For many years, formany reasons, billing has been a challenge for many insurers. Now, new billing system options and insights into why this core business process presents challenges may help insurers take action.
The notion that "the system" is broken is a familiar one. "I've been in the insurance industry for more than 20 years, and I've been involved in probably three major billing projects, and it's always because we do such a lousy job as an industry of billing customers," says Michael Foerst, CIO, Missouri Employers Mutual (MEM), Columbia, Mo.
Survey results, released this month, show that insurers-especially larger insurers-are not confident that their billing systems will be able to meet future business needs. Of the 40 insurers surveyed for San Mateo, Calif.-based Guidewire's 2010 "Billing Market Survey Results," only 17% felt completely confident that current systems would continue to serve them well in the future, with more than a third, 41%, reporting no confidence in this area. The other 42% were somewhat confident (see chart, page 36). The company notes that these statistics are almost identical to its 2008 survey. This overwhelming lack of confidence highlights an eventual problem-the day when a critical business requirement simply cannot be supported by a carrier's current billing system.
While it's a given that billing practices have evolved from the back office to an effective front office tool, many carriers still face challenges in using these systems effectively to improve customer service. For example, of the carriers polled, 59% report that their current billing systems and processes inhibit them from providing superior customer service.
It was a concern over customer service levels that led MEM to consider core systems replacement. "We conducted focus groups with policyholders and companies that weren't currently policyholders, trying to get our arms around what it is that customers were looking for," Foerst says. "We collected great information out of that-information that fit into a strategic planning process that we conducted last summer." It was then that MEM realized if they were going to meet some of the customers' needs, it needed a different billing structure. "There are cost-saving issues related to [a new structure], but the main goal with the billing component was customer focused."
These twin factors are driving many insurers to reconsider both the technology in place and the billing processes itself, says Karlyn Carnahan, a principal in insurance practice at New York-based Novarica. "The billing problems carriers are dealing with are twofold: They're trying to become more customer friendly with their bills, and they're also looking internally at how they can process these bills more efficiently and more effectively. They're asking themselves, 'Can I get a [single] billing system to provide a better level of customer service with more features and functionalities?'"
REPLACEMENT/CONSOLIDATION
In its quest for more flexibility, Catholic Mutual Group, Omaha, Neb., began its search for a new billing system in March of 2008. At the time, the company's existing system was 10 years old, having been designed and developed in 1999. A small firm out of Des Moines had partnered with business and IT staff from Catholic Mutual to develop an application that was designed to meet the insurer's specific requirements. Yet, by 2008, the system was showing its age. "It had more than outlived its usefulness," recalls Mary Ellen Freyermuth, director of MIS at the insurer. "The design of the system was very structured, so making any modifications to it was extremely difficult at best. As our needs and our client's needs changed, it was becoming more and more difficult to upgrade the system and make it more state of the art."
After an extensive search, Catholic Mutual decided on STG Billing from New York-based MajescoMastek to replace the system.
While MEM and Catholic Mutual both replaced one system, many insurers are consolidating their many billing systems to enable account billing, says Kim Morton, global product marketing director at Guidewire.
Morton uses customer Sentry Insurance, as an example. "Sentry had at least eight disparate systems for billing," she says. "Their biggest headache was its inability to send a single invoice for multiple policies." Since going live with BillingCenter, Sentry reached its primary goal, which was to be able to send a single invoice for multiple policies.
Consolidated billing was what Foerst heard the loudest at MEM's customer focus groups, "Listening to some of the stories about how confused we can make a customer with our billing approaches was interesting," he says. "And, I think we opened up a door with that because by the time we finished talking with a sample of customers about their confusion, I think our CEO started getting a few calls from people who took other issues with our billing statements. It definitely escalated it."
Though their customer base is different than MEM's due to the different lines of business, Catholic Mutual experienced the same types of requests. "Our clients want more detailed information and more customized invoices and reports than before, so these are services we feel we must provide," Freyermuth says. "Enabling our in-house account reps to be able to put their fingers on information in a quicker and more well-defined manner is critical."
AGILE DEVELOPMENT
While achieving back-end efficiencies may not be the primary driver of billing system replacement, most insurers appreciate the attendant process improvements. MEM's Foerst hopes that its current billing project will produce as many positives as its recent claims conversion. Through the use of agile development methodologies, MEM finished its $7- to $8-million dollar claims system replacement project both on time and on budget, and the initiative introduced multiple new capabilities to their IT and business organizations.
Currently in the development process on both billing and policy administration, MEM will use agile development to break the project down into 30-day sprints, with defined deliverables to come out of each one. "We've gone through two of seven development sprints that will go through a couple of testing processes," Foerst says.
While the process is going well, Foerst is reassessing MEM's approach to converting data as the project progresses. During its claims project, MEM converted all data at once. "We retired the prior system, and that was definitely our preferred approach for policy and billing as well," he says. "But when we look at some of the financials, and just the sheer amount of data we have with policy and billing, we're questioning this approach- whether it would it be better to convert on renewal. This may be the more standard approach in the industry, but was one of the things that we were hoping to avoid." In any case, MEM's current target is to go live early in the first quarter of 2011.
As a company that has already gone live with their new billing system, Catholic Mutual continues to fine-tune the system, says Freyermuth. "The team we assembled on our end was very dedicated to the project, and knew what they wanted and needed, so information was clearly disseminated among all parties involved," she says. "We still continue to tweak little things, and our [back-end] users continue to request additional enhancements, which was to be expected. But, the system has definitely improved our capabilities in the billing arena and enabled us to better meet our customers' needs."
Collection Agency Management
Third-party collection agencies play a large role in the billing and payment process, and technology vendors are addressing that role in their current technology offerings. "While it's not really a driving force for a billing system replacement, it's definitely a feature that you need to make sure that you have, along with having a way to effectively and securely communicate with your collections agencies," says Karlyn Carnahan, a principal in New York-based Novarica's insurance practice.
As newer billing systems coming onto the market, Carnahan cites the emergence of functionality that enables the insurer to use permissions to define specific roles. For example, an insurer could grant permission for the collection agency to update the insurer's billing system directly. "But that's not really a typical or standard process," she says. "It really tends to be more of either a data extract or an automated exporting portal."
The newer billing systems can also enable a carrier to set up a collection agency as an actual account, says Kim Morton, global product marketing director at San Mateo, Calif.-based Guidewire. "The older systems typically didn't. Many of our customers were manually updating spreadsheets and then e-mailing them. But, now they can attach a trouble ticket, and treat the collection agency just like any other account, which is something you can't do with disparate systems."
Guidewire's 2010 "Billing Market Survey Results," points to delinquency handling as a continued challenge in billing. A significant number of large insurers are currently looking for a billing system that can handle automated delinquency processing (see graph).
Don Goodenow, director of product development at Oakland-Calif.-based StoneRiver, also has seen interest in this area. "We've started to see questions in RFPs about a flexible collection process-some mechanism to recover funds owed as a result of canceled policies, for example," he says. "We think that's crucial, but we're not sure it goes far enough."
For example, Goodenow says, a large insurer may produce 10,000 invoices a night as part of their system run. "You also are going to end up producing a number of collection notices as a percentage of those invoices, so you're going to end up with a certain amount of unearned premium or earned premium that needs to be collected."
Pulling such collection notices out for review and assigning those notices for additional processing creates efficiencies, he says.
"It's one of those sort of standard features that you need to have-the ability to move an account into some kind of an alert status and then into a referred for collection status," says Carnahan, "You need that capability and of course, you need the ability then to transfer the information back and forth."
