Claims payments and experience are the products property/casualty insurers sell. Claims is the largest expense area for insurers and it's a source of strategic data that can be used to improve underwriting and product development. However, claims processes are not standardized across the industry, and a variety of methodologies are used that vary by size of company, industry sector and the strategy, culture and technical capability of carriers.

To offer insurers a framework to evaluate their claims capabilities, Novarica introduced the Novarica Claims Capability Maturity Model, which includes descriptions of 20 claims functions divided into seven categories: first notice of loss/first report of incident (FNOL/FROI); triage, assignment and investigation; valuation and reserves; payments and recoveries; operations; special processes; and data.

For each, the model describes three levels of capability: legacy, mainstream and leading. Novarica has found some notable differences in claims capabilities between carriers of different sizes and in different lines of business. For example, in FNOL/FROI, personal lines carriers are most likely to offer leading levels of support, including multiple channels for taking a first notice of loss, the ability to offer specific help during the process and the ability to access policy information. Workers' comp carriers generally are able to offer advice and support during the first report of injury process and have access to policy-level data during the FROI process, while commercial lines carriers are most likely to be using legacy level processes.

In triage, assignment and investigation, 30 percent conduct claims investigations using manual processes. More than 60 percent are using some type of technology support in the investigation process, including ordering investigative reports and immediate access to claimant data. But only 6 percent of carriers are using advanced applications, such as telematics, to help determine the actual circumstances of loss or using external data to determine conditions at time of claim, such as live weather information. Although a number of carriers are interested in mobile, few actually are equipping field claims personnel with mobile and wireless technology for remote access to the claims admin system to support investigations.

In valuation and reserves, carriers primarily rely on manual processes, even where automatic reserving would add to consistency. Fewer than 15 percent of carriers are using automated reserving techniques. Midsize carriers are the most likely to use automated techniques. Personal lines and workers' comp carriers are more likely to use formula reserves.

In payments and recoveries, more than 20 percent of carriers automatically handle recurring payments based on business rules and offer payment-checks, debit cards, direct deposit, etc. Workers' comp carriers are more likely to do so, due to more frequently recurring payments. Other commercial lines and specialty carriers are less likely to offer multiple forms or automate recurring payments. Large carriers are much more likely to use leading-edge practices in this area than small or midsize carriers.

In operations, automatic document delivery offers consistency to the customer experience and can help avoid compliance issues. Fewer than 10 percent deliver documents through manual processes and 30 percent have fully automated the process. Personal lines and workers' comp carriers are most likely to automate document delivery. There's no difference in capability based on carrier size, but those with five- to 10-year-old systems are least likely to have this capability (for more on the age of systems, see page 10).

In the "special processes" category, including supply chain management, fraud and catastrophe management, more than 60 percent have centralized vendor management functions and have some automated processes. But only 3 percent are using supply chain management techniques routinely found outside of the insurance industry. Millions of dollars are managed through largely manual processes with little ability to validate information. While there are slightly more capabilities for carriers using modern systems, there's virtually no difference by carrier size and differences by sector are minimal.

More than 80 percent of insurers still can't do ad hoc reporting without IT support. Personal and workers' comp carriers are most likely to have robust business intelligence capabilities. Larger carriers are more likely to have robust reporting capabilities and are more likely to use predictive analytics. The age of the system carriers are using also impacts their ability to offer robust reporting.

Real differences exist in carriers' ability to improve claims management processes through technology. Millions of dollars are being spent here, and some carriers could realize significant benefits by applying newer techniques and technologies. Carriers with newer systems are more likely to use leading claims technologies and may be creating competitive advantages that are difficult to match for legacy systems users.

INNSight is exclusive commentary from Novarica.

Karlyn Carnahan is a principal at Novarica, a research and advisory firm focused on business and technology strategy for insurers.

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