A new technological era for hazard insurance renewals.
Traditionally one of the most people-intensive processes in mortgage banking is the payment of hazard insurance renewals. The labor-intensive nature of renewal activity is driven by an ever-growing volume of transactions, which are still primarily processed manually. Though several successful proprietary automated solutions have been implemented to increase the effectiveness of this process and reduce its costs, these solutions have not resulted in widespread implementation in either the mortgage banking or insurance industries. This problem is not unique to the mortgage banking and insurance industries. Identical problems were commonplace in the automotive, retail and manufacturing industries in the 1970s. These industries overcame their proprietary barriers in the mid-1980s with the use of national standards and more appropriate communication technologies such as value-added networks (VAN). VANs are third-party, public communications networks that are capable of store/forward services and interconnectivity among themselves. The use of national standards gives added credibility to an electronic data interchange (EDI) standard, which is influential in gaining the support of software vendors, service bureaus and insurance company trading partners. VANs increase the feasibility of EDI and eliminate the many shortcomings associated with tape and point-to-point communications.
Many view this evolution as a necessary step to facilitate the expansion of EDI in the mortgage banking industry. Furthermore, the expansion of EDI is viewed as paramount in the strategic plans of many firms within our industry. This crucial change in direction will help ensure the future viability and profitability of our membership.
In June 1991, the Hazard Insurance Work Group of the MBA Technology Committee was asked to research, evaluate and make recommendations to the Technology Committee for a universal standard for the delivery of hazard insurance renewals (including billing and coverage verification) and the payment of the renewal. An initiative to develop nationally accepted standards for these processes was started by the insurance industry as early as 1990.
In support of the insurance industry initiative, a proposal was made to the American National Standards Institute's (ANSI) American Standards Committee X12 (ASC X12). This proposal and the ensuing development process (which has lasted two years) resulted in minor modification of two approved standard formats. These formats communicate both coverage verification and billing/invoice information (ASC X12 811 format) and the payment information (ASC X12 820 format). The insurance companies that actively participated in this initiative are State Farm Life Insurance Company, Bloomington, Illinois, Allstate Insurance Company, Northbrook, Illinois, The Travelers Companies, Hartford, Connecticut, USAA Federal Savings Bank, San Antonio, Texas, Aetna Life and Casualty Co., Hartford, Connecticut, Kemper Investors Life Insurance Company, Long Grove, Illinois and The Prudential Insurance Co. of America, Newark, New Jersey. These are seven of the top twenty carriers in the nation.
In August 1991, members of the MBA Technology Committee Hazard Insurance Work Group and members of the ANSI ASC X12 Subcommittee for Mortgage Lending formed a coalition with the ASC X12N Property and Casualty Policy Administration Work Group to develop a proposal. The following proposal to broaden implementation was created bilaterally by this coalition. The proposal, titled "The Electronic Data Interchange Solution for the Delivery of Renewal and Remittance Information for Hazard Insurance" was presented to the leadership of the MBA Technology Committee on October 25, 1992.
"It is proposed that the MBA Technology Committee endorse |by resolution~ the use of existing EDI technology including ANSI ASC X12 standards, value-added networks and ACH for both current and future EDI applications in order to economically maximize the participation between the mortgage banking industry and its business partners."
The economical stability, profitability and long-term viability of many industries are dependent on improved business efficiencies. EDI is a means to realize these efficiencies. Both the mortgage banking and insurance industries will be doing more, not less EDI activities in the future.
Gregory A. Samp, then chairman of the MBA Technology Committee, said, "The MBA's Technology Committee is excited about the progress made on the hazard insurance transaction and the prospects of providing this solution to our members. While some very large mortgage bankers are making some use of EDI or tape remittances in the payment of insurance premiums, this solution will enable many of our members to enjoy the cost and time savings of EDI. The proposal from the Hazard Insurance Work Group will also increase insurance companies' participation, which provides us with a large number of trading partners. Our association has not had a great deal of experience with ANSI X12, and we have been greatly benefitted by the experience and expertise that the insurance industry representatives have provided in this effort." With the endorsement by the leadership of the Technology Committee, the proposal was presented to and approved by the full Technology Committee at the Technology Conference in March 1993.
Elsewhere, Gene Chamberlain, a senior consultant with Allstate Insurance Company, Northbrook, Illinois, stated that the process of replacing manually intensive processes with electronic solutions has been only moderately successful because of the use of proprietary formats. It is either too difficult or not cost effective to adapt these formats to support the widespread acceptance and large-scale use of EDI solutions.
This proposal recommends the use of both standard formats and the use of value-added networks to achieve maximum participation. The VANs provide flexibility in communications processes and simplify communications between multiple trading partners. This is imperative for managing interfaces with multiple trading partners in multiple aspects of our business because of the number and diversity of entities. VANS provide the ability to store and retrieve information without maintaining the strict schedules inherent to the point-to-point environments (telecommunications and tape).
In support of ANSI ASC X12 Standards Development Procedures, an implementation test using the ASC X12 standard formats (811 and 820) began in June 1993. Initial testing was conducted by BancPLUS Mortgage Corporation and USAA, both of San Antonio. The testing has been successfully completed, and the new technology has been implemented.
The attractiveness of this new methodology is that it will require minimal maintenance of existing servicing systems.
This proposed solution delivers significant benefits and requires minimum to moderate investment in resources. The benefits are realized through the facilitation of electronic trading partner relationships not available with currently implemented solutions. Does this proposal mean that all existing EDI applications must be retrofitted to the new technology? Simply stated--no. Migration to the ASC X12/VAN solution will occur naturally when it becomes mutually beneficial to both trading partners.
This solution provides the foundation for several other mortgage banking processes that require electronic exchange of business information. The U.S. Department of Housing and Urban Development (HUD) has started its own EDI initiative. This application will utilize the ASC X12 formats 260 and 820 for processing and paying claims for mortgage insurance benefits (foreclosure claims, Form HUD 27011A). The use of ASC X12 standards by the agencies of the federal government is required by the Federal Information Processing Standard.
In the near future, HUD will implement ASC X12 standards as solutions for several other manually intensive processes both existing and new: Advice of Payment (approved ASC X12 format 820), Request for Corrected Claim Information (approved ASC X12 format 824), Request for Claim Status (approved ASC X12 format 925), Response to Request for Claim Status (approved ASC X12 format 926), Mortgage Record Change--Form HUD 92080, (proposed ASC X12 format 266) and a Delinquency Report (the Single-Family Default Monitoring System--SFDMS). In addition to HUD's implementation schedule, the insurance industry is developing an implementation plan for the change of mortgagee clause for hazard insurance policies. It is likely that this will be the same ASC X12 standard format as the HUD Mortgage Record Change (Form HUD-92080).
It is clear that the mortgage banking industry is at the threshold of a new technological era. It is imperative that active involvement develops in our industry. Benefits will depend on the widespread acceptance and use of these methodologies by the mortgage banking industry and its trading partners.
Tom Meehan is a senior business systems consultant with BancPLUS Mortgage Corporation in San Antonio. He is a past chairman of the Hazard Insurance Work Group for the MBA Technology Committee.
Fred Bueche is a financial systems analyst for USAA in San Antonio. He is the co-chairman of the Property and Casualty Policy Administration Work Group of the ANSI ASC X12 Insurance Subcommittee.
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|Date:||Feb 1, 1994|
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