Check technology helps insurance companies save time and money

Brokerage agencies and insurance companies across the country are changing the way they move money — taking advantage of a piece of legislation that allows them to process policyholder checks more quickly and efficiently.

The Check Clearing Act for the 21st Century (Check 21) is a federal law that went into effect in October 2004. Check 21 allows banks to process checks electronically instead of physically moving them from one bank to another.

“The terrorist attacks on Sept. 11, 2001, exposed the problems associated with the physical transfer of funds,” said Jana Waughn, president of RemitPro, a company that specializes in electronic check processing. “Everything came to a standstill right after the attacks. Checks that were supposed to be physically moving from one bank to another weren’t moving at all. Congress realized that there needed to be a way to move those funds electronically.”

Electronic transmission is made possible by remote deposit capture (RDC) technology, which allows businesses to create images of checks and transmit them to the bank of their choice for settlement. Waughn’s company uses a proprietary, web-based application to help businesses complete the process.

Innovative hardware
and software

“Clients use a scanner that’s about the size of a telephone to capture images of incoming checks. The software then creates an image cash letter that’s sent electronically to the bank of their choice,” Waughn said. “We are able pull the information into our Web site so the client can view the status from the time it’s scanned until it goes through the bank.”

It’s a process that could save the insurance industry both time and money. Agents at branch offices will be able to deposit checks into a single depository account, eliminating the need for daily trips to local bank branches. Electronic transmission also leads to faster settlement, and allows insurers and agents to find out sooner if a check is fraudulent or written on a closed account.

Stephanie Sturgis-Griffin, senior vice president and group product manager for Wholesale Treasury Management at Wells Fargo, said that legislation and the ensuing electronification of check processing have spawned the next generation of remote transfer and resulted in one of the biggest changes to hit her industry since interstate banking. Now instead of a paper check, insurance companies can marry an electronic image with a specific transaction in an accurate and timely fashion. “The insurance industry, for instance, may want to make sure every check had a policy number or claim number associated with it,” she added. “This technology can do that.”

The many benefits

“Eventually this process could eliminate trips to the bank, reduce fraud and improve collections,” said Sally Ouellette, senior treasury manager for the Principal Financial Group. “Transferring everything electronically could be faster and safer. Banks can extend their deposit window later in the day, because the electronic deadline is later. Another advantage of electronic transfer for companies with a lot of remote locations is that it’s not necessary to have a bank near them.”

The Principal Financial Group works with RemitPro and banks to electronically process checks in several of their areas. “We have a branch in the south that has had to mail all their deposits so that was the perfect place to start. Our mutual fund company also is utilizing the new process,” Ouellette said.

The Principal Financial Group will be analyzing and assessing how phasing in the electronic processing could benefit other areas, Ouellette said. While it’s still too early to tell the extent of the savings that might be realized, she said the innovations look promising and could have far-reaching effects for her company.

While the Check 21 Act requires banks to accept paper images of checks (i.e. substitute checks), not all of them are equipped to process complex image files. Banks that do not yet have the technology must reduce the transmitted images back to a piece of paper for processing.

Banking solutions

Wells Fargo is moving more toward image-based transactions that can result in one-touch solutions for customers. “Banks have traditionally used the reader-sorters that are huge — 36 pockets — which was the industry staple for check processing,” Sturgis-Griffin said. “There are still 36 pockets, but the process is more streamlined so the focus is on the image and what had been three processes — encoding, capturing and rejecting/repairing — now happen in one step.”

Sturgis-Griffin said her bank can handle remote deposit capture for insurance agents and other businesses in three different ways. “We set up our process to work with customers who have technology in-house, we work with third-party companies and we have our own turn-key Internet-based solutions. We stand behind all three approaches to give our clients the most choice. Still, if a company is using a third-party provider it is clearly an advantage when that provider already has an existing connection with Wells Fargo.”

Waughn recommends that insurance agencies check the readiness of their bank before committing to RDC technology. She said they should also determine what operational changes will need to occur within their organization as well as develop adequate internal controls.

“There needs to be a good process in place to make sure the paper checks are destroyed,” Waughn said. “That can be done at the branch offices, but many companies make it standard policy for the local agents to ship the paper checks to the home office to be destroyed.”

Costs for the service depend on volume, so the technology is especially beneficial to agencies with a large number of branch offices that process a lot of checks. Waughn said most companies typically recoup their investment in five to nine months.

“Thirty-five billion paper checks are written in this country every year,” she said.

Debbie Hilt is the senior media relations specialist with Albers Communications Group in Omaha, Neb. Phone: 888-296-2411. For more information about RemitPro, visit www.remitpro.com or call 402-861-0005.

Topics Carriers Agencies Tech