Nationwide Indemnity Tackles A&E Claims

The impact of complex "long-tail" asbestos and environmental (A&E) claims on insurance companies has increased in recent years, but legacy claim systems are seldom equipped to deal with them effectively. Nationwide Indemnity, a subsidiary of Columbus, Ohio-based Nationwide ($148 billion in assets) that acts as a TPA for run-off books of commercial liability, had a chance to improve its management of long-tail A&E when the claims system it had been using was decommissioned.

Through Nationwide's affiliation with Wausau Insurance (Wausau, Wisc.), Nationwide Indemnity previously had access to Wausau's claim system. When Wausau changed its affiliation to Liberty Insurance, however, Liberty decided to manage Wausau's claims internally. As a result, Wausau notified Nationwide Indemnity in January 2000 that it intended to decommission its system.

Replacement Needed

"The possibility of taking over the legacy ourselves was not possible because of the cost, the amount of support needed to maintain it and the perceived inefficiencies of the legacy system," reports David Haggerty, vice president of finance, Nationwide Indemnity. A search of the marketplace led the insurer to The Innovation Group (TiG, Hartford), which offered a long-tail exposure (LTE) system built upon its Pyramid product and implemented in partnership with IBM Business Consulting Services (Armonk, N.Y.).

In the fall of 2000, Nationwide Indemnity began a conversion effort to transition from Wausau's legacy system to TiG, and the new system went online in September 2001. Among the improved functionality of the TiG claim system are its abilities to perform queries customized by loss (thus speeding up the indexing of new claims); establish automatic minimum reserve amounts for indemnity and multiple expense reserve amounts that can later be adjusted when better information is available; monitor policy limits to insure that payments do not exceed those limits; manage claims at the account level; and track information at the claimant level while maintaining event-level knowledge.

"LTE claims come at you across all policy years. ... In some cases, claimants are settled as one settlement, but not always," explains Haggerty. "Some companies manage this volume by setting up a master claim file for each account and managing all claims out of that one file."

The problem with that approach, Haggerty relates, is that it doesn't provide knowledge of when specific policies have exceeded limits. Furthermore, if retro-rated policies are involved (e.g., those generating additional premium related to loss activity), the losses must be allocated to the correct policy - and to the right layer, if there is more than a primary policy involved.

"In order for applicable reinsurance to attach, the losses must be properly allocated," Haggerty emphasizes. TiG LTE, he says, "allows the user to set up the claims involved under the applicable years by each account and establish rules for allocating losses and expense across those policies."

Haggerty adds that the TiG LTE solution positions Nationwide Indemnity to handle current claim activity involving both A&E exposures and normal general liability and/or auto liability claims better. But switching systems was not easy. "Aside from systems problems, you are faced with change," he says. "The users didn't easily accept the new system."

But recent positive comments from users suggest that the system is meeting expectations, Haggerty says. Increased acceptance, he asserts, is likely to be driven by the fact that TiG LTE provides for a uniform approach to A&E. "The new system manages many of the tasks that had to be either done manually or by [supplementary systems] previously," Haggerty says. "The level of claim information available is greater now than it has ever been."

CASE STUDY CLOSEUP

COMPANY:

Nationwide Indemnity, a subsidiary of Nationwide (Columbus, Ohio); $148 billion in assets.

LINES OF BUSINESS:

Commercial liability.

VENDOR/TECHNOLOGY:

The Innovation Group's (Hartford) long-tail exposure solution.

CHALLENGE:

Effectively handle long-tail asbestos and environmental claims.

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