Perhaps the best way to understand the value of the "connected enterprise" is to reflect on the costs - in money, time and customer satisfaction - of the disconnections that continue to plague the insurance enterprise. Claims is a good place to start that reflection, as the complexity of the process and sheer number of participants make for a wealth of opportunities for process discontinuity and information disjunction.
While a favorable business climate has encouraged many companies to begin to transform their claims processes and technology, the handling of claims across the industry is still characterized by paper-intensive and error-prone manual processes, resulting in inefficiency, delay and the loss of goodwill among business partners and end customers. Alone, efficiency efforts aimed at manually intensive and redundant systems could provide significant return on technology investment, opines Dave Hollander, managing partner, insurance solutions group, Accenture (Chicago). "Up to four points of expenses in the claim process could be taken out," he says. "There are equal numbers in the claim payout of the loss cost - there's a lot of money sitting there."
The multiplicity of participants in the claim process makes achieving consistency hard enough; the multiplicity of systems within a given enterprise can increase that difficulty exponentially. "If you have data in different formats and different systems, it's very difficult to aggregate and measure the effectiveness of the service provided," Hollander comments. "If you can get on one architecture, one data model, there are five to 10 points of expenses that could come out from IT and business," he adds.
A focus on what could be achieved has influenced transformation efforts to move from process-orientation to outcome-orientation, according to Hollander. And one of the most important factors in securing better outcomes is a focus on consistency - of costs, service and the bottom line of claims payouts. "It's not just about having the efficiency to do something cheaply, but to ensure that the amount of money I pay is compatible with effectiveness and consistent across geographies," Hollander says.
The Promise of Technology
Achieving that kind of transparency is unrealistic for legacy-bound companies. For all the value that legacy systems provide in scalability and efficiency, they are resistant to the interconnection and flexibility needed to achieve transformation, according to Donald Light, a Silicon Valley-based senior analyst with Celent Communications. "They're very difficult to adapt because of the lack of externalized business rules and process management, as well as their capability for accessing data at the systems integration level," Light says.
Fortunately, the market has seen the emergence of claims systems based on more current architectures, such as J2EE or .NET platforms, that provide greater ease of integration. These will almost always be packaged solutions, Light observes, which involve the considerable task of tearing out existing core systems in order to integrate the new systems. But, he notes, "The modern architectures make a major contribution toward being able to do that with relative speed, ease and economy."
Newer systems offer an array of functionality to claims adjusters, including automated fraud-detection capabilities and the population of electronic claim files from first notice of loss. "There's the ability to have a digital claims folder, whereby all information - including photographs and even videos, as well as the conventional sorts of claims reports and estimates - is available to the adjuster and others on an authorized-user basis, as opposed to the classic paper file," Light relates.
Functionality available for claims managers includes the ability to design workflow, implement business rules and use rules engines to automate the assignment of claims to available adjusters with the right skill set.
Newer systems have sparked a trend by which the multiple parties to claim, both within and external to the enterprise, are able to interact via cooperative virtual workspaces. Thus, for example, an adjuster can quickly be in contact with an entire list of preferred auto repair shops, or the attorneys used by a carrier in the event a claim moves towards litigation. "Those capabilities are simply beyond the design and functionalities offered by legacy systems," Light glosses.
In addition to capabilities and tools that streamline the claims process, newer architectures confer improved business agility. Newer systems' built-in workflow, business process and business rules design capabilities make it easy for business people - as opposed to IT - to ramp up resources in response to opportunities. "The business side can say, for example, 'We're going to open up a new claims center' - in whatever geography - and, 'We need to integrate the folks in the new location in terms of skill mix, routing, etc.,'" Light postulates. "And they will be able, through workflow and business rules engines, to work out how that new set of capabilities fits into the existing system."
As carriers embrace new architectures and infrastructure foundations, achieving higher stages of functionality becomes easier. Such is the case at commercial carrier Zurich North America (Schaumburg, Ill.; $9 billion in 2003 net written premium and policy fees), which from 1999 to 2003 re-wrote its mainframe claims application into a Web-based claims system that it calls eZACCESS, according to Brenda Ruethain, the carrier's claims automation director.
"Being Web-based, the system gives us a lot more capability and flexibility, supplying more real-time information to the fingertips of claims professionals and improving service," she says. The application provides drop-down menus tied to workflow and analytical capabilities that help claims professionals work faster and more accurately, as well as produce more uniform results. "One of the strong benefits is consistency across the entire organization," Ruethain says.
The Web-based system also affords adjusters greater mobility, as they now can link-up to the back-office systems over the Internet. Another advantage, Ruethain adds, is "being able to more easily integrate various systems as we go through the entire claim-handling process."
For example, Zurich already has a homegrown paperless imaging and claim file system, which currently is being re-written as a Web-based application contained within eZACCESS. "The vast majority of documentation from customers or third parties is imaged and available for our claims professionals to access electronically," Ruethain explains. "It's going to be more of a 'one-stop shopping' experience for all of our claims adjusters."
Zurich also will integrate a system called Risk Portrait, developed during 2002 and 2003, which joins three data repositories for the purpose of automating all key aspects of special handling and site information of major customers - an important differentiating capability for large commercial lines. Once the application is integrated with eZACCESS (planned for early 2006), claims professionals will enjoy the efficiencies associated with automatic rule-based compliance with customer requirements, such as geographic particularities of multilocation clients and thresholds for claim settlement. "Instead of having to actively seek out and pull the information, we're going to enable the system to automatically push it to the adjuster," Ruethain says.
While Zurich won't talk in terms of dollars, Ruethain says that the carrier expects to gain "huge efficiencies," as well as increased quality and consistency of service, and the ability to feed more and better analytic information back to underwriting. Zurich set out to "increase our productivity, improve the actual claim outcome, for both Zurich and its insureds, and improve overall customer satisfaction," she says.
Cincinnati-based Great American, a subsidiary of American Financial Group (Cincinnati; approximately $3.5 billion in premium income), has proved that opportunities exist for substantial improvements even without significant investment. Robin Spaulding, divisional vice president, alternative markets, recounts how she came to the carrier's workers' comp operation in 2001 from a bill review company, when Great American "was working in a paper environment and never knew where a bill was."
In moving toward a solution, Spaulding enjoyed the good fortune that Great American was already working on a paperless claim file built on Exigen (San Francisco) VisiFLOW imaging, FileNet (Costa Mesa, Calif.) Capture and Captaris (Bellevue, Wash.) RightFax, with an initial live date of April 2001 and additional deployments continuing to business units through 2004. Great American processed more than 600 bills per day, about 5,000 per month - each one manually entered. The carrier outsourced the billing process to an external provider, which turned bills around in about 45 days. "We were getting about $5 million in savings, and I knew that was kind of low," Spaulding recalls.
Great American vetted other medical bill review companies via an RFP process and then ran them through a trial based on performance in a 100-bill test run. "We picked a vendor - Fair Isaac [Minneapolis] - that had a great rules engine," says Spaulding.
The carrier proceeded to invest $50,000 to $75,000 to build feeds to the vendor to deliver bill images. "We paid Fair Isaac nothing up front and told them, 'Your IT costs are not our issue: That's your cost of doing business," Spaulding relates.
The Fair Isaac solution went live in 2002, and by 2003 Great American enjoyed gross savings of about $14 million. Savings for 2004 reached nearly $16 million, with a turnaround time of about three days - for the same number of bills. Regarding ROI, Spaulding says, "For the fees we pay Fair Isaac, Great American gets $25 back for every dollar we invest - and we didn't really invest much, other than the $50,000 to $75,000."
Spaulding adds that the number of manual transactions has been reduced by 50 percent since 2001. And rather than cut staff, the carrier is focusing on improving quality. "The goal was not to do layoffs; it was to be the premier claims handling entity," she remarks. "We're starting to get the reputation of a prompt payer, and that's something that we can sell to accounts."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio