Whether or not you agree with the old saying, "The business of America is business," a good case can be made that the business of insurance is claims. People and businesses collectively pay hundreds of billions of dollars every year for promises. These promises become actions when a policyholder reports a loss and the claims process begins.
The business of insurance is claims in a financial sense as well. Claims accounts for $0.60 to $0.80 of every premium dollar for property/casualty and health insurers. (Occasionally it accounts for much more than a dollar of every premium dollar, but that is different topic). Around two-thirds of those pennies are paid directly to claimants (pure losses), and about one-eighth are used in determining whether and how much to pay (loss adjustment expenses).
Technology holds the key to making the claims process "more": more rapid, more accurate, more fair and more efficient. Using that key requires alignment among business drivers and claims initiatives, among initiatives and outcomes, and among business- and technology-side staff. This is easy to say, but harder to do. The challenge is how to get from here to there.
There are two general barriers to alignment. The first is not understanding where you want to go. Some insurers are very good at defining the business drivers that provide a necessary context for claims goals and objectives. In such companies, staff, investors, agents and policyholders all know ,or can easily discover, what is important. Other companies present themselves as all things to all people. The real test is to walk around an insurer and ask ten people what are its key goals and strategies. Is there one version ,with some variations, or are there ten versions?
The second barrier is lack of effective governance, prioritization and feedback. Resources are finite -- claims initiatives must battle new business initiatives, policy administration initiatives and many others. Governance is a formal and reasonably transparent process for creating priorities, approving specific initiatives and tracking their progress. Governance is where alignment actually happens or does not happen. A good governance structure should involve very senior executives (CEO or COO, CFO, business unit managers, CIO) setting general directions and making major resource decisions. It also requires participation by the day-to-day managers and staff to track progress and results. .
Insurers that want to overcome these barriers should follow a six-step program:
* Step 1: Make the claims business drivers perfectly clear. Business drivers fall into three broad categories: improving financials, building brand, being a good corporate citizen. Financials will focus on loss adjustment expenses and/or reducing pure losses. Claimants' and their agents' perceptions of an insurer's brand will be powerfully influenced by their experiences after claims are filed. Poor claims practices are vulnerable to regulatory scrutiny and civil suits -- and in the aggregate can damage the reputation of an insurer or the entire industry.
* Step 2: Make the claims metrics explicit and linked to the drivers. There is no shortage of things to measure in claims -- from the speed, accuracy and completeness of First Notice of Loss, all the way through to claims leakage (settling for more than is correct). Choosing the most important metrics is easier if they are sorted by business driver. Conversely, each driver should have a few associated metrics.
* Step 3: Agree on priorities for drivers and outcomes. There is much to be said for the contention that most people and organizations can really concentrate on only two or three things at one time. Since most claims technology initiatives will impact several business drivers and outcomes, there needs to be a way to determine which ones are really important for this approval cycle. Is this the year to focus on adjuster productivity, claimant satisfaction or loss reduction?
* Step 4: Identify the initiative portfolio. Initiatives should be defined from a business and process perspective. For example, "fast track more claims," or "lower medical and rehabilitation costs" are good descriptions. "Obtain imaging system" or "buy a litigation management system" are poor descriptions. This approach will make it easier to tie the initiatives back to drivers and outcomes. Some initiatives may utilize applications or solutions which are already in place, e.g., applying workflow tools to new processes. Other initiatives will require buying and installing new systems or equipment.
* Step 5: Choose technology accordingly. Only at this step does the focus shift to technology. Technology should enable the initiatives that most directly meet the driver and outcome priorities and can be evaluated by specific metrics. Claims technology solutions fall into three broad categories: rip and replace core claims systems (the adjusters' and managers' desktops), wrap and extent legacy systems (through enterprise components such as content management, business rules engines and process management solutions), and deploy point solutions (portals, estimation programs, analytics, business partner management, etc.)
* Step 6: Govern well. As discussed above, this is really the process that makes the first five steps happen. Large insurers need formal governance structures and procedures. Small insurers may achieve the same results through positive working relationships among key executives and managers.
Everyone agrees that aligning claims technology with business drivers, goals and strategies is important. The insurance companies that do the hard work of good planning and execution are the ones that will succeed in the business of insurance.