Modernized or Legacy, Carriers Seek To Maximize Claims Systems’ ROI

Though insurance companies have achieved varying degrees of modernization among their claims platforms, many are examining ways to leverage their current systems as a basis for technology and process innovation with the goal of improving the customer experience.

Nearly all insurers agree on the critical importance of the claims process. But the ways in which they choose to manage, execute and enhance that process can vary greatly, especially from a technology standpoint. It should be no surprise then that, when asked if the industry has reached a critical mass regarding modern claims system implementations, Donald Light, a senior analyst in Celent's insurance practice, quickly answers, "Yes and no."

In 2007 and 2008, according to Light, about 100 core claims systems were sold by the vendors that Boston-based Celent tracks. "There are hundreds and hundreds of insurers, of course, that have only partially modernized or not modernized their [claims] systems," he says. "It's very much a mixed picture. There's a substantial minority -- edging toward a majority -- of fairly modern claims systems [deployed] over the past five or six years. The rest are split among the dark ages -- largely paper-based, with accounting and financial functions and legacy claims systems of various types."

While modernized claims system adoption varies greatly across the industry, so too does the industry's perceived focus over time on claims technology. Mark Gorman, the Minneapolis-based principal of consulting firm Mark B. Gorman & Associates, says that interest in claims modernization was high two years ago but that the economic downturn caused carriers to shift focus to protecting books of business and taking advantage of new market opportunities. Lately, though, he's seeing a renewed interest in claims technology investment.

But while both the extent to which carriers have modernized their claims systems and how the focus on claims system investment has trended over time have fluctuated, today insurers seem to be of one mind when it comes to the importance of claims performance. In a recently released report, Karlyn Carnahan, a principal in New York-based Novarica's insurance practice, wrote that, despite facing its slowest growth rate since the 1930s, the insurance industry is still investing in claims technology. "Claims projects are among the least likely to be put on hold, with only 2 percent of carriers postponing claims projects," she wrote in the report (see related sidebar).

A claims system is core to any insurer's operations. It is also core to just about every insurer's strategic direction: If a carrier is looking to improve efficiency, the claims process is rife with opportunities to streamline processing; and if an optimized customer experience is the top priority, then claims handling often is the primary factor in determining customers' satisfaction levels.

The Next Generation

Allstate ($29.4 billion in 2008 revenue), for instance, has realized both efficiency improvements and customer service gains as it continues to roll out Next Gen, its modernized claims system, which is a highly customized version of a vendor platform. (Allstate declines to identify the vendor.) The Northbrook, Ill.-based carrier set out to reinvent its claims process in 2005, and after a couple of years in development and a couple more in implementation, Allstate went live with Next Gen for its property business two years ago and for its auto and casualty businesses a year ago.

"It allows us to get consistent information across to a variety of people who are working within this environment," reports Shawn Broadfield, an assistant VP in Allstate's claims department, of the new claims platform. "It allows us to be more efficient as we share information."

But even with those efficiency gains apparent, according to Broadfield, Allstate execs cite improved customer experience as the driving factor behind the project -- not that efficiency gains and customer service enhancements are mutually exclusive. "Next Gen was really focused around helping us with customer experience," explains Broadfield. "In our world that equals better cycle times."