Claims: Life Insurance Claims Processing: Accommodating Change

Remember life insurance claims processing -- it was all so simple then. You had one claim for one policy. Because of this "simplicity," life claims processing wasn't viewed as a high priority. Over the past two decades, things have certainly changed.

Not only have technology and regulations placed new demands on data, but the advent of Long Term Care (LTC) and Disability Income (DI) insurance formed a hybrid. The boom of non-medical health insurance claims sent a shockwave through the life community as the realization that these new claims, and their volume, brought with them new system demands and new costs.

An unexpected ramification was that more seniors than expected actually filed claims and fewer policies lapsed. This created an increase in claims processing and a drain on cash reserves. This also started a domino effect -- more claims led to more claims processing which led to drastic increases in processing costs and, consequently, to increased premiums which, in turn, led to a slump in sales.

In July 2004, Business Week reported that insurers "raised premiums for new individual [LTC] policies 5 percent to 10 percent on average" over the past year. This may have been one of the causes that led to an overall downturn in premiums. LIMRA reported that premiums declined by 28 percent in the fourth quarter of 2004 alone compared to the same period in 2003.

So how will the life industry deal with these increased costs for claims processing and need for increased cash reserves?

For some insurers, the solution was to bail out of the marketplace. Others, however, are determined and are taking measures to modernize business processing and improve claims processing and workflows to increase profitability. This is where implementing ACORD data standards come in. Standards streamline the communication of claims data, reduce costs and increase business processing efficiency.

Insurers continue to implement solutions to remain in the game and expand their opportunities in this marketplace. According to Celent Communications, "life/health insurers currently spend about 8 percent of their new project budgets on improving claims, approximately US$503 million industrywide in 2005. However, by 2010, Celent expects claims to account for roughly 15 percent of life/health new project spending, as other problems have been addressed and claims and claims-related service for complex products like LTC and others take a more prominent role in life/health insurer operations."

Clearly, the leaders in the life insurance industry recognize the need to improve the life claims process and acknowledge that data standards play a vital role in these efforts -- these leaders are ACORD members. ACORD members represent all of the top 10 U.S. life insurers and more than three quarters of the top 25. These are the leaders driving life claims standards development.

Recently, ACORD formed the Life and Annuity Program Claims Working Group to address these issues. While much of the foundation for claims messages has been in place, their focus is on enhancing and extending the existing standard to meet the needs of the industry for claims messaging. The four primary messages requested by the membership are Submission, Inquiry, Status and Settlement.

According to ACORD Life & Annuity Program Director Rick Heil, "The structure of this standard lends itself to extension and enhancement to accommodate changes in the industry. Working groups, such as the Claims Working Group, bring real-world knowledge to bear to fill in gaps and expand the capabilities of the standards to solve these real-world problems. The more members involved, the broader the knowledge base."

Standards, created by and for the industry, will be the key to improving claims processing and communication. Although this development process is hardly simple, enabling all parties to communicate with the same vocabulary will inevitably lead to faster, more efficient and accurate data and claims processing. Times change and so must systems with the help of data standards.