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Insurers' Technology Modernization Efforts Often Start With Claims

Rip-and-replace technology modernization efforts can be risky. But componentization is enabling phased transformations, and many carriers are starting with claims.

Insurers traditionally have avoided making wholesale changes to their IT systems due to the risk involved. But the increasing availability of modular technology solutions is enabling carriers worldwide to modernize their IT infrastructures one component at a time, and often insurers start with claims systems, according to a recent Celent study.

"If you go back five to 10 years, there were some attempts to migrate entire systems, and those projects frequently didn't deliver what was wanted," says Craig Beattie, an analyst with the Boston-based consultancy's insurance group and co-author of the report, which studied European claims vendors. "It's a reasonably new thing that probably started in the U.S. but is now quite prevalent in the U.K. - this idea of breaking down the IT systems that an insurance company needs and changing component parts."

According to Beattie, from a business perspective, claims are an easy area in which to begin because the potential cost savings in that silo are easily identified. "Claims tends to be a favorite first start because it's quite an easy business case to build," he explains. "If [an insurer has] five claims systems and its operators need to switch between at least three of them, reducing the amount of systems can reduce the number of calls, and it can then reduce head count."

When selecting claims systems, carriers usually are looking to get leaner and smarter, Beattie says, adding that companies want to be able to respond to customer queries on the first call. But there are companies that look to technology to support growth. "Getting bigger tends to play a part when the operation in some way, whether it be the IT system or the amount of people servicing claims, limits the ability of the company to grow," Beattie relates.

Have It Your Way

For their part, Celent found, vendors are making their enterprise systems more customizable, building in configuration capabilities that no longer require internal IT departments to rewrite base code, which can cause problems down the road with upgrades or compatibility. "In the past, you might find that business processes required you to change code to add more fields to capture more info for your underwriting, for example - all of these are starting to become business rules and metadata that's included with the system," Beattie says. "You don't have to go in and physically tinker with the database."

European P&C insurers are also focusing heavily on claims fraud detection, Beattie points out. In the European market, the price of insurance is dropping, so carriers more than ever must ensure that they're paying only for legitimate claims - and that the amount they're paying for those claims is accurate, he says. "Claims estimation tools, fraud management, detecting fraud rings, looking at complex rules for behavior - these are all popular," Beattie reports.

Celent's last claims-focused study, in 2008, focused on U.S. vendors. Twenty-one vendors, including Accenture, Guidewire Software, Oracle and SAP, were profiled in the Europe study, which focused on the needs of European P&C carriers.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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