Claims in the Cloud

Much has been made in the past few years about the potential for cloud technology to reduce costs and increase efficiency in the insurance enterprise. Off-site data storage is an obvious use since it frees up in-house resources for other tasks, but experts are seeing a number of other interesting ways in which this relatively new technology can help. One such way is to employ the cloud in the claims process.           

Microsoft reports in a 2010 case study that Mexico-based AXA Seguros employed cloud-based technology in its claims operations. “AXA Seguros wanted a new claims management system that did not rely on manual processes or infrastructure destined for obsolescence, but instead had the flexibility and scalability to grow with the business,” according to the report. At the same time, the company didn’t want to make costly financial investments or go through the time-consuming process of procuring new infrastructure hardware—which, in this case, could take months and cost tens of thousands of dollars.

RELATED: 5 tips for hosting your claims system in the cloud

AXA Seguros decided to implement the Windows Azure platform in a pilot deployment for a new claims management system, says Microsoft. Windows Azure is a cloud services operating system that serves as the development, service hosting, and service management environment for the Windows Azure platform. By using the cloud-based platform, AXA Seguros simplified development and deployment, could focus on business logic, and reduced its capital expenditures.

What’s in the Cloud?

“Let’s define cloud technology as outsourcing the data center (servers) and related infrastructure for an IT shop’s development and production activities,” says Donald Light, senior analyst for Celent. “Specifically, the insurance company does not have the servers on premises in a data center and does not use its own staff to run the servers. Rather the servers exist in premises owned/leased/operated by the cloud provider. The insurer’s IT group and the business users access the systems on the servers via the Internet.”

Light adds that a related, but separate, trend is software as a service (SaaS), in which a system—such as first notice of loss—is run by the system vendor (on the vendor’s site or in a cloud) and accessed by insurer staff via the Internet.

Who Is Using the Cloud?

“At one time, we used a service accessed via the Internet to provide estimated outcomes on bodily injury claims,” says Ernie Pearson, IT director of applications development for Secura Insurance. “The hardware and application were hosted by the vendor. We would enter info about the claim, and the system would provide a range of values for setting reserves.” While Secura no longer uses that application, Pearson says the company does use hosted services for compliance reporting of first report of injury/subsequent report of injury for workers’ comp claims and medical bill review.

According to Karlyn Carnahan, principal of insurance at Novarica, “Some carriers are actually using hosted claims administration systems. We typically see this in smaller carriers that value the infrastructure support provided. Carriers also may use hosted claims administration systems when entering a new market. They find that the cost of entry can be lower with a hosted option—and can get them into a new market faster than using an on-premises version.”

Many loss estimates for auto and property always have been done by independent adjusters, says Light. In recent years, those adjusters increasingly have accessed that functionality via the Web.

That being said, however, Carnahan believes that carriers are still wary about the security of private claimant information and generally are more likely to access non-core applications in the cloud rather than those that include sensitive data. Estimating is often handled in the cloud by players such as Instant Estimator and MyContentsClaim.com, she notes.  

Carnahan adds that fraud analysis also may be done in the cloud by firms such as Detica, which provides hosted fraud analysis products that allow carriers to use the power of the cloud for analysis of large quantities of data. Medical bill review is yet another function that can be handled in the cloud.

The Cloud for Adjusters?

Does cloud technology provide particular advantages for claims adjusters? According to Pearson, “Depending on the type of claim, it might provide real-time access to the most current information needed to adjust automobile or property losses. It also could provide the connections necessary between independent adjusters, body shops, rental-car agencies, enterprise content management systems, and claims administration systems to facilitate work flows.”

Another plus for adjusters is access to specialty applications that might otherwise be unavailable, such as estimation or collaboration tools, says Carnahan. This could allow adjusters to rapidly get their hands on more information than they otherwise might be able to without these tools.

According to Light, however, “There is no difference for adjusters whether the servers they use are in the cloud or on premises at an insurance company or on premises at a loss estimation system vendor site. For the insurer’s IT group, the cloud could provide more flexibility and some financial savings. The big advantage of SaaS for the insurer [IT] is a smaller upfront cash flow.”

Challenges in the Cloud

What are the challenges involved in using cloud technology for the claims process? “The same as exist for any staff using a Web connection to a program—privacy, security, and availability,” says Light.

Carnahan agrees, noting that carriers are typically concerned about the security and reliability of cloud providers’ operations. “They are concerned about unstable pricing structures. And they can be concerned about loss of control and loss of flexibility,” she explains. “Ease of integration with existing systems is another area of challenge. And carriers who want to use clouds to process very large data sets will want to ensure dedicated lines are in place to ensure speedy transmission.”

She adds that adjusters will need to make certain that the cloud applications can be reliably used even if a network connection is spotty or unavailable, which can easily happen to adjusters working in the field. “Carriers should look to see if the cloud application can be run in the absence of a network connection and synced up later,” Carnahan notes.

“I would suggest that security is one of the most significant challenges,” says Pearson. “The second challenge might be the availability and integration of useful applications.”

The Cloud in the Future

Looking to the future, “The use of both cloud and SaaS will increase over the next several years as IT shops grow more comfortable with the cloud form of outsourcing and the value proposition of SaaS becomes more refined,” predicts Light.

Adds Carnahan: “I believe that we’ll continue to see increased use of the cloud in the claims area, both for core claims administration as well as for ancillary processes such as bill review, estimatics, and analytics.” Using cloud-based applications, she notes, can enable carriers to utilize innovative applications more quickly than if they were to install them internally, allowing insurers to act more nimbly.

“Many of the concerns or challenges relate to the security and technology,” she concludes. “Vendors are well aware of these concerns and continue to focus on assuring security and reliability.”  

Ara C. Trembly is founder of Ara Trembly, The Tech Consultant (www.aratremblytechnology.com).  He is the author of “The Rogue Guru” blog and can be reached at ara@aratremblytechnology.com.