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Paving the Road to Innovation

How claims departments are changing expectations by replacing admin systems.

April 18, 2013 Photo
Airline carriers expect to fly high every day. The same is true for insurance carriers, but in a different way: They seek elevation by achieving highly cost-effective administration, providing a high level of service, and attaining highly satisfied customers. 

In particular, claims organizations face the challenge of balancing loss costs, expenses, and the services they provide to customers. While the goal is to offer a fair settlement and pay the appropriate amount, carriers also need to minimize leakage and reduce fraud. Loss costs can be kept low when carriers subrogate where possible and take advantage of salvage opportunities

Additionally, the data that can be gathered from the claims function can help carriers better define their appetite, identify potential new products, and develop more accurate and competitive pricing programs. When you add in the need to provide a high level of customer service as a differentiator to drive retention, the challenge becomes more taxing.

Traditionally, claims handling has been a very labor-intensive process for carriers with lots of paper, handoffs, and relationships to manage. But customer expectations are changing. Claimants compare a carrier’s process not to other carriers but to the way they work with other industries, such as banking and retail. They expect a very smooth process with no requests for information that the company should already have and no paper-based delays or waiting for information to come in. They expect the claim to be handled quickly and that there will be transparency in the process. Just as they can see where their Federal Express package is, they expect to be able to see the status of their claim and easily track its progress.

These expectations are heightened by advertising messages from large carriers that have significant capabilities: That company on TV sends a vehicle to the customer, and the adjuster cuts a check right there at the accident. Policyholders also expect to participate and collaborate in the process: “You’re on Facebook; I’m on Facebook. Why can’t we just talk?” 

Delivering all of this in a cost-effective manner—keeping both internal operating costs low and minimizing external loss costs, such as attorney fees or expert witness fees—can prove difficult without solid support from technology. This is likely why we continue to see significant activity by carriers to replace their claims administration systems.

When carriers are asked about their top three projects for 2013, 29 percent of large carriers and 23 percent of midsize/small carriers surveyed by Novarica say that claims is one of the top three projects they are focusing on for 2013. Across all carriers, nine percent plan to continue a replacement project already in progress. Fifteen percent plan to start a new replacement project in 2013. Nine percent are planning major enhancements to their claims systems, and 41 percent are planning minor enhancements. While 25 percent are planning to maintain their current platforms, a large number of those are carriers that have recently completed a claims replacement project. 

There are a number of business requirements driving this activity. Carriers are looking to improve their internal workflows in order to support business process changes, improve efficiencies, and reduce expenses. Automating processes also can improve consistency in handling procedures, both to improve customer service as well as to avoid compliance issues.

Carriers are looking for a modern, intuitive user interface for their claims system to attract the new generation who simply won’t put up with an old, clunky system. An intuitive interface also significantly reduces training time, which provides an added benefit of being able to rapidly onboard new users—especially important in a catastrophe situation. Wizards and easy-to-find contextual help are becoming more important. 

Carriers are trying to improve flexibility in adding data elements and managing rules to quickly respond to regulatory changes. Generally, carriers are seeking to become self-sufficient in maintaining or enhancing the system. They want to be able to make day-to-day changes to business rules and workflow, thereby reducing the long-term total cost of ownership.

Perhaps one of the most important requirements is the demand for increased data accessibility in order to improve claims processes, boost underwriting knowledge, and reduce fraudulent claims.

Beyond the types of functional improvements that a carrier can obtain from replacing its claims administration system, there are a variety of other technologies that impact claims and can change the game for carriers.

Social and Collaboration. We’ve seen explosive growth and wide adoption of Facebook, Twitter, and other social media in the general public. This is in no small part due to mobile and smartphone devices being ideal for social Web and instant sharing. The massive increase in social media represents a growing openness and willingness to share information. Users are sharing more with each passing quarter and expect to be able to communicate and collaborate easily on all transactions.

In the claims function, social media is being widely used in fraud investigations. Carriers use social media to verify the facts of a suspicious claim—was it vandalism or did a teenager have a party? Social media is used to identify suspicious claimant activity—is the laptop that was reported stolen the same one that is shown for sale on Craigslist? It can be used after a claim to monitor and find activities that are contraindicated by the circumstance of the claim or for verification of secondary sources of income.

With thousands of social media sites, systematic monitoring can be difficult if a carrier is doing it manually. But firms such as Social Intelligence, LexisNexis, and ISO provide tools that let carriers check thousands of sites in seconds. 

Social media technologies also are being used to build collaboration into a variety of claims processes. Adjusters can collaborate not only with other employees to share knowledge and streamline workflow processes but also with agents and vendors to accelerate the process and build in transparency. They may also collaborate with claimants to build loyalty through higher-quality, more consistent interactions.

For example, a claims service representative taking in a first notice of loss could instant message with screen sharing if adjuster assistance is needed or instant message the rental-car company to ensure that a car is available and dispatch it to the claimant. In the estimating process, consumers can collaborate with the adjuster in the valuation of contents using tools such as MyContentsClaim.com. Collaboration with contractors is facilitated with tools like those from Symbility. The Q&A process is facilitated with remote file reviews by teams. And customer communication with Web updates, instant messaging, and video conferencing can speed up the process.

Mobile. Today’s cell phones and tablets are often more powerful than the desktop and laptop computers still in use at many insurance companies—with tremendous speed, displays, and blazingly fast connectivity. Browser-based claims administration systems allow remote access to all claims system functions from a laptop, allowing work to be done in real time in the field. A number of carriers offer mobile apps to their policyholders—often these are available from the claims solution vendors. These apps are more common for automobile policyholders, allowing claimants to report a first notice of loss, capture the details of the claim, find services such as body shops and rental cars, and notify first responders. There are also mobile applications available to consumers that have not been provided by carriers—such as the iCarBlackBox. For 99 cents, it uses the iPhone’s camera to record driving, detects when an accident has (presumably) taken place, and then verbally asks if you wish to save the recording. It uses the phone’s GPS to keep a constant record of your speed and clock and date functions to create a map that displays where and when an accident took place. The recording provides a visual record of who was at fault in an accident. And in the event of an accident, it will ask if you wish to autodial 911. 

Predictive Analytics. As carriers get better at gathering and managing data, predictive analytics is becoming more heavily used in the claims area. Carriers typically have three challenges when it comes to launching a predictive analytics initiative. The first challenge is accessing the data. Many carriers have implemented data warehouses and have master data management programs in place.

The second challenge is determining what to predict. In the claims area, there are a number of typical models that have significant impact on the results of a claim, e.g., carriers forecast medical costs and utilization to drive early intervention with case management. They are using models to predict the likelihood of return to work and implement more aggressive programs. They are identifying the likelihood of litigation and prioritizing claims for special handling. And predictive analytics is being heavily used for fraud. Sophisticated network analysis is becoming more common, finding connections and patterns of fraud that were previously unidentified.

The last challenge carriers often have is consistently operationalizing their models. This is where modern claims administration systems can help. With automated workflow, task generation, and scoring mechanisms, a carrier can easily and consistently use a model to drive actions that result in significant benefits.

Optical Recognition. We’ve all seen the advertisements for companies that can use optical recognition technology for bill payment—take a picture of the check and pay your bill. In the claims area, optical recognition is now available for the estimatics process. You can take a photograph of the vehicle damage and get an instant estimate of the repair cost. Repair webcams allow an adjuster to verify that work is being done on a vehicle and that the insurer is not paying needlessly for another day of rental-car and storage fees.

A wide variety of innovative techniques is being used to improve today’s claims process. From just-in-time dispatching of claims adjusters using sophisticated techniques to prepaid cards, innovation is exploding in the claims organizations of today’s carriers. The velocity of change will only continue to increase as data continues to move faster, new technologies are created, and carriers build agility into their organizations. Where will it go? Straight-through processing of claims beyond glass claims is already happening. Use of telematics in the claims process is likely. A significant increase in collaboration is expected between claimants, adjusters, medical providers, and other vendors. 

What’s keeping carriers from moving forward with these techniques? For many, it’s the ball and chain of the legacy system. Carriers that are still tied to a legacy system often have a difficult time being agile and flexible. It’s very complex and expensive to change these systems. Access to the data needed for many of these techniques is limited. Balancing the demands of competing priorities during a time when most carriers are looking for cost reductions also makes it difficult for carries to invest in new technologies. 

When thinking about the next steps for modernizing claims, don’t worry about the next bright and shiny object. While it’s important to be aware of the different types of innovations that are taking place, it’s more important to align your IT strategy with your business strategy. Look at your technology offerings and compare what you’re offering to your overall business strategy. The offerings will change depending on whether your strategy is to be low cost, high touch, or something in between. 

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About The Authors
Karlyn Carnahan

Karlyn Carnahan is principal of insurance at New York-based research and advisory firm Novarica. She has been a CLM Fellow since 2013 and can be reached at  kcarnahan@novarica.com

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