Technology: Riding The Claims Curve

After several false starts, insurance companies in Canada are getting serious about revamping their claims processes to improve efficiency and provide quicker turnaround. Gone are the days of off-the-shelf technology products that held out high promises for property and casualty insurers but failed to deliver. Today, companies are much more realistic about integration with existing legacy systems and how their claims “best practices” must be built into any technology solution. “Technology is an accelerator of sound fundamental processes and proven best practices in claims, rather than a panacea,” says Greg Somerville, executive vice president of claims and reinsurance at Aviva Canada.

Several well-documented studies have demonstrated that claims “leakage” – in other words, losses due to overlap or poor productivity – accounts for 15% of overall claims settlement costs. In a 2001 study, consulting firm Accenture claimed that better use of technology and employee training could cut these costs, particularly when it found that claims handlers spend nearly half their time on routine administrative tasks that have no direct bearing on settlement amounts. Another study by the same firm the following year discovered that 94% of consumers who filed a claim cited quick resolution as highly important to their satisfaction with the claims process.

The typical response from insurance companies up until earlier this decade was to bite off chunks of the claims process and automate select areas. Few insurers have been able to carve out any sustainable competitive advantage in reducing claims costs – which consume 75%-80% of annual revenues. “In the past, much of the technology addressed only one part of the claims process, and in a separate fashion,” observes Glen Piller, president of technology provider iter8 Inc. “For example, there may be examples of imaging or document management for things like car repair estimates. Many of these may work, but they don’t address the entire claims process. They are more tools rather than a strategy looking at the claims process from end-to-end.”

“In the industry overall, there is interest in investing in claims, but I sense frustration that most of the solutions are piecemeal,” says Rocco Neglia, vice president of claims at Economical Insurance Group. “Sometimes the solution is not worth the effort, because you don’t get the full benefit. It is either a marginal gain in productivity or in some cases it can even be counterproductive.”

PROCESS OBSTACLES

In the claims context, several roadblocks to change exist. The first is legacy systems, and the multiple platforms that many insurance companies operate on internally, often due to acquisitions of other firms.

“The constraints of legacy systems are a real challenge,” notes David Lincoln, senior vice president of claims at ING Canada Inc. “A lot of these systems have been around for 20-plus years, [and] they tend to be very hard-coded. When they were built in the 1970s and 1980s, claims were almost an afterthought, so it became more of a financial tracking system with links to underwriting. That is why we ended up with these huge paper-based claims files.”

Another obstacle is the need for communication with multiple parties involved in a typical claim – brokers/agents, supplier, internal or external adjusters, claims handling staff and, of course, customers. While there are some good examples of electronic transfer of data and images from auto appraisers and repair facilities to insurance companies, the general insurance supply chain is still paper-intensive and error-prone. “I believe that this is, in fact, one of the biggest problems that exists today relative to the claims process,” comments Wayne Beck, vice president of insurance solutions at CGI. “The current process of communication is still largely based on phone calls and faxes. While email has certainly made major inroads, the problem remains that, for the most part, each of these communication processes is initiated manually and can become time consuming. From a vendor standpoint, the issue is further compounded by the variations from insurer to insurer.”

Yet another roadblock is the inconsistent execution of what a company considers its claims “best practices” on the front-line level. “Insurance companies have great manuals and guidelines, but where most fall down is in failing to execute,” says Irene Bianchi, vice president of claims at Royal & SunAlliance Canada.

Today, there are clear signs of change in the claims process. Independent market analyst Datamonitor conducted a study released in late 2004 that predicted U.S. insurers would pump US$4 billion into revamping claims management systems this year, calling it a “leading strategic area of investment”. While the numbers are not the same in Canada, there is a noticeable trend in claims reorganization projects here, as well. Several insurers are investing millions of dollars in making claims processes more efficient, using modern technology architecture to link more effectively into legacy systems. More current technology, such as “J2EE” or “.NET” platforms and “Service Oriented Architecture”, allow claims systems that have built-in workflow and business rules that relate specifically to claims handling. While there is still integration work required to legacy systems – how much depends on whom you ask – today’s technology represents a new way of approaching claims that emphasizes flexibility and open standards.

DIVERSE SOLUTIONS

Although individual insurance companies have differing strategies, there are several common goals on the technology front. One trend utilizes intuitive, user-friendly claims desktop screens and functional systems that capture information electronically from first notice of loss through to settlement. Many companies are also building in business rules, process management and logic to automate decision making for routine transactions. They increasingly want the ability to segment claims by specific type and complexity and then route them to qualified adjusters. And, perhaps most importantly, insurance companies are looking for technology that is flexible enough to quickly accommodate changes in the regulatory or business environment.

While some of these steps are taking place now, others will be in the future. But, there now a greater movement towards “complete claims solutions” than there has been in the last ten years. One example is Aviva Canada, which recently reorganized its claims handling services across Canada into four “customer care centers” – in Hamilton, Montreal, Halifax and the Calgary. These care centers standardize the way claims are handled through any Aviva-related company and rely on common technology to expedite settlement. “From our point of view, we have made a significant investment in technology to support the claims function over the last two and a half to three years,” says Somerville. “We partnered with The Innovation Group in developing the front-end solution that supports the high-transaction physical damage claims.”

TIG’s claims solution is built on “Service Oriented Architecture” that Ed Ossie, chief operating officer at TIG says can “co-exist with legacy systems anywhere from three to 30 years old,” The company also offers what it calls the “Insurance Design Studio” – a business process modeling solution that currently has more than 900 insurance processes related to common claims scenarios. “For the claims care center person, they can capture all the information about a claim right from the first notice of loss,” Ossie notes. “Once a claim is opened, the system guides the claims person through a series of questions. These are not simply screens, but rather an intelligent decision-support system that prompts certain questions and ensures information is not missed or overlooked, he adds.

One thing companies want to avoid is the back and forth of phone calls, where customers may have to explain their claim twice. While Aviva’s revamped approach to c laims is still being rolled out, Somerville says early results show 95%-97% customer satisfaction ratings as measured by an external source. Royal & SunAlliance also recognizes the importance of restructuring the claims process, investing $5 million over two years in a specific claims technology initiative. Its “Claims Desktop” is an Internet-based solution that sits on top of the company’s website platform and is able to draw data from that system. The desktop technology, which was developed internally, is accessible to all employees involved in claims handling at the company. “We wanted to make it so that anyone could look in at any particular point in time and see the flow of the claim, from start to finish in terms of transparency and ease of understanding,” says Bianchi. “People will not have to go searching for information, it is now at their fingertips. So, if the call center person, or the bodily injury examiner, gets the call relating to the claim, he/she can access the same information and answer that question.”

Royal & SunAlliance’s “Claims Desktop” has already completed its first phase of introduction and will be rolled out over the rest of 2005 and into next year. “All of our best practices, all of our execution targets are built into our desktops,” Bianchi explains. “It makes it very easy for people to know exactly what their job is and more importantly for them to execute it consistently.”

DATA MANAGEMENT

Lincoln views the investment in claims technology as a double-sided process. “When you look at a claims system, there are really two functions – one is to facilitate the claim itself and get the vehicle or house repaired,” he says. “The second is the statistical information. As an industry, we are very rich with data, but poor with useable information. Legacy systems were built to provide statistics, they were not built to provide management reports to help with the whole claims settlement process.”

Lincoln notes that ING has invested in a series of front-end desktop screens to facilitate the claims process, but has also created a data warehouse to “give our managers a flexible report system to help them manage their operations. We are a strong actuarially-driven company and everything from our claims reports rolls back into our actuarial database.”

Economical has invested for the past two and a half years in technology it calls the “Capture Distribution System (CDS),” which was launched in June this year. Full training in its use and completion of the system is expected by mid-September. Neglia says a past challenge for the company was handling claims from different subsidiaries within the company, with some of the operations using unique legacy systems. By using Oracle technology, the company has built a customized Windows-based, desktop-accessible solution on top of its legacy systems. The CDS system is able to extract and transfer data to and from the legacy systems without being dependent on them. “Now, we have the same application for claims handling right across the underwriting companies,” says Neglia. “Once a claim is reported, a claims representative can plug in the policy number or name and automatically start the adjustment process. In the system, we have built a logic and protocol as to how to document and handle a claim by sub-claim type. It will rate and score the complexity of the claim, so that it gets routed to the staff person with the appropriate level of expertise.”

Economical has also built an automated interface with its estimating software provider ADP that will reduce double-entry and boost productivity, Neglia observes. “Right now, we have this for physical damage, but we haven’t built that with other suppliers, such as lawyers and medical providers. That will be the next phase.”

SLOW COMMUNICATION

It is communication with multiple parties, including customers, which many insurers see as a key weakness in the claims process. How much has claims management kept up with modern tools for communication?

“If you had a claim today, a lot of the communication would be the same as it was 40 years ago,” say Neil Parkinson, national director of the insurance industry practice at KPMG. “You phone someone to report the claim, they may call you back and tell you where to get your car fixed and then someone gets paid for it. There are a lot of things in our personal lives where you can report or monitor the progress of something via the Internet. That is just something that isn’t really happening on any widespread basis for claimants so far.”

This is a space in the client and external supplier network that technology company CGI wants to fill with its “SMART” solution. Beck says “SMART” is a claims management portal that enables all interested parties (insurers, adjusters, vendors and policyholders) to seek out and exchange information electronically. Through newer technologies like SMART phones, improved rules engines and voice recognition software, there is potential to automate and streamline the communication process in a typical insurance claim, according to Beck. “The ideal solution should be a common platform where all interested parties can see, work and participate in the processing of the claim in a consistent, accurate and timely manner.”

However, many of these technology and process solutions for claims management are in their early stages. Yet, several companies are trying to answer the same kinds of claims questions. How do you ensure that claims standards are consistently applied throughout the insurance organization? How can older legacy systems be interfaced with modern technology? What is the best way to create “virtual workspaces” that span several parties?

For many firms, answers to these questions also define where on the claims curve they will be in the future. “Claims reorganization projects have to be based on a sound combination of people, process and technology,” says Piller. “I think in the future companies will be looking at a much more holistic approach to claims.”

Those companies making the right investments in technology, training and process redesign will be able to balance customer service with control of the indemnity dollar. Companies that seek to stay ahead of this curve will be measured by client satisfaction rates and their ability to keep claims costs down. “In the past few years, this industry has invested a lot of technology money on upfront risk selection and point of sale distribution systems,” says Lincoln. “But, if we are spending 75 of the premium dollar on claims, I think this is where the rubber really hits the road.”