Claims Technology: The Big Three

Change is not necessarily what is needed to pull the insurance industry out of the doldrums. Over time, many words lose their true meaning, something especially true in the information technology world – and “change” is one such word.

The new year brings clarity in that only radical reform combined with solid five and 10 year plans can convince reinsurers and capital markets that the industry will once again thrive. What does radical reform really mean? As the broader topic could take up an entire magazine in itself, let’s focus on claims. For comparative analysis it is important to look to other industries equally as “mature” as the insurance industry. Insurance is not the only global industry to feel the pinch.

THE BIG THREE

In the early 1990s, competition in the American auto industry was being driven by rivals from Europe and Japan. The “big three” American manufacturers knew their weakness was quality due to poor design and manufacturing processes. The name of the game became re-engineering. Each aspect of internal operations was scrutinized, and broken or redundant processes were identified. The results were spectacular. The “big three” showed improvements in quality, lower operational costs and higher productivity.

Were they now in the driver’s seat? No. They could not touch Japan’s quality, efficiency, and speed to market. While the American manufacturers grew close in terms of productivity, competition would force them to continue their efforts to redefine their holistic processes, and those of their core business partners.

Once again, today’s mantra is re-engineering. Now with the Internet thrown into the mix the stakes are higher – only the strong and determined will ante up. Simply changing internal business practices will not do. Nor does one way of doing business create sustainable competitive advantage anymore. It is not enough to develop an inhouse “cost-cutting, client-saving and revenue-generating” way of handling claims. How long will it be before someone discovers this, only to replicate and execute the same process better? For the “big three” of auto, it was simply a matter of survival in the world of e-business.

Enter Covisint (LLC). Created in early 2000 by the “big three” American auto manufacturers, this joint development effort had but one goal: bring together and standardize the e-business initiatives of all the great auto manufacturers. This would remove the burden their supply chain would ultimately feel if asked to interact with multiple proprietary systems. With integration and collaboration, everyone would be promised a platform for efficiency, producing lower costs and creating harmony throughout the industry.

Now, nearing three years of development, Covisint has won the support of numerous overseas auto manufacturers in addition to “tier-one” and “tier-two” suppliers. Technology providers such as Oracle and Commerce One have taken equity stakes, and the possibility of a public offering is speculated. With profitability just around the corner, this sounds like a “post dot.com” start-up.

STAKEHOLDER INTERESTS

The insurance industry claims supply chain closely mimics that of the auto industry. Hundreds, even thousands of mom and pop shops, professional services firms, retailers, and regional and national service providers deliver their expertise to claims departments everyday, commanding a major share of the claim dollar. A common platform for conducting e-business across organizations could harmonize the industry – but each and every participant must be a stakeholder.

By now anyone doing their homework is saying “we tried this way before the auto guys and it didn’t work and never will work”. Yes, the industry has made attempts but failed miserably by simply “not getting along”. Today we see the forward-motion of the CSIO insurance portal initiative. There is a sense that the industry is willing to work together on e-business. At this point however, although rumors have been heard, claims fulfillment is not in the scope. Also at center stage is ACORD with their “eMerge” initiative. Bold as it is, the framework for standards is early in its evolution. Unfortunately, both CSIO and ACORD are non-profit associations, which negates certain opportunities.

For such a broad initiative, something akin to Covisint, to be successful in the insurance world, each and every stakeholder must own an interest and be independently accountable – qualities not enjoyed by CSIO or ACORD. Early equity funding could come from participating carriers, suppliers, and technology companies. Equity financing could also come by way of venture capital and public stock offerings. An open offering can create a dynamic company driven to produce results for its stakeholders in a timely fashion. An effort like this would largely benefit being driven from the inside and the outside.

MULTIPLE RETURNS

The value for the industry as a whole is clear. Service providers would enjoy a common e-business platform driving workflow and efficiency while removing the threats of multiple systems and standards. A model for competitive commerce would also be created, allowing small shops to once again compete with the nationals. Innovation may once again thrive amongst the thousands of companies currently beating each other up over price, margin, or preferred status.

Insurers have multiple means of return. Redefined claims processes that reach across organizational boundaries can result in lower loss ratios, faster claims processing, and happier clients. Shared e-business development costs not only support already reduced technology budgets but strengthen the returns on investment by sharing the risks. Such development could re-energize capital markets. The markets may warm up to the fact that risk is being spread wider and the industry is jointly committed to reform. A steady incline in profits will also get them talking.

Of course the policyholder, somewhat transparent thus far, will certainly experience the effects in the long term. Buyers of insurance products will be the ultimate winners, experiencing better service, lower costs, and fewer touch points.

Companies of all sizes are feeling very uncomfortable with higher costs and lower profits. Service levels are the “unfortunate child”, suffering from “work-arounds” and lower quality products and workmanship. Many service providers are eager to improve their business performance, the only question is how.

Uncertainty in the marketplace is causing service providers to delay the upfront investments in their technology infrastructure or their work-processes. Some firms like On Side Restoration Services, Sibley and Associates, or Merit Assessment Centres have gone the distance in redefining how they work internally and are applying technology to their workflow. But, fully extending this value to insurers cannot be done without the full support of industry leaders.

It is understandable why the industry has not moved forward in the past on such initiatives. We were educated that our trade secrets lie in the way we do business. This transition is a complicated process and it flies in the face of conventional wisdom. But perhaps this framework can help companies explore the process, expand their thinking, and re-evaluate their culture.