Carriers are taking steps to modernize their claims processing systems and better integrate technologies with existing systems.
Claims processing systems come in many different flavors, each catering to a different segment of the insurance industry. But they all have one thing in common: they represent huge opportunities for cost savings, customer satisfaction and business process efficiency. The challenge is that many of these systems still reside on legacy systems, and still rely on paper-based processes requiring human intervention—a source of often-costly errors and inefficiencies in day-to-day processing.
Celent LLC, Boston, estimates that legacy systems—defined as computers or software more than five to 10 years old—are still being used to process claims at about half of property/casualty insurers. In healthcare, Celent estimates that approximately 65% of the 1.1 billion remittances made in 2006 were still paper-based, a proportion that will gradually decline over the next five years.
Carriers have begun to take a harder look at their claims processing systems, and are taking steps not only to modernize these systems, but also better integrate these technologies with other systems within their organizations, says Donald Light, senior analyst with Celent. “We see claims as one of the more active areas in terms of software acquisition or replacement,” he says. Celent studies in recent years confirm that comprehensive claims solutions and focused claims solutions rank as the second and third leading type of software purchase made by carriers. Up to 43% CIOs at large P&C companies cited claims as one of their key initiatives for 2007.
However, industry observers caution that the transition from legacy-based claims processing systems to more open, interactive systems may take some time. “Despite the realization that their claims processing needs to be improved, insurers are having a hard time letting go of their legacy systems, multiple stovepipe applications and outdated technology that serve the process today,” says John Burke, VP insurance for SAP America, Newtown Square, Pa. That’s because “companies postpone strategic technology projects and opt instead for tactical quick fixes and extensions of the existing systems,” he says. “Unfortunately, quick fixes can’t address the underlying problems of poor data integrity, lack of integration, no support for new technologies, and the limited flexibility and scalability inherent in many legacy systems.”
The savings from implementing newer claims processing systems can be significant. Jim Kinzie, senior consulting manager for New York-based Deloitte & Touche USA LLP, estimates that “proper implementation and organizational enablement can lead to significant reductions in claims cycle time of 15% to 20%, and a corresponding loss adjusting cost reduction.” He adds that best-in-class tools for imaging, document management, evaluation and settlement solutions, and other critical capabilities can ultimately reduce the administrative burden on claim handlers by as much as 40%.”
DRIVING THE BUSINESS
While insurers can increase the efficiency of their claims processing systems via automated imaging and archiving, the business process challenge needs to be addressed as well. Claims systems need to integrate with all points within the business. SAP’s Burke says that insurers need to view their claims operations “as a strategic differentiator that can help drive corporate objectives, by not only being more efficient, but by integrally supporting key growth and competitive initiatives.”
Plus, often, a carrier’s only or most important interaction with a customer may occur through its claims processing process. “Unfortunately, insurance companies look at claims as kind of a back-end afterthought many times,” says Jim Hatch, VP and chief tactical officer for Insurity, a ChoicePoint company, Hartford, Conn. “Yet, when you look at what keeps or drives away a client, the claims department is much more of a driver of that future relationship.”
There is a range of new features being incorporated with today’s versions of claims processing systems. Makarand Teje, president of AppLabs, Philadelphia, details some of the new functionality being introduced into today’s claims processing systems, which include the enabling of straight-through processing; repository for images and scanned documents related to claims; workflow features or a workflow engine with e-mail alerts and forwarding features. In addition, new systems can automatically measure the time taken for various activities, Teje adds.
Of course, the impact of claims processing systems varies between insurance industry segments. The need for sophisticated analytics and interfaces to customer relationship management systems is far more pressing for P&C carriers than it is for life insurers, or even healthcare to some extent. “Life claims are once and done,” Hatch says. “There aren’t many transactions that are associated with a life claims transaction, or a life claim event. So the complexity and the capability of the system are much more in the range of support, data aggregation—administrative kinds of things.”
However, Hatch continues, on the P&C side, “you have 50 different jurisdictions, you have all of the various sundry third parties, such as motor vehicles departments. That claim event becomes much more interactive and much more of a conversation between all of the involved parties. It’s not just the insurance company anymore—it’s the claimant; it’s third-party individuals who are affected who may or may not be claimants; there are witnesses and there are the vendors supplying services. The number of people explodes.” As a result, Hatch says, “a claims adjustor in the casualty arena tends to be more of a coordinator of activity than in other scenarios.”
CHANGE THE WORKFLOW
Powerful new data analysis technologies and service-oriented architecture (SOA) capabilities enable better integration of claims processing systems with the rest of the enterprise. One of the most significant developments is better decision support based on analytics of the data flowing in from claims processing systems. Such analytics play a key role in configuring the claims processing system to adapt to new workflows. Today’s smarter claims management systems make it easier for managers to “change the workflow, change the rules and, using analytics, model those changes before they put them into production,” Celent’s Light says.
Deloitte’s Kinzie observes that the ability to gather data through modern claims systems aids analytics by “supplementing internal data with external data to be more predictive in early claims assessment and optimized assignment or referral. Having a consolidated and dependable data set for claims enables much more robust claims analytics, pattern analysis, improved operational reporting and visibility across the enterprise.”
There is often a direct connection between the ability to leverage data coming from claims processing on the back end to make better decisions in underwriting in the front end of the policy lifecycle, observes Gary Kirkham, director of insurance industry solutions for Cambridge, Mass.-based Pegasystems Inc. “As carriers develop better claims experience reporting, as they really understand where they have claims and they don’t have claims, it’s really impacting their ability to underwrite better,” he says.
Kirkham points to a recent study of the top 20 carriers, which found that “the carriers with the highest return on equity are the ones that have invested the most, tying their experience reporting back to their underwriting process.”
A related development emerging in these smarter systems is the growth of SOA, which many claims processing systems also are being enabled to support. “Vendors have a more robust SOA capability story to tell,” Light observes.
There’s been a “fairly dramatic difference” in SOA capabilities or positioning over the past two years among carriers, he adds.
As a result of these efforts, carriers may be in a better position to “really understand the risk, and price the risk correctly,” Kirkham explains. “It’s all based on being able to look into their claims experience, and now having a large base to analyze. This is changing the old rules of thumb that used to be applied across the industry. Now, we can build very specific models, called banding, where we can analyze our own claims data, and make better underwriting decisions. It’s probably the most revolutionary thing that’s happened in claims over the past 25 years.”
Joe McKendrick is an author and consultant specializing in information technology, based in Doylestown, Pa.
Claims Model Carriers
Boston-based Celent LLC released its annual “Celent Model Carrier 2008: Case Studies of Effective Technology Usage in Insurance,” which included three examples of effective claims technology use.
“While there are a number of ways to improve the way in which claims are processed, the most dramatic — and most effective — is to fix the process itself,” says Chad Hersh, Celent analyst and co-author of the report. “Typically, this means improving the workflow, consolidating and integrating claims systems, or even adding BPM to the mix to help automate the process.”
Some key claims technology elements outlined in the report include electronic case file, rules-based workflow and skills-based routing, automated fraud and subrogation referrals and automated medical bill review, wireless adjusters (property/casualty only).
Carriers named in the report include:
Accident Comp Corp. (New Zealand): The company began a systems modernization project with the primary goal of improving its process flexibility and ensuring that legacy systems did not lock it into legacy practices. The solution was integrated with eight existing systems including document management, security, provider and employer management, and general ledger systems, allowing data to be accessed by users in real-time, through a single Web-based interface.
Horace Mann (Springfield, Ill.): Horace Mann implemented a new unified claims environment that brought together many of its claims point solutions (e.g. scoring and litigation management) into a unified claims desktop that provided single sign-on and integrated data, as well as improved workflow capabilities that unite the claims process from first notice of loss through payment.
MetLife Home & Auto (New York): MetLife Home & Auto integrated a subrogation management system into its auto claims environment to improve efficiency and control of the subrogation process. Met's new environment has allowed them to easily change assignment criteria to maximize the value of their subrogation handlers. Within six months of launch, Met achieved double-digit improvements in cycle time and efficiency.
