It's easy to define what manufacturers produce and sell. Toy makers make toys. Auto manufacturers make cars. Pharmaceutical companies make drugs. But what do insurance companies do?

Essentially, they sell a promise: to cover policyholders when they suffer a loss. Whether it's helping a family that has lost its home in a fire, a car in a wreck, or a loved one to a disease, keeping the promise to indemnify people quickly is known as the "moment of truth" for insurance companies.

The promise is difficult-and costly-to keep. It involves amassing and sharing sometimes copious amounts of information among multiple parties involved in a claim-from body shops to adjusters to investigators to lawyers and doctors to claimants and regulators. And it involves the knowledge of experienced adjusters to determine the fair and appropriate outcome of a claim. Indeed, losses and loss expenses absorb 80% of premium dollars collected by carriers.

But there is hope for lowering losses and loss expenses. From Internet-based communication tools to workflow and adjuster automation, insurance companies can benefit from technologies that shorten the claim cycle and improve claims professionals' productivity.

Fortunately, some insurers are realizing they can improve on keeping the promise. According to a recent Insurance Networking survey, 31% of insurance executives are planning to increase their spending this year on claims processing technology. It's not as high a priority as Internet delivery (56%) and security (59%), but it's on their radar screens.

That bodes well for the industry, because evidence suggests that the claims-processing function is bulging with potential to eliminate waste and inefficiencies. For example:

* More than 40% of the time spent handling claims is associated with routine overhead functions that have little impact on the outcome of the claim or on improving customer service, according to a report produced by the Claims Solutions Group of Bermuda-based Accenture.

* Approximately 450,000 claims professionals process $180 billion in claims payments every year-using weak or nonexistent technology, according to a report produced by Deutsche Banc Alex. Brown, San Francisco.

* Technologies that enable fewer handoffs, faster communication between parties in a claim, and consistent planning and execution of adjuster tasks can reduce the $23 billion that Deutsche Banc Alex. Brown estimates the property/casualty industry spends annually on direct human capital associated with claims.

* Insurers can reduce claim settlement costs by up to 15%-by using innovative technologies and workforce training, especially technologies that address the core activities of investigation, evaluation, negotiation and recovery, according to Accenture (see chart, page 26).

BETTER THAN PAPER

Certainly, with Internet tools readily available to enable many people to share information via a browser, the costs associated with paper handoffs can be reduced.

Fireman's Fund Insurance Co. came to this conclusion when it evaluated alternatives to paper reports it regularly delivered to 1,700 claims managers. Not only was the process of photocopying and mailing reports time-consuming and costly, but managers were unable to drill down into the reports to determine the cost drivers, says Dave DeWald, manager, claims information reporting, for the Novato, Calif.-based company.

Often, managers would ask the management information group to provide more specific information so they could identify cost factors, DeWald says. "The request would go into a queue, and sometimes we had the staff to do it, and other times we didn't."

With a recently implemented Internet-based reporting tool from Palo Alto, Calif.-based Crystal Decisions (formerly Seagate Software), Fireman's Fund developers are now providing reports to claims managers on the company intranet.

Using the tool, developers extract claims-related data and present it in a format that enables claims managers to drill down into the numbers themselves. Managers can still print out the reports, and they can view them immediately instead of waiting two or three days for the mail.

The managers receive high-level information on claim counts, claim costs and the number of closed and pending claims, for example. They can also break those numbers down by region or type of claim (auto, property, liability), as well as view specific claims, says DeWald.

In addition to eliminating distribution and postage costs of approximately $10,000 per year, Fireman's Fund also has been able to improve the quality of its reports, which hadn't been modified for approximately 10 years. For example, claim cycle time was being measured in years to allow for the time it takes to resolve the most complex claims, DeWald says. But that made it difficult to improve cycle time for the bulk of claims that close in much shorter time frames.

"One of the first things we did was to quantify the percentage of (auto) claims closed within 30 days," he says. This one change in itself led to an almost immediate improvement of 3% in the rate of claims closed within a month.

Fireman's Fund wants to close claims faster for a couple reasons, DeWald says. "One, we want to make our insureds whole as soon as possible. That's good customer service. And two, the faster we close the claim, the less it may cost us-because over time, conditions can worsen, and you may have to pay out more in expenses associated with that."

While installing this tool, Fireman's Fund also was motivated to upgrade its database, which brought efficiencies in running the reports. "A couple of reports took an hour or so to chunk through the data-and now they run it in 10 minutes," DeWald says. The technology also will reduce IT maintenance costs by $48,000 per year, according to Crystal Decisions.

AUTOMATIC ROUTING

In a similar move to better equip claims managers and reduce claim cycle time, Penn National Insurance Co. is installing the Claims Workstation, a client/server claims management system from Fiserv Advanced Insurance Solutions, Brookfield, Wis.; an imaging system from Advanced Solutions, Conyers, Ga.; and a claims reporting tool from Millbrook Inc., Center Valley, Pa.

"Every day, our claims team leaders get a stack of new claims and they have to decide, 'Am I going to give it to Mary, Joe or Jim to handle?'" says Jane Koppenheffer, CIO for the Harrisburg, Pa.-based insurance company. Assigning claims can take three to four hours per team leader per day, she says. "And all they're really doing is scanning these claims and assigning them to the right level of person-to match the expertise needed to the severity of the claim."

The workflow and triage component of Claims Workstation was appealing to Penn National, because it automates the assignment of claims according to adjuster skill level and workloads, territory, line of business, complexity of the claim and other factors. Koppenheffer expects the system to route roughly 80% to 90% of Penn National's incoming claims, freeing up team leaders to spend more time working with adjusters on how to handle those claims.

Along with the imaging system, the Claims Workstation will enable claims staff to collaborate more effectively with fewer handoffs. With the old system, clerical employees had to pick up faxes, copy and mail documents, and enter initial claims data into the company's claims system, Koppenheffer explains.

With the company's new centralized imaging capability, many clerical tasks will be eliminated and claims adjusters will be able to view all data and scanned documents associated with a claim via the Claims Workstation.

A team of claims specialists can more easily confer to determine the size of a reserve, she cites as an example of the benefits of the new system. "Each person will be able to call up the transactions in the Claims Workstation and actually see the legal documents that have been submitted. Everybody can be on a conference call talking about it."

Reducing the number of handoffs and enabling communication are two key factors that play into the decisions regarding claims automation at The St. Paul Cos., as well.

"You have to be very analytical and targeted when you look at where to apply automation in any kind of business process," says Paula Schlotfeldt, vice president, claims services division at the St. Paul, Minn.-based company. "Some areas lend themselves to automation, and in other areas, it's just as easy and less expensive to simply improve the business process without automation."

Helping agents submit loss notices to carriers directly from their agency management system is one area where it makes good business sense to implement a technology solution, she says. In fact, St. Paul funded the development of ACORD XML for Claims for the IVANS Transformation Station, a data exchange for real-time transactions provided by IVANS Inc., Greenwich, Conn.

Currently, agents have to enter the information into their system, print it out and then either fax it or mail it to the carrier, or call it in by phone. In St. Paul's case, the company then receives the fax and rekeys the data into its claims system.

With IVANS Transformation Station, not only will the data from the agency management system be transmitted electronically into a carrier's system, but the carrier's system will also automatically transmit an electronic confirmation back to the agency system-in some cases, in less then 20 seconds, Schlotfeldt says.

HUMAN INTERVENTION

"Any kind of information we can take directly into our system and not have human intervention represents a significant expense savings for us," she adds. "But our primary purpose (for funding this technology) is to increase customer satisfaction for our agents and brokers-because they've been frustrated for a period of time with having to enter the information into their system and then send it another way."

Improving customer service-this time for policyholders-was also a motivating factor in St. Paul's decision to outsource the management of a direct repair network to Plainview, N.Y.-based driversshield.com Corp.

Because St. Paul no longer sells personal lines insurance, the company was looking for an organization that could provide and manage a direct repair program. "We just don't have the kind of volume that we had in the past and that other carriers have with their auto claims (to justify managing a program internally)," Schlotfeldt says.

In addition to auditing, monitoring and evaluating body shops in its network, driversshield.com has the capability to submit requests and receive estimates and digital photos securely via the Internet, both within its repair network as well as with independent appraisers, according to Schlotfeldt.

The arrangement not only reduces handoffs, it enables the company to serve customers better. Previously, St. Paul had no direct repair program. If a customer asked for a recommendation for a body shop, the company couldn't provide one.

"Now, we say, 'Yes, as a matter of fact, we can get you an appointment,'" Schlotfeldt says. Furthermore, if customers have their own body shop in mind, independent appraisers can use the driversshield.com Web site to submit an estimate and photos to St. Paul rather than using the mail. "It has really tightened up the whole process for all the auto losses we're handling," she says.

Automating routine claims functions-such as transferring data, documents and photos-is clearly an effort that yields financial savings. Less visible are losses that could be avoided if adjusters were given better tools to help them optimally settle claims.

area of opportunity

Contrary to what many insurers believe, the highest loss reduction opportunities exist with small routine claims, according to Accenture's report, "Unlocking the Value in Claims."

Small claims are often processed with little or no scrutiny, the report states, whereas larger claims are given a great deal of attention. But small claims occur with much higher frequency; therefore, improvements in evaluating them can have a more dramatic impact on the bottom line.

Add to that assessment, the fact that adjusters' jobs have become much more difficult, and the need for technological support becomes evident. "The business of (settling) claims has gotten more complex," says Vic Guyan, partner in Accenture's Claims Solutions Group. "Medicine has gotten more complex. The law has gotten more complex. Companies are selling more creative products. Customers are more demanding. And regulatory pressures have increased. You put those all together and that means the number of things that a claim handler has to get right today has increased substantially."

CONSISTENT EXECUTION

Improving adjusters' access to information and their ability to execute tasks consistently is just as important as automating routine tasks, according to industry sources. In fact, "consistency of execution" has been a critical driver in the implementation of Accenture's component-based claims management system at The Chubb Group of Insurance Cos., according to Jim Knight, vice president and senior area manager, claims IT, at the Warren, N.J.-based insurance company.

The claims management system provides adjusters with various tools, including an electronic folder that records all pertinent information for a given claim, a diary and task generator that automatically informs an adjuster what to do for a given claim, and utilities that automatically create forms and correspondence.

This is a vast improvement over the old method of adjusters' recording events in their diaries, Knight says. "For example, in Chicago, it's mandatory to provide the regulatory agency with a specific workers' comp form," he says. "This system automatically creates a task for the adjuster to do that. And even better, it could be an intelligent task where the adjuster just clicks on (an icon) and the form is built using the forms and correspondence engine. And it's automatically sent to the right agency."

In conjunction with a first notice of loss application Chubb developed internally-which guides a call center representative through the collection of information and automatically routes the claim to the appropriate office-and a financial system that Chubb and Accenture jointly developed, the claims desktop workstation is the third component of a nearly complete overhaul of Chubb's 25-year-old claim system.

The new system is already proving to be more flexible. Following the September 11 terrorist attacks, for instance, Chubb quickly developed a system called iCat-based on a similar technology it developed called iClaims. The iCat system enabled the company to store all claim data pertaining to that catastrophe in one place for easy access and retrieval. The company also quickly developed a customized version of its first notice of loss application, which streamlined the entry of Sept. 11 claims.

For example, Chubb provides workers' compensation coverage to bond trading firm Cantor Fitzgerald LP, which lost nearly 700 employees in the World Trade Center disaster. The flexibility of Chubb's system enabled the company to respond in days to provide a first notice of loss capability specifically tailored to that tragedy.

"Chubb is very service-oriented, and we want to get claims paid as soon as possible," Knight says.

A workers' compensation Web site launched in August by Travelers Insurance Co. also proved to be useful during the Sept. 11 disaster. The site, located at www.mywcinfo.com, was developed to empower claimants and doctors in claims, as well as carriers, brokers and employers, says Vincent Armentano, vice president, workers' compensation, claim, at the Hartford, Conn.-based company. But the site was also a convenient way for the company to provide information and resources for those affected by the terrorist attacks.

Visitors to the site find links to medical information on typical workers' compensation injuries, state rules and regulations, state forms, claim offices, medical network providers, and a prescription refill service. The Sept. 11 link leads to a dedicated page with medical care tips on stress and trauma, U.S. government links for assistance, transportation options for New York City and emergency contact numbers.

EMPOWERING PEOPLE

Workers'compensation claimants are often passive and don't understand the way the system works, Armentano says. They generally don't trust employers or insurance companies and believe the two conspire to reduce benefits-rather than understanding that benefits are established by statute, he says. Travelers wanted to demystify workers' compensation to enable people to be more actively involved in their outcome and to take responsibility for getting back to work.

"Studies show that active participants return to work more quickly," Armentano says. "People who know what's going on have a healthier outlook, and usually have a better outcome. And, just the opposite, people who feel they're being cheated, who aren't involved, who go to lawyers because they don't understand what's going on, have a worse outcome."

Like many other claims executives, Armentano sees the value of what he calls first-generation claims technologies, such as those that automate clerical functions, scan documents, and automate adjuster tasks such as writing letters and completing and distributing forms.

The most exciting developments in claims technology, however, are what Armentano calls the second generation, which includes tools such as predictive modeling and knowledge management.

For instance, last year Travelers implemented an internally developed predictive modeling technology that automatically determines-based on historical claim data-if a workers' compensation claim should involve special resources, such as a nurse, engineering or the special investigation unit.

"The nurse triage probably has had a $2 million and $4 million expense benefit-because people don't have to review the cases to see whether a nurse could benefit the outcome," Armentano says.

Just-in-time information

Currently, the company is developing knowledge-management technology that will assist newer claims professionals by providing them with "just-in-time" information on how to handle various aspects of a claim.

"This is not a workflow driver," Armentano says. "Rather, it is a knowledge enhancer. We don't want to tell the adjuster what to do." But adjusters have different skill levels, and this technology will essentially capture "tribal knowledge" and distribute it electronically, according to skill, at the appropriate time in the claim-handling cycle.

The system may also have directive pieces, he says. "If an adjuster is dealing with a case likely to involve arson, the system would tell the adjuster, 'Here are the next five questions to ask.'"

It could also provide current best practices and legislative changes. "We're still saying to the case handler, 'You have a job of seeking out information, but we're making it real easy for you,'" Armentano says.

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