Remember the tale of the boiling frog? As the fable goes, a frog placed in a pot of boiling water will frantically clamber out. That same frog, however, will sit placidly in a pot of tepid water. It will remain there even as the water is slowly heated. Gradual changes go unnoticed, with the frog never recognizing the impending disaster as the water reaches the boiling point.Liken the pot of tepid water to legacy claims systems. P&C insurers are beginning to take a closer look at their systems, but will they act in time or wait on the sidelines and continue claims as usual?

With revenue growth flat or diminishing, investment returns uncertain, and the lion's share of an insurer's expenditures flowing through the claims area, carriers recognize the claims department's critical role in delivering operational profitability.

Claim processing delays can quickly sour what may already be a tenuous relationship between insurer and policyholder. This is the moment of truth, where poor performance can lead to dissatisfaction, defections or even lawsuits.

Unfortunately, many P&C insurers today remain content to luxuriate in the "warm water" of their legacy claims systems. They seem unaware of the rising temperature and its associated risk.

Given what's at stake, one wonders why legacy claim system replacement isn't every P&C insurer's top priority? Unfortunately, claims departments too often consider the legacy technologies currently in place as 'just fine.' After all, the systems are established, functional (albeit limited), somewhat stable, and relatively good at what they do. And, the 'legacy adjusters' have spent years refining workarounds and manual tasks to overcome the gaps in automation, with some studies estimating that at least 40% of an adjuster's time is spent on activities that don't bring claims to a prompt and reasonable settlement.


Legacy systems-whether homegrown or packaged-are called "legacy" for good reason. They have survived countless upgrades and upheavals over the years, and have been-for the most part-diligently maintained, enhanced, and fine-tuned by programmers and administrators. They may have ugly and cumbersome interfaces, but the systems, combined with seasoned users, continue to get the job done.

Meanwhile, as the costs of maintaining such systems grow, these expenses crowd out other important IT investments. By one estimate, 80% of application-related IT costs are tied to legacy maintenance.

Moreover, the talent pool of experienced people is quickly diminishing with many of these Baby Boomer developers looking to retire.

But, it's not just a technology resource issue. Up to 70% of current claims adjusters are also nearing retirement. While there is an acute need to bring more talent into the profession, few young professionals are coming aboard. Deloitte Consulting predicts a shortage of 84,000 adjusters by 2014. Subsequently, unless carriers can put the technology in place to automate and support key claims functions, operations will slow to a crawl, impacting costs, efficiencies and critical customer service expectations.

If insurers continue to handle claims as usual and refuse to take action, their competitors with advanced claims processes and systems will pass them at the finish line.

Insurers that remain in place will inevitably see customer dissatisfaction turn into customer defections. Operational profitability will continue to fall-even as the heat steadily rises.


Delivering operational profitability and increased customer satisfaction cannot be accomplished with many insurers' existing claims infrastructures. Mainframe-based and other legacy systems are often too expensive and too functionally limited to meet the demands of the current insurance marketplace, much less future demands.

New claims technologies, however, can make the difference in positioning the claims department as a driver of operational efficiency and business opportunity. Some industry experts estimate that the application of flexible Web-based and rules-driven claims technologies can bring an improvement of four to five points to an insurer's combined ratio.

Forward-thinking insurers have begun to invest in advanced solutions that provide modern and adaptable end-to-end claims management.

They are seeing clear benefits around enhanced claims cycle times, reduced leakage and increased customer service rankings by paying claims quickly, accurately, consistently and cost-effectively.

What's the current water temperature in your claims pot? Or are you starting to feel the heat?

Mike Mahoney is currently responsible for product marketing at Guidewire, San Mateo, Calif.

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