 15 years. More recently, it switched from 16mm film to an imaging system, said Art Collins, manager of property/casualty customer services. Cotton States' life division is 100% paperless, he said, and the company plans to introduce electronic billing this summer.

"Ten years ago, every form we generated was on paper, and we had paper salesmen in here by the dozen," Collins said.

Another paper-saving insurance system is Aetna U.S. Healthcare's EZLink, a benefits administration system that uses the Internet to help human resources workers manage benefits eligibility, enrollment and billing. EZLink is connected to Aetna's information systems, allowing benefits managers to perform various functions, such as real-time eligibility, online enrollment and account maintenance and payments through electronic funds transfer, said Mel Stein, senior vice president, sales and marketing, with the Blue Bell, Pa-based health insurer.

EZLink not only helps benefits managers work more efficiently, it provides up-to-date information for health-care providers. For example, if an employee wants to add a newborn baby to her health plan, she must submit updated forms to her employer's human resources department. It may be days or weeks before her health-care provider has the updated information, Stein said. EZLink allows doctors to more promptly view the updated files of Aetna patients over the Internet.

"We've kind of taken life-status changes, which have been problems in the past, and made opportunities of them, whether it be cross-selling products, whatever it might be," Stein said.

Aetna this year plans to make EZLink accessible to employees. "It's not only a simplified way of doing business, it's empowering employees to make decisions," Stein said. "Ultimately, the game plan is to not have these legions of people resolving problems that should never have been there."

Electronic Signatures

Perhaps the last hurdle to a truly paperless system is the need for a signature to complete a contract. Until electronic signatures are accepted to legally bind a contract, insurers will continue to handle paperwork.

An electronic signature works by turning identifying information into a secret code that only the participating parties can unscramble. The U.S. Congress last month was finalizing legislation to give consumers and businesses the ability to close contracts with electronic signatures. Seventeen states have enacted electronic-signature legislation and 28 states were considering such legislation, according to the National Conference of State Legislatures.

"When the insurance industry gets to the legal point of accepting electronic signatures...you're positioning yourself to process without ever hitting a piece of paper," said Coffins of Cotton States.

Most insurers agree that the industry is headed toward paperless systems to keep up with the competition and satisfy the demands of customers.

"I don't know how much there is to gain, but if you don't compete in the marketplace, you're left behind" said McCardle of Southern Farm. "The younger generation, they don't only desire it, they expect it. If we don't compete, there is a segment of the population we'll lose."

Although computers have became an indispensable tool in the business world, few are willing to predict if or when the paperless office will become a reality.

"I think it will come about sometime in the distant future," said Watts from the Alliance of American Insurers. "In the immediate future, because not everyone has a computer, companies will continue to use paper. If you own stock in a paper company, you don't have to sell it right away."