By early 2004, it was obvious to everyone at the New Mexico Mutual Casualty Co., also known as New Mexico Mutual Group, that the company's green-screen legacy claims system had outlived its usefulness. The company was bringing in a new Web-based policy administration system, and the contrast between it and the tottering claims system was glaring.Navigational and functional problems with the legacy system had cut into claims department productivity at the Albuquerque, N.M.-based carrier. Only one user could work on a claim at a time.
"If an adjuster was working on a file, the supervisor had to wait until the adjuster was done to look at that claim," says Cecil Rudd, New Mexico Mutual's director of claims.
If underwriting was working on a claim, the supervisor and the adjuster had to wait until that area was available, says Rudd. If someone called Rudd with a question about a claim, he couldn't answer if anyone else was viewing the file.
"It was terrible," he recalls.
With no real reporting capability, all of the work had to be brought into Excel. The reserve worksheet lived in the HR system and wasn't connected with the claims system.
CARRIER'S HISTORY
The problems were occurring at a company that has been through some changes. New Mexico Mutual, a workers' comp insurer in Albuquerque, N.M., was formed by the state in 1991 as a source of guaranteed coverage for companies that operate in the state but were unable to find insurance through the voluntary market. It was funded at first with money raised through bond issues-though that was paid back a long time ago.
Today, New Mexico Mutual is a private-sector mutual company, though it retains a few loose ties to government. The governor appoints five of the insurer's directors, and the company reports periodically to the state legislative financial committee and the governor. "It's a formality more than anything else," Rudd says.
The company expects its written premiums to top $85 million in 2006, and it has 115 employees. That's small in the workers' compensation business, but "pretty good-sized for New Mexico," according to Rudd. New Mexico Mutual sells exclusively through 350 independent agents - although the bulk of its business comes from 40 agencies.
The search for a new claims management system took much of 2004, and by the time Rudd arrived at New Mexico Mutual in August of that year, the list of vendors was down to four. At Rudd's suggestion, a fifth - Guidewire's Web-based ClaimCenter, which he had helped set up at another company - was added to the pot. A team of 14 people, made up of claims personnel and IT staffers, compared the systems.
From five developers, the team narrowed the choices to two, San Mateo, Calif.-based Guidewire and another company. Team members asked both to make changes to their systems to reflect some specific New Mexico Mutual practices. Guidewire did the job in about an hour, Rudd recalls. The other company couldn't do it at all, and in December 2004 the insurer signed a deal with Guidewire.
The earlier policy administration system implementation could have gone more smoothly. The process was impeded, in part, by lack of an "internal champion," Rudd says.
"[Director of IT] Tim Thackaberry and I agreed this shouldn't have happened in claims, so we interviewed some of my claims managers for the position of business project manager," says Rudd. "We chose [claims manager] Dan Girlamo, and Dan drove the implementation from the business user's perspective."
The project officially got under way in March 2005, Girlamo recalls. "We set up a statement of work and a project plan," he says. "We had 12 people from the claims department on the implementation team."
The people from claims weren't on the project full-time but helped put together the work flows and met with Girlamo to talk about the business rules.
"They helped design the system the way we wanted it, so it would work for our claims department," Girlamo says.
Besides the claims people, five IT staffers were assigned to the project, and a project manager and a technical person from Guidewire rounded out the team. Under Girlamo's direction, the team divided implementation into a series of "sprints," blocks of activity tied to specific goals.
Among the bigger challenges was integrating ClaimCenter with existing systems. "We had 13 integration points," Girlamo says. "We had to integrate the policy system. We had to integrate with the reserve worksheet that we used in legacy, and continue to use today. We redesigned it so that it works better with ClaimCenter than it did with our old legacy system."
The team also had to make the application cooperate with the billing system, Girlamo says. "We had to make it work with the reporting we have to do," he continues. "We had to integrate with ISO, and we had to integrate with our check-writing system so we could send financial information to it."
Guidewire sent a tech person to help drive that process, and one of New Mexico Mutual's IT people assisted. "That IT person now owns those pieces of work," says Girlamo.
With 12 of New Mexico Mutual's claims people-a third of the department-involved in implementation, the company had a good head start on training. "Several months before we went live, I started training sessions with the rest of the department," Girlamo says.
A BIT PAST DUE
ClaimCenter went live in January 2006, a bit past the deadline the team had set but well ahead of the corporate goal of March 31. "We beat that by a good two months, and we came in on budget," Girlamo says.
The results have been gratifying, according to Rudd.
"Whenever you're looking at the cost of doing business, and whenever you're looking at return on investment," says Rudd, "you've got to be able to point to some things and say, 'Because we made this decision we're faster, we're smarter, we're more effective and we can get information more quickly.'"
"All of those things happened when we flipped the switch on ClaimCenter," he continues. "We can now expect our adjusters to manage a more aggressive inventory because they have the means to manage it more efficiently."
How much more efficiently? When Rudd joined the company in 2004, the working inventory was 100 claims monthly for a seasoned adjuster. Today, the company expects that same adjuster to process 150 claims.
Managers are now working on problems directly with the adjusters in real time, instead of following behind to track results, effort and documentation, Rudd says.
"So my managers are working more efficiently, and my adjusters are working more efficiently," says Rudd. "Most importantly, the customers are being better served because we get information to them in real time, rather than having to wait and collect information, and get it to them later."
Claims System Delivers Tips Based on Users' Experience and Skills
Albuquerque, N.M.-based New Mexico Mutual Casualty Co. uses Guidewire's ClaimCenter's rules-based architecture to help train its claims adjusters.
At the heart of the feature lies a database of adjusters' skill levels, including licenses they hold and languages they speak.
Based on that information the system generates training activities. Adjusters can review the training materials before they key data or see validation messages afterward. They can even use both functions. The training is designed to teach users to master the business processes coded into the system.
"We're giving the adjusters information they need based on their experience level," says Alex Naddaff, vice president for professional services at San Mateo, Calif.-based Guidewire. "Each customer we work with specifies just how much information they want to get to their adjusters."
The system doesn't determine the adjuster's proficiency level; that's still up to the supervisors. The supervisor might, for example, designate adjusters as new, moderately experienced, highly experience or expert, Naddaff says.
"You can have the rules be conscious of that so that the activities that are suggested to an adjuster might be at different levels for different levels of experience," he says.
Naddaff says he hesitates to call the features "training," because the activities occur during production and not as part of an offline exercise. And, he says, Guidewire cautions customers not to "over-advise" users.
If you give the agents too much advice, Naddaff advises, they'll reject the system.
For Claims Systems, it's Out With the Old and In with the New
Legacy systems-those more than five to 10 years old-are still processing claims at about half the country's P&C insurers, says Donald Light, senior analyst for Celent LLC's Insurance Group in Boston.
"From the viewpoint of the industry and the industry's customers," Light says, "it creates inefficiencies, both in the sense of the operations of the claims departments and also in creating unnecessary loss costs for the insurance companies and ultimately for their policy holders."
The main problem with legacy systems, Light says, is that they're difficult to modify. The processes insurance companies set up when they have a new claims system are the ones that make sense at that point in time, he says.
As the years go by, insurers should change processes and procedures as the company become more sophisticated and the competition changes, says Light.
"Legacy systems become barriers to change," he contends.
Legacy systems are expensive to modify because they lack flexibility, Light says, and some of that inflexibility comes from being costly to modify-two sides of the same coin.
"One of the key questions in figuring out if a system really is modern-to throw in a little jargon-is if you can externalize the creation of rules and processes," Light says.
In other words, can a business user or a lower-level technical person make changes relatively quickly and easily?
Although activity among insurers trading up to new claims systems remains brisk, that business lags behind implementation of new policy administration systems, according to Light.
He reckons that of the companies that should replace their legacy claims systems, perhaps 5% to 10% are doing so annually. Where all of a company's core systems are legacy systems, it may make sense to take care of policy administration first, before tackling claims administration.
"Policy administration is a little more central to the day-to-day running of the company," Light says. "Also, some policy administration systems have claims components or well-integrated claims applications from the same vendor."
Bob Mueller is a business writer based in Grand Beach, Mich.
