Where the paper trail stops

With most insurance claims the paper trail starts with an incident report. The incident report is then prepared as a claim report by the internal claims handler who in turn creates a paper track process. A third party adjuster then creates a file and, with larger claims involving risk managed environments, the broker and the insured also generate paper-tracking files. All these parties need to communicate the results of the adjudication which adds to the growing paper pile. And, despite the fact that we exist in the “technology age”, the quantity of paper generated in claims handling continues to grow. However, it is maybe time to move to “advanced technology” to reap the cost efficiencies of a near paperless claims system.The technological advances of computers for claims handling began with the early calculators of the 1960s which automated recurrent tasks. In the mid 1960s mainframe computers made tracking of large amounts of data possible and continued the path of automation. The designing of software tracking programs to handle claims management began in the later 1960s. In general, these programs were user unfriendly, cumbersome and not very communicative to the outside world although to some extent the process of number crunching was accelerated.

Advances in computer technology through the 1970s and 1980s meant faster and faster processors but didn’t really affect the time that it took to handle a claim. A major impact was felt on the communications front with the introduction of the facsimile in the mid-1980s. This reduced the speed of transmitting information but didn’t reduce the paper handling.

Each handler of a claim, from insured to adjuster, continued to create a paper trail. Today, the adjuster may write a letter to the insured with a computer as opposed to typewriter, and the insured may fax a response instead of mailing it, but the paper still piles up.

The 1990s

With the arrival of the 1990s came another generation of computer software and hardware, with increased emphasis on graphical interfaces (windows) and more local content (personal computers). Local area networks (LAN’s) evolved from simple PC connections to complete systems with their own software and design considerations. In the mid 1990s email evolved enough to be made secure, but remained little more than a further automation of the facsimile process.

Then came wide area networks (WAN’s), also designed in the mid 1990s. Although they allowed for connections between a number of offices, it is only now that WAN’s are being implemented in the insurance industry with any kind of measurable success. As it stands there is still little connection between the parties of the claim and their systems, while the paper piles higher.

The future

To many users the Internet simply means email or web-browsing yet there is a revolution occurring in digital communication. Rapid advances in cellular phone, notepad and television technologies are all affected by the Internet. What has been ignored by many parties is that the Internet is primarily a communication tool, that the Internet permits a number of different levels of communication between parties beyond the historical phone and facsimile scenarios and today’s more vogue email. Some sectors however, have been paying attention — an excellent example being the banking industry. Personal and business banking can now be done with a fair degree of confidence and security over the Internet. By capitalizing on this opportunity, banks have managed to mediate the significant costs of person to person banking that existed only a few years ago, resulting in a substantial improvement in their bottom lines. The question then is, how can this technology revolution benefit the claims handling industry?

The Internet revolution

Let’s look to the future — say five to ten years from now. Density of web access will be 90% plus to all North American households (up from 46% in 1998) and virtually 100% of all businesses.

The methods by which claims handlers, and those in the insurance industry in general, increase their degrees of connectivity and reduce their dependence on paper will have great effects on the bottom line as well. As it stands there are three prominent scenarios to achieving this:

The Disconnected Interface Method. Each party to the claim maintains an internal WAN system (likely a client/server type model). Outside parties speak to the company through email or electronic data interface (EDI). For each party on the outside there is a separate interface or line — which creates a necessity internally to manage the variety of interfaces. The method is both extremely costly and cumbersome but remains the most prominent today. It does give companies the advantage of maintaining their own proprietary systems but to be truly Internet enabled (where others can view some of your information) is an almost impossible problem both from a security and design point of view. Fundamentally, to be paperless will be very difficult with this model.

The Proprietary, Managed Interface Method. A number of parties get together to develop standards to transfer claim information between their claims systems. An example of this model is the current estimating standards and point to point communications in auto appraisals and some auto claims used by companies like ADP. For large companies, these proprietary systems work well enough but most of the small to medium TPA’s, insureds, and others not party to the system’s business will be cut out of the loop. This model results in groups of tight collectives tied to specific vendors within the claim system. It is far less expensive to build and maintain than the first model due to standards and commonality of software but the static nature of these systems closes them off from new technologies and restricts acquisition capabilities.

The Coincident Interface Method. In this system a number of parties agree to use a common program to handle and protect the claims data as common information. For smaller TPA’s, insureds, and even larger parties who don’t have the desire to manage and maintain proprietary systems, this would seem to be the claims handling system of choice. In this model all data is held at a separate server for claim administration, and can be accessed instantly by interested parties upon request.

The example of Sabre, a ticket reservation system owned by American Airlines and used without conflict by most of its competitors, has proven data can be maintained separately in a common system to the benefit of all. Furthermore, when the Internet is used as the common path to the data, the systems flexibility becomes unparalleled. The clear advantages of lower up-front costs (no software, no network procurement and maintenance costs), as well as lower administration costs (no paper!) and instant response between parties, make the “coincident interface method” a likely candidate for an industry standard.

Technology objectives of claims handling

The objectives of technology in claims handling are simple: reduce retyping needs, speed up communications between parties to the claim data, simplify the process, and reduce the cost of maintaining the mountain of information, software and hardware.

The problem for most companies is how to achieve these goals while dealing with the sometimes complicated issues involved with outsourcing. Is in-house claims software an internal strategic asset or frustrating, revolving cost center? Can outsourced claims handling software be sufficiently flexible and secure to be considered a proprietary asset? And ultimately, how can those in the claims handling industry best capitalize on ongoing growth in information technology without the danger of costly commitments to systems that can’t grow with it?

These questions, and the issues raised within this article, are still being resolved throughout the industry. Over the next several years, with the increasing specialization of software handling and the rapid development of the Internet and global communications, many of these solutions wil l become available. Industry operators not ready to move with the times will find operating profits soaked up by their paper-intensive systems.