Few in the industry would argue that technology holds the key to an insurer's business success. At the heart of that business is the claims operation, which is inherently tied to operational efficiency and customer satisfaction. In fact, the claims area is often viewed as the insurer's ultimate opportunity to improve customer experience. Moreover, it also represents the single largest business cost an insurer incurs. Insurance Networking News describes how insurers in the health, life and property/casualty lines of business are braving their respective challenges to create improvements in this core systems area.
HEALTH: BLOCKING AND TACKLING
Struggling with reform mandates, error-prone claims processing, and health care providers slow to adapt efficient technology admin solutions, health insurers are viewing an improved claims process as a path to competitive advantage.
Health insurance claims organizations of all sizes face similar yet unique challenges, not the least of which include reform mandates. The data and associated transactional processes that enable management of a typical member's benefits include layers of information on the member's profile, coverages, claims experience, provider, related network, and the contracts determining what the health plan will pay and what the provider will contribute. Not surprising, per claims occurrence, the systems employed for these tasks often make streamlining them an elusive concept.
"The importance of adequate technology can't be understated," notes Jeffrey Bond, president and CEO of Cox HealthPlans, a Springfield, Mo., health insurer and subsidiary of Cox Health. "From the patient's initial visit with the health care provider to closing the insurance claim with payment, there are many opportunities for error, so a successful claims transaction is one that must rely on robust, reliable systems."
With $100M in revenue, Cox HealthPlans is considered a regional player, with 85 employees serving its 45,000 members, yet the organization shares much in common with the larger network of health insurers trying to outfit their organizations with technology that enables accurate, streamlined payer/provider transactions. And like Bond's competitors, the "getting it done is job one" ambition has been, at times, a challenging prospect.
The industry's overall claims processing is improving, say experts, as paper gives way to electronic claims processing (See below) and automatic adjudication (verification and validation processes that do not require manual intervention) increases among providers. But high claims volume, backlogs and provider and member expectations make progress slow for all stakeholders. According to America's Health Insurance Plans' Center for Policy and Research, Washington, D.C., there is still a notable lag before health insurance plans receive claims from health care providers, adding even more pressure-and cost-to the payer's ability to process quickly.
With the right technologies, health payers and providers can find the middle ground necessary to avoid what has become a painful, manual, error ridden process that represents billions of wasted dollars annually, says Dan Spirek, chief strategy and marketing officer, EVP, Enterprise Strategy & Communications, at The Trizetto Group, Greenwood Village, Colo. "It has no parallel with any other industry in terms of inefficiency," he says.
From the provider's viewpoint, an even darker picture emerges. The National Health Insurer Report Card, which issued annually by the Chicago-based American Medical Association, examined 2 million claims submitted to seven top insurers and asserts that one in five claims is processed inaccurately by the carrier. This leads to $15.5 billion in wasted administrative costs annually, notes the report.
Spirek points to a post-reform era in which health insurers are suffering from margin compression caused by reform mandates. "Insurers act as a financial intermediary, so as technology is adopted we see the savings as being important...but more important is financial accuracy. It's a golden nugget."
When Cox HealthPlans made the commitment to upgrade its claims system, it did so with the goal of processing and paying all claims without the help of a third-party administrator. Post-implementation, the 26-member-strong claims organization used its technology platform to increase electronic processing from 60% to 94%, streamlining the $400K in claims paid last year. Today, notes Bond, Cox HealthPlans maintains a 5-day claim backlog, and pays its claims it receives within 12 days.
"In health insurance, it's about blocking and tackling," notes Bond. "For state-mandated benefits, we used to have to pend all those claims and address them manually-now it's automated. The technology is far-reaching into our organization, because when we gain efficiencies in claims, we can better compete. We take the time saved and use it to implement new benefit plans."
COMPLEX LIFE CLAIMS
Life insurers get one chance to process a claim correctly. That's a lot of pressure. And, life insurers tend to perform well under that pressure when paying claims on term life policies. However, life insurers' business model is changing from focusing mostly on term and whole life policies to increasingly offering newer, secondary products. Sales of universal life policies soared 21% in 2010 primarily because of the introduction of term universal life products, according to LIMRA research. The association attributes this growth to many factors, including increased marketing, training and product introductions.
With the emergence of more complicated variable life contracts or whole life contracts, insurers face the complexity of properly administering the claim and accurately calculating the payout, says Don Desiderato, a principal in Boston-based Novarica's insurance practice. "Now that they're starting to design these variable or combo product offerings-such as a variable contract with a long-term care rider-they're creating more complexity for the product's time-to-market," he says.
There is not a lot of activity in the market for technology to address the challenge, Desiderato says. Thus, insurers are forced to take steps-externalize their administrator platform, custom-build it, make sure that the product rules they're using for claims administration match the product rules that are in the administrator system-to address the challenges. "The 'biggies' in the market do it," he says. "They're the ones that are very aggressive-their business model is whole life, variable life, combo riders, etc.-so they're forced to deal with this situation."
Many of the "biggies, ' such as Allstate and Prudential have recently introduced new life insurance products. In July 2010, Northbrook, Ill.-based Allstate announced a multi-coverage life insurance product-GoodForLife-that bundles life insurance and severe accident and critical illness benefits in one product. Newark, N.J.-based Prudential recently announced a new term life product-PruTerm WorkLife 65-that enables policyholders to convert their existing term policy to permanent insurance at any time up to age 65 without having to go through additional medical testing.
Complicated products can present payout problems given that life claims and related life insurer-distributed products are a manual process.
"Annuities are very specific capabilities built around annuity payouts," Desiderato says. "So there are some technology solutions that are required, and similar to life products, there are not a lot of players in the market that specifically build payout administration for annuities, so it would have to be bastardized."
Lee Hebner, senior executive with Ireland-based Accenture, agrees that claims technology is lacking for life insurers. "Insurers are taking a few approaches to respond to the lack of technology on the market," she says. "There's some very rudimentary functionality that you typically find in the product processing/policy admin systems out there. Some are extending that to support it; some are using a business process management approach, trying to automate the workflow and supplementing that with custom databases."
Absent a ready-made vendor solution, some life insurers are improvising. One insurer with whom Hebner currently works is looking at business process management tools to improve the internal claims processes and cut down on the interest expense. "There's not one approach that people are using; there are various approaches," she says. "There hasn't been much interest in the market for a "solve-all" system like [there is in] P&C."
Retained Assets Challenge
Often times a good business decision can be a public relations nightmare.
Such is the case with life insurers and retained-asset accounts. The long-standing practice, in which insurers automatically sequester lump-sum payments in interest-bearing accounts and offer survivors checkbook accounts to access the money, became the subject of widespread public condemnation last year when the deal between the U.S. Department of Veterans Affairs and Prudential Financial came to light.
In response to the news of the accounts, then-representative Debbie Halvorson (D-Ill.) introduced legislation that would impose new requirements on life insurance companies that hold onto money from death benefits to families of U.S. soldiers and veterans. The proposed rule would require companies to disclose how benefits have been invested, and to counsel survivors on the advantages and disadvantages of how benefit investments affect stakeholders.
Although Halvorson was since defeated in the congressional elections, a similar bill-sponsored by Representative Gerald Connolly (D-Va.)-was introduced on Jan. 5, 2011 and has been referred to the House Committee on Oversight and Government Reform.
Lee Hebner, Accenture senior executive, says insurers' practice of putting the money into retained-asset accounts, at least initially, does make business sense. "That's real money that they're faced with as the clock ticks and they're going through this manual [claims payout] process," she says. "Many insurers are responding by moving away from retained assets as the only way to deliver benefits, but it could be an option that they provide."
SERVICING P&C CLAIMS
Amidst a sea of changes, some things still remain the same. This seems to be the case with claims departments in the property/casualty industry. As the technologies grow more robust and processes continue to improve, the challenges facing insurers are essentially the same as they were a decade ago. Simply put, carriers want to process claims as quickly and accurately as possible while ensuring the customer is treated with the best possible service. Given these relatively consistent challenges, carriers still have room for improvement.
One of the main claims challenges currently facing P&C insurers stems from the eternal need for providing superlative customer service while cutting that cycle time down as much as possible. Complicating matters for insurers, however, is the dilemma of how to provide excellent service in the new era of mobility.
"The new smartphone and pad devices are starting to change expectations," says Donald Light, senior analyst at Boston-based Celent. "These new mobile technologies alter expectations in terms of both the ease by which you can initiate the claims process-first notice of loss-but more importantly, in what the claimant experiences (e.g. keeping the claimant informed as to the status, progress and likely outcome of the claims) throughout the claims process."
Looking beyond the imperative for insurers to have mobile apps and mobile device-optimized Web browser experiences ready for their customers when it comes time to file, or follow up on a claim, Light says there still needs to be a convenient outlet for human contact.
"As neat and keen as mobile technology is, if someone has a claim of any complexity or seriousness, they want that personal touch-they want a trusted human being who is reachable to guide them through the entire process."
Another aspect to the customer experience is that, for many insurers, a claim may be their first (and possibly last) contact with a customer since the policy was originally purchased.
"There's been a real push, especially in this fairly flat market, to really retain the good customers that insurers have in their portfolios," says Karen Furtado, partner with Boston-based SMA. "And the only time they truly touch those customers is during the claims process."
For smaller, niche insurers, there are always challenges specific to their business. In the case of Narragansett Bay Insurance Co., a specialty underwriter catering mainly to residential homeowners, a key concern is having capable staff ready to handle a torrent of incoming claims corresponding to coastal calamites.
"We have spikes that hit us with storms-so we have to adapt on a variable basis," says Bob Khosropur, chief claims officer for the Pawtucket, R.I.-based insurer. "We have to ensure that our phone lines never get choked-that they're able to take in as much as the demand calls for in terms of service, and have someone at the end of the line who can take all that information from the policyholder and populate our claims systems with every bit of information needed to begin the claims process."
For Khosropur, part of meeting this call is not just finding the people to "man" the phones, but getting them educated on how to do the job. His answer to this is having an easy-to-access, Internet-based, secure claims solution that can be understood in a few hours-not a few days or a few weeks, as is the case with many existing, older systems.
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Corrected April 12, 2011 at 2:04PM: yes