Viewed from afar, the claims process has not changed markedly in many decades. Despite new technologies being leveraged in many aspects of claims, for too many insurers, the claims process as a whole remains a manually intensive, inefficient business process-one in which even experienced adjusters find themselves mired in paperwork.
A recent whitepaper from London-based consultancy Datamonitor estimates that claims processing takes up between 70% and 80% of the running costs of a typical general insurance company, with a full 20% of that coming from administration costs.
"Part of the reason that claims has been very difficult to tackle from a technology standpoint is because you have so many ancillary people involved in the process," says Ed Blomquist, lead analyst, financial services technology for Datamonitor.
Now, the emergence of new technologies is forcing carriers to reassess the tools and practices they employ to perform this vital process from the front office to the back office. Yet, much like the process itself, the array of technologies aimed at claims can seem bewildering. Carriers can invest in location intelligence to improve adjustor routing. They can invest in data mining and predictive modeling to help staunch claims fraud. They can employ workflow and business process management (BPM) solutions to address systemic issues. And they can use global positioning systems and geo-coding to help assign adjusters in the field.
Carriers must stay abreast of these changes because today's new technology may well become tomorrow's best practice.
Is this money well spent? A new survey indicates that the investments insurers make to update their claims systems do pay dividends. The second annual joint information technology spending survey by Stamford, Conn.-based Gartner Inc. and the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill., reveals that IT investments, such as the replacement of legacy claims systems, will travel directly to a company's bottom line.
The study, consisting of insurers culled from PCI's membership, looked at the relationship between IT spending on management of claims and the overall expense of processing a claim. The average total cost to process a claim was $584 for the study's participants. Of this total, 12% was attributed to IT costs such as hardware, software and applications development, while the rest was dedicated to non-IT functions such as salaries for claims management personnel. The study found that an average 1% increase in the portion of claims processing dedicated to IT correlated with a decrease of $180 in total cost per claim.
THE FRONT END
To get a sense of how technology is altering claims practices, one can start at the beginning—the first notice of loss. Historically, the first notice of loss arrived at a claims office via a phone line, a fax line or, worse yet, a mailroom. These methods of transmission are now the exception rather than the norm at Boston-based Liberty Mutual Group, says George Neale, senior VP of claims for Liberty's Business Market.
The company links directly to its workers' compensation customers through a Web portal called Liberty Mutual business direct (LMBD). Neale says that customers have been quick to embrace the link, and that the company has seen an impressive number of claims come through the portal. "About 65% of our first reports come in through LMBD," he says. "It's facilitated the interaction and made it a lot more seamless and effective across the board."
The most readily apparent benefit of this Web-enabled linkage to the customer is speed. Getting accurate information to the claims office immediately helps shorten cycle times for clients. A secondary attribute of Web-based applications is that they do not require the carrier, or their customers and partners, to make a substantial investment in new hardware. Another advantage of a Web-based interface is that by eliminating some instances of human touch-it tends to reduce the amount of errors, Neale says.
As on the health side, P&C insurers must maintain technological tethers with a galaxy of vendors and partners and as well as their customers. Bill Turnbull, worldwide property claims manager for Warren, N.J.-based Chubb Group, says the company is making the most of current technology to manage these linkages. "When we are thinking about technology we're thinking about how best to integrate and effectively align resources from the customer's perspective," he says.
In the instance of an auto claim, just by entering the claimant's ZIP code, Chubb can get a jump-start on the claims process. "We can bring service to forefront at the first notice of loss," Turnbull says. "While we have the customer on the phone, we can begin the process and provide service right away by immediately aligning mitigation and restoration vendors."
For P&C insurers, most losses are location-based. This means an entire segment of their workforce is working remotely as it visits customers and estimates damages. To do their jobs well, outside adjusters need access to a wealth of information, including policy information. They also need the ability to send a variety of information, including notices of loss, estimates and supporting documentation, such as pictures taken at the scene of an accident, back into the system.
Thus, carriers now need to employ a paperless, wireless claims system that enables adjusters to work a claim from anywhere. The tablet computer is now de rigueur for the field adjuster, who not long ago used a manual checklist as a best practice. What's more, armed with a tablet computer, an adjuster can also look up coverage information to discuss with the insured, process checks, send e-mails and follow up with vendors-all from the field.
"Our claims folks are as fully equipped as adjusters in our offices are," Turnbull says, adding that such a system allows carriers more leeway when making adjuster assignments. If a designated adjuster is not available and another is, a modern claims system makes reassignment a small matter. "By being paperless, anybody can service a customer."
It is precisely this ability to link to both internal and external partners, seamlessly and in real time, that offers carriers the greatest value. Turnbull says this speed benefits both the company's bottom line and the customer's frame of mind. "The faster we get that car into a body shop and quickly repaired, the less time that an insured has to spend in a rental car," he says.
THE BACK OFFICE
While the speed of modern claims systems is important, Neale says the most significant change caused by technology over the last few years has been the quality and quantity of data made readily available. "We have a lot of data that we can access sooner that tells us if this claim is going down the path it should be going because, ultimately, we're trying to resolve claims quicker and get people back to work faster," he says.
One instance in which use of a new technology has quickly come to be regarded as a best practice is the case of drug interaction, where rules-based software can be used to head off adverse reactions to medications or improperly prescribed treatments.
"Technology affords us the ability to say that prescription is not indicated for this injury," Neale says.
The LMBD portal has enabled Liberty to offer its primarily middle-market customers access to the same level of claims management information that larger customers typically have had. In September, the company unveiled an enhancement to the portal dubbed ClaimStatus PLUS, which lets customers search for claims, create custom claims reports and track claims changes. "They wanted more data to mitigate losses," Neale says. "We worked hard to develop a platform that would give all our middle-market customers the ability to go in and manipulate data on their own-to give them a risk management tool."
Perhaps nothing signifies the importance of aggregating claims data than ClaimSearch, the database run by Jersey City, N.J.-based Insurance Services Office Inc. (ISO) used to prevent claims fraud. ClaimSearch is an amalgamation of three older databases, and contains information on 540 million P&C, auto and workers' compensation claims. The system receives 260,000 new claims a day.
While the roots of the databases comprising ClaimSearch can be traced back more than a century, the service became all the more functional once Web-based applications became ubiquitous. Now, most claims systems vendors provide a direct link to ClaimSearch as part of their product offerings, notes Vincent Cialdella, VP of ISO Claims Solutions. "What used to be all faxes and phone calls, has become very seamless and technology-driven," Cialdella says. "Most of the new systems, on which an adjuster is going to spend most of his day, are Web-based solutions now. Technology has really changed the complexion of how people do their jobs, and best practices have definitely evolved."
Just as new mobile hardware has visibly altered the claims process in the field, new software concepts are starting to reshape the internal aspects of the process. Carriers are turning to enterprise content management (ECM), business process management and workflow solutions to achieve greater efficiency.
Brian Cohen, CEO of Westminster, Colo.-based Clear Technology Inc., says carriers can use rules-based and workflow software to lock in best practices and reduce the inconsistency that bedevils the claims process. An adjuster paying out too much is harming a carrier's bottom line, while an adjuster paying too little exposes a carrier to lawsuits from aggrieved customers. "The focus on claims needs be on consistency, and technology forces consistency," he says.
Another area where rules-based technology can be readily beneficial is regulatory compliance, notes Dan Grey, national products specialist in insurance compliance solutions for Amsterdam-based Wolters Kluwer Financial Services. "You are able to leverage rules technology to automate certain processes to ensure compliance," he says.
However, Grey adds that while technologies abet the claims process, they by no means obviate the need for human decision-making in the process. "It's both technology and process, but without technology it becomes a very, very challenging process-akin to climbing Mount Everest," he says.
So, are carriers gearing up to tackle this Himalayan task? Historically, claims have been seen as a cost center and didn't get a robust share of IT investment. Many carriers were content to make do with legacy claims systems and, as a result, a preponderance of their IT budgets went into maintenance.
"There are very good reasons for it," says Datamonitor's Blomquist, noting that IT budgets are inextricably linked to the cyclical nature of the insurance market. "Carriers have a high risk parameter and low margins. It's not easy for them to invest a significant amount of their revenues in IT."
Now, despite the specter of a soft market and dropping premiums, claims is getting a larger share of an insurer's technology spend. One reason is the recent advent of Web-based claims systems that can be used atop a company's legacy systems.
"Three years ago there were barely any claims systems being bought, and now there have been 40 in recent years," says Paul Lavin of McClean, Va.-based consultancy Bearing Point Inc., which is currently integrating Web-based claim systems developed by San Mateo, Calif.-based Guidewire Software Inc. "The reason there wasn't a market was because there wasn't something out there worth buying."
Indeed, the array of emerging technologies and the fractious nature of the claims process gives carriers an array of options when tackling claims. One option is a stepped approach in which carriers target their investments on certain issues and outsource others. They can pick and choose ECM, imaging and workflow components to streamline their existing processes.
"One advantage of claims is that it can be broken up," Blomquist says. "You don't have to rip and replace a whole claims system."
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