The claim represents a moment of truth for an insurance company -- one of the few chances when a consumer or business truly experiences the insurance product. When a claim is filed, the very reputation -- the brand -- of the carrier is at stake.
For policyholders, the good news is that most claim experiences do go well. But for carriers, the daunting challenge is not only delivering prompt, fair settlements; it's managing the action behind the scenes -- the typical inefficiency and high cost associated with traditional claims processing that can choke carrier profit. And complexities abound. Claims work includes first notice of loss, claim set up, coverage and eligibility verification, adjustment, adjudication, claims payments, and recoveries. The chain of potential data partners includes the insured, agent/broker, carrier, body shop, car-rental firm, loss payee, litigation attorneys, statistical agent, fraud database and reinsurer.
With so many participants, it's no surprise that claims processing and management is a huge expense bucket for underwriters. For example, in one study, 116 million property/casualty claims resulted in $27 billion in direct expenses -- but an additional $15 billion in indirect expenses. Another study found that some 20 cents on every settlement dollar went to the cost of handling the claims.
Strategic Shift Needed
Why hasn't claims process reform happened more swiftly? Too often, organizations attack costs as tactical opportunities and not as sustained strategic or transformational changes. They look at expense reduction as an independent process rather than a part of the end-to-end insurance process that triggers multiple decisions, leverages multiple information exchanges among multiple parties and handles multiple formats.
But increasingly, the insurance and reinsurance industries -- with leadership from certain carriers and reinsurers -- see straight-through processing coupled with industry data standards as the path to cut the expense fat out of claims handling.
Connectivity with business partners -- information/data sources, claims networks and reinsurers, for example -- depends increasingly on a carrier's ability to leverage real-time, XML standards-based data exchange. Data, information and systems can be accessible by other systems and stakeholders inside and outside the enterprise. With standards as the underlying data-exchange method, even unstructured data is no longer an issue. There are several benefits up and down the value chain:
- The opportunity for better risk selection and pricing for actual risk;
- Claims fraud, currently a multibillion-dollar problem for insurers, can be attacked with a more accurate view of the claim, thereby identifying patterns more easily;
- Greater data transparency, with compliance on reporting requirements made easier on Sarbanes-Oxley, HIPAA and the PATRIOT Act, for example; and
- Improved customer service, where consumers and businesses have the ability, with proper security requirements, to track progress of their claims in real time.
Claims Standards Available
The current ACORD XML standards for property/casualty claims include claims download, which is a snapshot of full claim activity to share with trading partners; claim fraud investigation; first notice of loss, first report of injury and claims notification for auto, GL, property and workers comp; claims status inquiry; loss runs (Bordereau); and claims subsequent reports. On the reinsurance side, ACORD standards also cover the full claims process from notice of loss to claim verification, request for payment, claim acceptance and bordereau (loss runs).
A recent ACORD case study outlines the successful implementation of ACORD's Claims First Notice of Loss by vendor Easylink to improve auto claims handling for One Beacon. Claims setup and claims adjusting were two areas positively affected. In the past, One Beacon's claims setup team entered minimal information into the business system so they could pass the claims to adjusters as quickly as possible. Following implementation, Easy Link's solution automatically captures more than 80 fields of information, eliminating the need for manual data entry. The claims setup team then verifies the information on-screen, speeding claim assignments and allowing the team to conduct additional tasks, such as vehicle dispatch and policy verification.
The carrier's adjusters now are given complete claims information and often are helped by additional up-front work done by the claims setup team. This has freed up an average of 1.5 hours a day per adjuster.
One Beacon projects a three-year cost savings of $1.6 million in one state alone and already recovered its initial investment. It began using the Easy Link solution in the state to process an average of 1,700 claims a month faxed in by agents, call centers and customers. Since then, the volume has grown to more than 8,000 notices of loss per month and the service expanded to include four more states. Claims processing times have been reduced by 50 percent to 60 percent and backlog virtually has been eliminated. On average, customers require one less day of rental and storage per claim.
In summary, claims processing is a core component for P&C insurers -- claims payments and expenses dominate their financial results. Claims management also is often the most complex piece, touching multiple internal and external organizations, applications and databases. Deciding to replace a core process is never an easy decision. But leveraging ACORD's claims standards already has achieved significant savings for companies.
For more information about industry implementation of standards, attend the 2005 ACORD LOMA Insurance Systems Forum, May 22-24 in Orlando, Fla.
Denise Garth ([email protected]) is vice president, membership and development, for ACORD, a global, nonprofit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance and related financial services industries.