Few systems are as likely to have as big an impact on insurers' bottom lines as claims systems. According to a study published in July by Novarica, among P&C carriers almost 70 percent of revenues are spent on claims, and of that, about 20 percent go toward managing the claims process.
Well-implemented claims systems can pave the way to greater competitiveness and growth and streamline claims processes, meanwhile providing valuable underwriting data and information needed to meet regulatory requirements and spot fraud. Carriers, it seems, are well aware of this: Novarica says more than 30 percent of insurers surveyed recently put claims among the top three projects they're focusing on this year.
Yet, three-quarters of claims solutions are still running on some sort of legacy system, according to Chad Hersh, a partner with Novarica's Insurance Practice. These systems, some of which date to the early years of the Reagan administration, create administrative bottlenecks that can slow new product rollouts or changes to existing products. Hard-coded processes are difficult to change without a system overhaul, and legacy systems limit the online business capabilities customers have come to expect. Finally, pulling information off legacy claims systems is often a clunky undertaking, and by the time the data's ready, it's already old, Hersh says.
Consistent information
Although there are many possible justifications for replacing old claims systems, companies that have actually made the move usually have done so in response to a specific limitation in their old systems. In the case of XL Insurance, it was mostly the need for consistent information across the organization, according to EVP and Global Head of Claims Paul Tuhy.
XL Insurance sells commercial P&C and specialty lines for corporations and professionals. The company operates in about 40 locations worldwide and has approximately 3,700 employees. Last year's gross written premiums came to a little more than $4.4 billion. In the past, much of XL's growth has come through acquisition, and when the carrier began looking at new claims solutions, it was using five major legacy systems.
"We were operating in different silo structures up until maybe six or seven years ago, when we became a global claims operation," Tuhy recalls. "It really hit home that we didn't have any way to aggregate data without manual intervention. Even then, because of the different legacy systems, data definitions were different. While we could come up manually with what we were looking for, it was a lot of work." XL needed enterprisewide agreement on claims data fields, and then a way to aggregate data.
XL chose Accenture's Claim Components as the basis for its new claims system and worked closely with that company's consultants on implementation and customization. At one time, 120 people worked full-time on the project, which began in 2008 and, says Tuhy, is on track for completion this October.
Despite the scope of the implementation, "the IT piece of this was actually the easier part," Tuhy continues. "The challenge, really, was people management, change management." XL operates internationally and each country's claims processes differed due to differences in business cultures, regulations and currencies. Tuhy wanted to keep customization from getting out of hand, so he held a series of meetings with subject-matter experts from all over the world to find some high-level common denominators.
"We walked them through the basic core system that we acquired from Accenture, and we said, 'This is what the system currently has. We're going to customize it, but we're going to customize it for what we actually need.'" Tuhy recalls. The pleasant surprise was that once the group got past some variations in terminology, the real differences in requirements weren't so overwhelming. "It seemed like a really big challenge at first. If we hadn't brought all those people in, we would have struggled with it." Where companies get into trouble, he says, is when they assume everything has to be very specific.
Scalability, easy access
Narragansett Bay Insurance (NBI) grew from the ruins of another company and inherited its legacy systems. The privately owned carrier offers homeowners products in Rhode Island, Massachusetts, New Jersey and New York. It's grown from $12.8 million in gross written premiums in 2008 to $60.3 million last year, and is on course to hit $120 million in 2011, according to CIO Mike Anselmo.
The company replaced its claims system, along with the rest of its core systems, in 2009 and 2010, in what it called Project APEX. "We needed to come into the modern age," says Bob Khosropur, chief claims officer. The new system had to be Web-based for easy access by authorized employees, agents and independent contractors. Given NBI's rapid growth, scalability was important. Another goal was straight-through processing.
Finally, the system had to be easy to learn. Much of NBI's business comes from covering coastal properties, an area many of its competitors choose to avoid. When catastrophes occur, the insurer hires outside adjusters to handle the extra claims volume, and it's important that they be able to learn the company's claims system quickly.
The insurer selected PipelineClaims from BlueWave Technology to manage claims because it met NBI's ease-of-use requirement, and integrated well with other core systems. Though there were challenges along the way, it implemented the APEX project in phases over 13 months. "We were told that one out of four (23 percent) policy system implementations are successful," says Anselmo. "We were successful."
Process transformation
The JM&A Group's legacy system consisted of off-the-shelf software, such as a customized Microsoft Access database and Excel spreadsheets. These were combined with manual processes, manual files and lots of paper, says Debbie Battisto, VP-information technology. The paperwork was vulnerable to risks and inaccuracies, and the system's largely manual processes were labor-intensive and at times slowed claim turnaround. As volume grew, it became apparent that the legacy system was not going to be able to scale with it. "At some point, the wheels were going to come off," Battisto says.
JM&A is part of JM Family Enterprises. With $9.3 billion in revenues, it ranks 33rd on Forbes' list of top private companies in the United States. Most of the company's business has to do with the auto industry-it is, among other things, the world's largest independent distributor of Toyotas and Scions, and it offers a range of auto-related financial products.
JM&A is not, Battisto stresses, an insurance company, but it offers a warranty product called GAP (guaranteed asset protection) through a network of car dealers. When a driver totals his car, GAP covers the difference between what he still owes and what his auto insurance pays.
After evaluating different products, the company chose Innovation Group's Innovation Claims solution. Like XL, JM&A found the technology portion of the implementation was the easier part of the 12- to 18-month task. "The bulk of the time was spent analyzing our process in its current state versus where we could take it in the future," Battisto recalls.
Paybacks
The focus on transforming processes has paid off nicely for JM&A. Battisto reports that the entire claims process is now paperless. The number of employees processing claims has dropped to half of what it was in the company's legacy days, and claims turnaround time has been cut by six days. Business rules are embedded in the claims system, and give the process a consistency it sometimes lacked previously. Finally, accuracy is close to 100 percent. "There are a lot of customer service aspects of our improvement that we're really happy with," she says.
NBI quotes ROI for its total APEX project at a whopping 63 percent over a five-year period, Anselmo says. Training on the claims system for new adjusters has fallen from weeks to hours, and maintenance costs for the claims component is down about 20 percent. The new system incorporates straight-through processing and automated underwriting. Previously, the claims department touched every single policy. Now, the figure's at 25 percent and the goal is to take it down to five percent, he notes.
XL's new claims system so far is $14 million under budget, and Tuhy credits guidance from his subject-matter experts and company business managers, and good project management help from Accenture for that. Worldwide agreement on data fields has opened the door to more and better analytics, and that's improving underwriting, enabling XL to better anticipate staffing needs and simplify regulatory compliance. The new system is paperless, and that alone could save the company millions over a period of years. Finally, because it enables for more supervisor oversight, Tuhy expects the new system will lower average settlement size.
Lessons learned
Often, companies are afraid to replace legacy claims systems because they hear horror stories about others who've tried and failed, says Tuhy. He urges strong executive sponsorship, getting staff buy-in and learning when to say "no." "You have to set a tone that says, 'We're going to get this done. We're not going to put up with a lot of nonsense." Tuhy notes that many projects fail because of scope creep-they get derailed by unproductive requirements and modifications. "By the time someone catches it, you've spent $5 or $10 million and you're going down the wrong road."
Study your requirements-processes and workflow-diligently before you start, counsels NBI's Anselmo. "Make sure you have all the internal stakeholders available," Khosropur adds. "This is the one thing that will make or break the project. You need the intelligence of your own department to weigh in on everything, so that you're sure you at least know what you need."
"Make sure that if you're working with a configurable system-not customizable; that's different-that you first implement the core functionality of the system," Anselmo continues. "Once the core functionality of the system is implemented, only then work on the product-specific information."
There's not much point in replacing technology if you don't use the technology to improve your processes, JM&A's Battisto says. "I can't say enough about the business transformation part of the process," she adds. The technology's important, but the real gains come from leveraging the technology to gain efficiency."
