Losses and loss adjustment expenses account for 75% of automobile insurers' total costs. Yet carriers invested only $2.5 billion in claims-related technologies in 1999-less than 1% of industrywide premiums.

These are the findings of a recently released report, "The Virtual Claim," from Cambridge, Mass.- based Forrester Research Inc.

"There's a disconnect between how important insurance companies say the claims function is and how much time and capital they actually focus there," says Todd Eyler, senior analyst at Forrester and author of the study.

That fissure-between claims costs and the resources devoted to improving the claims function-may be on the mend.

As insurance companies become more comfortable using the Internet to sell policies to consumers, claims may be the next area they target for transformation using Web-based technologies.

It will take a couple of years, Eyler predicts, but in 2003, claims hubs-centralized online areas where all participants in an auto claim can communicate and transact business-will take off, and the resulting process efficiencies will drive industrywide reductions of $10 billion annually in claims expenses.

In the meantime, insurers already are beginning to use the Web to provide policyholders with another place to file their claims. In the Forrester survey, 20% of insurers indicated they were investing in technologies to enable online claims submission.

Filing claims online

"We identified that customers are communicating differently with emerging technologies and we didn't have any way to capture that kind of communication," says Dan Cunningham, claims planning director at American Family Insurance, Madison, Wis., which began accepting first notice of losses online in December.

This quarter, The Hartford will begin offering online claims reporting to its policyholders as well-via CLAIMPlace, Wilmington, Mass. But online claims submission is just the tip of the iceberg for the Hartford, Conn.-based carrier.

The real significance of applying Internet technologies to the claims function is the dramatic overhaul they promise to deliver to the time-consuming, paper-based, manual claims process.

"We've taken a look at the claims value chain, which begins from the time the loss occurs until we have to do whatever regulatory reporting is required at the end of the settlement process, and we feel (CLAIMPlace) will enable us to improve on various aspects of that value chain-not just reporting," says Calvin Hudson, group senior vice president, claims, The Hartford.

Web support

At 70% of the firms surveyed by Forrester Research, the average claim requires three to six human handoffs before an adjuster is assigned. And for 72% of claims, an adjuster is required to manage all but the simplest claims, such as windshield repairs.

In addition, the report states, once a claim is assigned to an adjuster, the process is delayed by phone tag, faxes and haggling between the various participants, including policyholders, attorneys, doctors, repair shops, vehicle evaluation services and adjusters.

Loss adjustment expenses (LAE) are insurers' second-largest controllable expense after acquisition costs, but auto insurance LAE climbed from 12.1% of premiums in 1995 to 14.1% in 1999, according to Forrester.

Saving time and money

About 15 technology companies are now offering various online automation technologies that promise to help shorten the claims cycle and reduce claims costs, according to Jack Rozint, senior vice president of marketing and product development at Redwood Shores, Calif.-based Ensera Inc.- which is providing American Family's online claims service.

In addition to online claims filing and repair shop and rental car searches, these new companies are beginning to offer nationwide location of used parts; automatic electronic routing of claims; online subrogation and litigation tools; online collaboration among suppliers, adjusters, attorneys and policyholders; aggregation of supplier contracts; event tracking; online adjuster tools; supplier auditing; electronic funds transfer; and claims data management and trend reporting.

"The claims process is rife with multiple redundant systems-with having to rekey the same data numerous times because one system doesn't talk to the other," Ensera's Rozint says. "All these systems now can share data and exchange information through Internet messaging technology."

Currently, adjusters are involved in about two-thirds of claims, according to the Forrester study. With claims hubs, that figure will drop to one-third, Forrester predicts.

"For simple claims where adjusters are basically just collecting information and using rules of thumb, that function can be automated," Forrester's Eyler says.

But for the highly complex claims, such as one involving a $500,000 bodily injury suit, "you still need that really smart person figuring out how to manage (that process). You can't automate that," he says.

"Right now, adjusters spend their time not managing claims per se, but managing administrative tasks around inputting data," says Matthew Rice, director of product management at ClaimsDesk.com, Seattle.

Adjusters' new role

Moreover, claims adjusters often are compensated and promoted for minimizing claims payments to customers. Internet-based technologies that free the adjuster from mundane tasks offer the potential for insurance companies to shift adjusters' attention to customer service.

"Clearly, the personal lines auto insurance industry is challenged to come up with creative ways to get their loss numbers back in line," says Paul Farber, CEO, ProcessClaims.com, Irvine, Calif.

"After spending a couple hundred million dollars on advertising to drive people through your front door, the last thing you want to do is pass those costs along, raise the rates, and lose those customers," he says.

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