Driving Out Costs

As a non-core competency for an insurance provider, document management is often an area that can be addressed effectively through an outsourcing model.

While the industry has been comparatively slow to adopt this business approach, there are a number of mitigating factors causing insurance organizations to seriously rethink how they handle document management and workflow. Certain competitive and economic factors are definitely leading to a slow but inexorable shift in perspective to consider outsourcing as a possible means to improve processes, reduce capital costs and sustain profitability.

NEW CHALLENGES

Industry consolidation, along with a host of new entries into the market, have led to increased pressure to increase productivity and efficiency, while at the same time, improve time to market and customer service. While the demand for speed may counteract the increasing regulatory compliance issues facing the industry, organizations must find ways to address both needs.

Mergers and acquisitions have significantly impacted document management efficiency. When merging two established financial services organizations, such as Clarica and Sun Life for example, each has its unique processes and systems for its document needs, from claims processing to correspondence. Integration can be complex, expensive and in some cases, take months to complete.

Unfortunately, the public and shareholders are not as patient in their expectations as they once were. Customer expectations in terms of turnaround times are higher than ever, and with the increasing acceptance of electronic delivery of information, patience and loyalty are becoming tenuous at best. New players in the financial industry, with highly advanced document management and “e-delivery” capabilities, already have the infrastructure and clout to threaten marketshare, and insurance organizations are at times hard pressed to follow suit.

The September 11 disaster has also had a ripple effect. Not only did it escalate the value of claims to an unprecedented level, it has also caused industries to seriously reconsider document storage, backup and retrieval needs. While the traditional mindset has been to maintain tight control over specific business functions inhouse, there is now a more compelling argument than ever to consider outsourcing non-core competencies in order to ensure near-instantaneous recovery of critical corporate documents and information.

Then, there is the overriding matter of cost. The cost of change is becoming prohibitively expensive for some organizations. Having the IT infrastructure to be able to adapt to ever-changing market demand is expensive in terms of both capital cost expenditures and manpower required to manage a system. The initial cost of hardware and software for a document management system in fact accounts for as little as 20% of total cost of ownership. The rest can quickly be taken up with installation and configuration, ongoing maintenance, upgrades, customization, administration and the real estate required to house systems.

At the same time, document volumes are continually increasing. Over the last five years, printing of documents has been increasing at a rate of 20% per annum, a trend that has quickly dispelled the concept of the “paperless office”. While some portions of claims processes have been converted to electronic, when it comes down to typical claims that require a myriad of documentation, photographs, signatures, etc., conversion to electronic delivery has been limited because of the cost and IT requirements involved.

This increased volume has also added significantly to the cost of storage and retrieval of physical documents. While it is evident that electronic delivery can help reduce the financial and physical burdens associated with storage and retrieval, the underlying cost of implementing and maintaining the vast range of technology required for document conversion and electronic storage can at times quickly outstrip the gains.

INTEGRATION

The key to driving out costs lies in the ability to integrate multiple document management and workflow processes into a centralized and unified whole that incorporates both electronic and paper-bound processes. This can entail a number of standard and customized internal and external communications needs, from printing and processing of claims and booklets and marketing materials to internal reporting, invoicing, check generation and personal correspondence.

These are functions that traditionally have been treated separately within an organization – which is not so much a reflection on its inefficiency but rather, an indication how overwhelming the challenges can be for full-scale integration. In an ideal world, the process begins with the creation and ongoing maintenance of an electronic repository for all documents. This provides numerous advantages.

Electronic storage of documents and online access to customer information can increase responsiveness of contact center personnel and reduce associated costs there. Multiple indices can speed up retrieval and place information in the hands of users and customers more quickly. Checks and invoices can be generated automatically, improving turnaround time and reducing the number of inbound inquiries. Communications vehicles such as correspondence, marketing brochures and booklets can be tailored to cross-sell and increase loyalty.

The data that resides in the repository can also be used to provide print-on-demand services for policies, booklets and other paper-based materials, thus allowing for last minute regulatory changes or any other minor revisions in policies or processes to be included in any hard copy being generated. Print-on-demand capabilities reduce waste and ensure that the information sent out is accurate and up-to-date. Checks and invoices can also be automatically generated, based on built-in rules.

Integration of information also improves workflow processes, since documents can be automatically pushed through the system to the right people at the right time. Simultaneous access by multiple users can be instrumental in reducing time to market as well as improving accuracy and reducing duplication of effort. Access by multiple users can increase productivity by 20% to 30%, and reduce turnaround time by as much as 20%. This ability becomes even more critical as organizations convert more services to an e-delivery model, which further reinforces the need for accurate, up-to-the-minute information and documentation.

BEYOND THE WALLS

These factors have all played a role when facing the inhouse/outsourcing debate. While most acknowledge that integration of information is a cornerstone for improving efficiency and driving costs out of the system, depending on the size, complexity and technological “readiness” of the organization, inhouse implementation may not be an affordable option.

This is why many insurance organizations are now looking beyond the walls of their enterprise to integrate and manage their document management and workflow needs. Depending on volumes and overall documentation requirements, a fully integrated outsourcing solution can deliver cost savings of anywhere from 20% to 30%.

Risk aversion also plays a major part in the outsourcing decision. Even a minor inhouse system failure can cost a company thousands of dollars in lost revenues. Outsourcers on the other hand, provide guaranteed service level agreements (SLAs) that adhere to predefined performance levels based on specific business requirements. These performance levels can easily be adapted, as business needs change.

DOING THE MATH

In order to understand the true nature of the cost savings associated with inhouse processes versus outsourcing, organizations need to make a full and accurate assessment of the costs associated with their current document management and workflow processes. Some are straightforward, others more complex. Factors to consider when assessing costs for current system requirements versus outsourcing are:

The total costs of onsite versus offsite storage;

The total cos ts associated with operating and maintaining equipment such as microfilm/microfiche readers, photocopiers, fax machines;

Total labor cost including all resources required to complete and manage the document management process;

The cost of locating misplaced information and recreating lost information;

The cost of customer service calls attributable to the inability to resolve issues on the first contact.

In these days of constant fiscal scrutiny, the ability to eliminate capital costs while speeding time to market is a matter of survival. For the insurance industry, sustaining profitability is especially difficulty as it is competing in a highly regulated and competitive market that is constantly changing. It is a matter of deciding where costs can be driven out of the internal process to improve bottom-line results, without compromising efficiency or security. A critical step is assessing document management and workflow needs. The next is deciding how to integrate the process as quickly and efficiently as possible.