Claims: Wrestling the Reinsurance Claims Bear to the Ground

To say that major change is afoot in the way claims are managed by reinsurers would be no overstatement. One market observer refers to "the coming revolution," the prelude to which shares characteristics with other most-likely-to-succeed revolutions: sustained disgruntlement and dissatisfaction with the status quo.

That status quo is a scenario wherein claims take weeks or months to be settled. It is a situation where technology could not be bent to the will of those seeking greater automation of the process.

To be fair, some fickle characteristics of the reinsurance claims process have been more than a match for those who have, in the past, striven to overcome them. For one thing, reinsurance claims processing is an extremely paper-intensive process. Secondly, by the nature of reinsurance, on any particular risk there are numerous underwriters that are subsequently liable for claims. Also, uncertainty about what is covered in a contract is possible. Thus, agreement on claims can be subject to tedious and expensive negotiation -- witness "Silverstein" of World Trade Center fame.

Despite these impediments, dramatic change has been made possible by new technologies, including new electronic standards for claims file sharing and the vision and commitment to employ them. Like St. George to an unruly claims dragon, the Lloyd's-dominated London market has been a champion of the implementation of the new standards-based solutions to the problem. The London market -- Lloyd's and the company market -- has suffered particularly hard in the absence of the solution. Some automation is in place within the London market but the process still involves heavy broker visitation with "lead" underwriters and other parties. This is necessary in spite of the fact that claims can be advised electronically by the broker ahead of time because there are usually many supporting paper documents that the leaders need to review before they can agree on the claim. And if follower underwriters query a claim, the broker will have to take the supporting paper to them as well. Add to that the need also to visit the claims adjusters in the London Bureau (operated by Xchanging Claims Services, or XCS) in order to agree and process Lloyd's claims, and it is easy to appreciate how the labor-intensive process adds to claims spend.

London identified electronic claims as one of four major targets of its five-year-old market reform initiative. It recognized that a standard means for sharing electronic versions of existing paper documents (Word files, Excel files, PDFs, etc.) was imperative to the process. It actively supported ACORD's working group efforts to build the standard to work in conjunction with ACORD's existing XML standards for reinsurance claims. The result was the creation of the Document Repository Interface (DRI) standard in 2004. This enables the document repositories of brokers, insurers and the new market-sponsored Xchanging Insurance Services (XIS) repository to share claims files electronically. With implementation of the standard already in place between some brokers and insurers and the XIS repository scheduled for a phased rollout in 2005 and 2006, all parties soon will be able to access claims information at the same time, rather than waiting their turns to see the files. The DRI is allowing controlled, secure and concurrent access to the claims files.

This is not London market-specific technology. The U.S.-based and mainland European reinsurance markets have the same opportunity to improve claims handling. The U.S. market started moving forward with notification of electronic claims data in the 1990s, using ACORD EDIFACT messages (a forerunner to XML messages). However, U.S. brokers and reinsurers found the benefits of using these messages inhibited by the continuing need also to supply supporting documents. Reinsurers could process the claims data immediately, but then had to wait for supporting claims documentation to come by mail. But over the last year, with the advent of ACORD XML claims standards and DRI standards together with increasing implementation of document management systems within individual organizations, U.S.-based cedents, brokers and reinsurers are looking again at how they can increase automation of the claims process to share all details of a claim electronically. The European market has only started to address electronic processing of claims since the ACORD XML standards have been available, but early implementations are in place.

So what does the post-revolution claims world look like? It's a place where direct negotiation between broker and underwriter can focus on important business issues; where paper is cut out of the process and routine claims transactions can be handled completely electronically; and where the whole claims process is streamlined, leading to reduced costs and faster payment of claims.

Denise Garth is vice president, membership and development, ACORD, [email protected].