Insurance companies have lagged behind Corporate America in adopting the Internet as a distribution channel. But over the last two years, carriers have directed IT and advertising resources toward developing the technology and promoting their Internet sales strategies.

"Insurers have been focused on the top line," says Todd Eyler, senior research analyst at Forrester Research Inc., Cambridge, Mass. And despite the fact that online insurance sales haven't taken off and many insurance-related dot-coms are dropping by the wayside, carriers can still leverage the Internet investments they've made-automating underwriting, integrating data and Web-enabling their systems-to improve the bottom line.

Indeed, technologies such as Java, XML and middleware will be in the forefront of the battle to reduce carriers' diminishing margins. To underscore the financial predicament: Loss adjustment expenses in the auto insurance industry climbed from 12.1% of premiums in 1995 to 14.1% in 1999, according to a Forrester report, "The Virtual Claim." Losses and LAEs account for approximately 75% of auto insurers total costs, the report states.

The economic slowdown is putting a lot of pressure on carriers to improve their bottom lines and their capital positions, Eyler notes. "They've been able to get through the last few years with good investment gains in their portfolios and by releasing excess reserves on the liability side, and those are no longer available."

Many carriers seem to be aware of the Internet's potential to help them reduce losses, and are directing IT resources to the claims function.

According to the Forrester report, 48% of carriers surveyed said it took at least three weeks to process an insurance claim, and 46% of those surveyed said implementing technology offers the greatest potential to reduce loss costs (see charts).

Real-time reporting

Despite the fact that venture capital has dried up for dot-coms (see related article, page 28), insurers are moving forward with plans to enable real-time claims reporting, automate adjusters' tasks with browser-based systems, and develop collaboration via the Internet with repair shops and other participants in a claim.

At the start of a claim, insurance companies want systems that support real-time first notice of loss, says Barry Klein, vice president of new business development at Applied Systems, a University Park, Ill.-based agency management system provider.

"Our customers tell us that it costs between $5 and $7 to enter a claim manually. It's time-consuming and error prone," Klein says.

"We can get it down to 15 cents by transmitting claim information as an XML data stream from the agency system to the carrier's system."

First notice of loss was an area that America Family Insurance Co. targeted for the Internet. "We feel it's very important for our customers to communicate with us in any way they desire." says Dan Cunningham, claims planning director at the Madison, Wis.-based insurance company.

In December, American Family began offering its policyholders the option to report a claim online and select a repair shop by ZIP code-augmenting first notice of loss through agents and call centers.

Minding the shop

Better management of repair shop networks also is a driving factor for insurers to move claims services to the Internet.

Carriers are becoming much more proactive in managing repair shop networks, says Forrester's Eyler, citing Allstate Corp.'s recent acquisition of Sterling Collision Centers Inc., Natick, Mass., as an example of tighter management.

"Carriers are trying to get much closer to the data on a real-time basis to see how the money is being spent," he points out.

Insurance companies rely on data to understand claims cycle times and trends, says Paul Farber, CEO of ProcessClaims, a privately held company, based in Redondo Beach, Calif. "The only way you can build those trends is by compiling the numbers," he says. "To determine cycle times and who the good trading partners are, you need data, not just images stored in the system."

"There are so many steps around a claim, and one of the problems is that none of the systems talk to each other," says Chuck Rich, president of ProcessClaims. "You've got redundancy and a lot of rekeying of the same data-10 or 15 times throughout the process," he says.

ProcessClaims developed a data translator that enables insurance carriers to transmit claims data to their trading partners regardless of which estimating system they use.

Obtaining a higher level of shop management was one reason Royal & SunAlliance signed a five-year contract with eAutoclaims, a publicly traded company based in Palm Harbor, Fla. eAutoclaims leverages buying power with a network of glass and auto repair shops.

The arrangement provides Charlotte, N.C.-based Royal & SunAlliance with 2,500 managed shops nationwide that are part of its "Guaranteed Repair Solutions" program, as well as a Web portal through which the insurers' 100 staff appraisers and independent appraisers in the United States receive and manage their assignments.


"When we survey our claims customers, we've found they want to get the thing over with as soon as they can," says Rick Morgan, first party claims executive at Royal & SunAlliance. "If we can find a way to expedite the process and get them referred to a body shop as soon as they report the claim, they can get their car back and get on with their lives. That's what people want."

The Internet enables Royal & SunAlliance to exchange information such as assignments, photos, estimates and other communication-which traditionally are transmitted by phone, fax and mail-electronically through Royal & SunAlliance's claims portal. With the Internet-based system, Morgan expects the average claim cycle time to decrease from one week to three days.

Although carriers have been roundly criticized by some industry observers for being late to embrace the Internet, that decision may unexpectedly benefit them.

"Everybody likes to say insurance companies were dumb for being slow to embrace the Internet," says Jamie Bisker, senior analyst in the insurance practice at TowerGroup, Needham, Mass. "But they were dumb like foxes. Yes, they were slow. But that's their business. They are risk-averse. And they didn't see the overwhelming value proposition to proceed that way. Now we see that 'clicks and mortar' is the solution. It never was clicks by itself."

Attending to internal issues, Bisker says, is far more important to carriers than using the Internet to sell policies and enable policyholders to report claims. In particular, insurers need to enable "siloed" divisions to share information, and make it easier for insurance professionals to do their jobs better.

Adjusters are responsible for orchestrating a variety of tasks that fall between first notice of loss all the way through to subrogation. The adjuster's job also is more sophisticated than in the past, says Vic Guyan, partner in the Claims Solutions Group of Chicago-based Accenture, which is implementing an Internet-enabled, component-based claims management system at the Chubb Group of Insurance Cos., Warren, N.J.

Specifically, medicine and law have become more complex, customers have gotten more demanding, regulatory pressures have increased and insurers are offering more complex, niche products than in the past, he says.

Technology can put more information at the adjusters' fingertips, automate their routine tasks and ensure consistency of execution, Guyan says.

The claims workstation being implemented at Chubb provides adjusters with information about injuries, the mechanics of loss and insurance law.

It also automatically generates the adjuster's tasks and correspondence for a given claim, and will automatically distribute required forms, such as letters and regulatory reports. "I guarantee that 'chaos' will not be a word used by our adjusters," says Jim Knight, vice president and senior area manager, claim IT, at Chubb.

The original claims workstation developed by Accenture has been in production in a client/server version for three years in large-scale implementations with five property/casualty insurers. Accenture is releasing Internet components now and is developing a partner integration framework that will enable online supply-chain collaboration.

A way to collaborate

What's really driving the industry to the Internet for claims is the need to interact with so many outsiders, Guyan says. "As a claim handler, I interact not only with the agent and the customer, but also with body shops, appraisers, medical providers, and law firms. For a homeowner's loss, I interact with contractors and repairers of all types. The Web is a great way to do that, because all I need on the desktop is a browser."

Royal & SunAlliance executives view the Internet as the foundation for the company's claims system in the near future.

"Our claims system has gone through many changes," Morgan explains. "Over the past eight years, we've built an Internet-based front-end that enables us to (work on a claim) without impacting the mainframe system."

The only part of the carrier's claims operation that is not Internet-enabled is the financial system where payments are made and reserves are set up. "Everything else is done on the Internet," he says. "More and more, we're changing the mainframe system into the Internet application."

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