Turbo-Boost Your Claims Engine

Recently, a significant amount of research has been done proving the business case for claims transformation. Celent stated that new claims technology can improve combined ratio up to seven points. Industry-wide, this would mean an increase in $25 billion in underwriting profits all while decreasing the claims cycle time by 40%-50%. A recent Insurance News Net survey showed that 80% of customers would file claims online if it would expedite the claims settlement process.

Most carriers understand the pain points of having archaic claims systems and, more important, outdated processes, but they haven’t been able to quantify how much it is costing them. For example:

Cost is not the only issue. Effective claims resolution has a major impact on customer satisfaction as well. According to a survey of North American insurers by Accenture, 75% of customers who leave their insurer do so because of the carrier’s unsatisfactory handling of their claim. Customer retention is affected not only by whether a customer’s claim has been paid but also by how fast it was paid. While the fair treatment of a claim might be debatable, customers expect a rapid, low-touch process from first notification to payment.

The high cost of inefficient claims systems and processes is evident. So why aren’t all carriers investing in claims transformation?

Although carriers understand the significant benefits of transforming claims, transformation requires significant investment from both a process and technology standpoint. According to a 2008 survey by Celent, claims ranks second behind policy administration for the highest budget allocations for new information technology projects among U.S. mid-sized P&C carriers. Therefore, many companies still have not transitioned away from legacy systems and manual processes. A recent survey by Accenture shows that:

In today’s difficult economic environment, many companies simply do not have the investment dollars to undertake a major process-reengineering effort or the replacement of their claims systems. Many are simply in survival mode. The focus has, therefore, turned broadly to retaining customers and reducing operating costs. Specifically, insurance carriers are trying to provide services at lower costs, reduce claims leakage and curb fraud, which tends to increase during tough economic times.

Similar to dealing with an aging car, carriers that still employ aging claims systems and manual processes have a couple of choices when it comes to claims transformation:

Replacing a company’s claims engine is costly in terms of both dollars and time. The problem with choosing to tune up your claims engine is that no monumental benefits are achieved. This is especially true for mid-sized carriers that are too large for off-the-shelf solutions and too small to afford large-scale, long-duration transformation efforts involving major reengineering of processes, replacement and customization of the claims systems.

Minor enhancements, though easy to implement and less costly and risky, may not solve the real issues and are typically best suited for point problems, such as addressing compliance changes.

For companies that don’t want full replacement but do want to make significant improvements in their systems and claims processes, turbo-boosting their claims engine can be the answer—in effect making incremental, but significant, changes. This approach involves looking at the entire claims system holistically, systematically analyzing all the specific pieces in the systems and processes. The key is identifying the greatest hindrances to realizing business priorities and then implementing fixes that have the highest and quickest return on investment but are, at the same time, a less risky proposition.

For example, replacing a payments system that is shackled by too many touchpoints with an automated process may have a very quick payback. Adding fraud identification at first notice of loss may have a high underlying effect because the carrier can decide on appropriate handling approaches to deter or prevent fraud and/or investigate to prosecute and recover claims leakage. Building a Web-based claims processing system will allow the company to not only reduce loss adjustment expenses but also improve resource utilization. The key to this type of incremental optimization, or turbo-boost, is to:

The goal is to choose the right approach for each part of the claims engine that balances replacement with improvement in an incremental fashion.

The goals of incremental optimization are effectively the same as claims transformation: rectify or minimize claims expenses; improve customer satisfaction; minimize fraudulent claims payments; and adhere to compliance rules in a cost-effective manner.

The difference is in the execution. In the incremental approach, carriers need to identify the largest pain points for the organization and prioritize these projects by return on investment. It is key not to bind the organization into a one-size-fits-all approach, as those are costly and many times require high amounts of customization. The turbo-boost approach has the following benefits:

For example, one Fortune 100 company reduced their maintenance costs by 30% and improved claims turnaround time by 25% through a recent incremental optimization effort. How? They focused on three major pain points for the company: reducing duplicate functionality across multiple legacy systems; enabling remote system accessibility; and consolidating platforms and processes inherited due to merger and acquisition activity. The solution involved developing a new platform based on a service-oriented architecture. This new architecture not only addressed business needs but provided the company with an analytical dashboard and reporting system, as well as claims correspondence and vendor integration. Fundamentally, they replaced multiple redundant applications under one system with an enhanced architecture.

When embarking on incremental transformation, it is important that the assessment phase is done with awareness of existing investments in people, processes and technology. Based on the study and the analysis of the “as is” state, a transformation roadmap from a people, process and technology perspective would be drawn up. This in turn would become a launch pad for the “to be” state. This assessment should be done by an external team not related or tied to any one solution provider or product to get a truly unbiased assessment. One of the major benefits of the incremental approach is that the right product or solution is picked for the particular situation rather than employing a one-size-fits-all solution pushed by many product vendors. The external team should have:

Once you have a qualified team in place, analyzing claims processes systematically is the most crucial step to maximizing optimization.

Ashwin Riswadkar is head of the Property & Casualty Practice for L&T Infotech. He may be reached at ashwin.riswadkar@Lntinfotech.com.