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11:28 AM
Bill Garvey, Eastern Shore Consulting
Bill Garvey, Eastern Shore Consulting

Why Claims Must Try Harder – Making the Case to Replace Legacy Claims Systems

Claims executives must leverage new technology for initiatives that transform the claims department and deliver clear financial results.

Making the Pitch When the heads of Marketing and Product tag team the automation committee they typically pin them down. Replacing that thing that's been churning out policies since the 70's is required for survival. Products take way too long to develop; rate changes are stagnant or too slow. The competition is eating our lunch. And when one exec spouts that he can't take advantage of web services, the Claims VP wants to roll her or his eyes into her or his head. Fact is, it's a lot harder to make the case for claims transformation. Marketing and Product make money. Claims spends it. When Claims makes its pitch for similar automation replacement the C level committee turns into the panel from Shark Tank. They're looking for money -- how much will it save, how soon the ROI, why should we do it?

Sure, Product and Marketing are eventually asked these questions but the emphasis on keeping up with the competition is their mightiest CBA. As well it should be. Claims Executives need to take these questions to heart because an argument about competition, while valid, just won't cut it. The modern systems on the market today for claims offer inherent loss leakage savings. They manage the medical claim process much better and interface to services that streamline operations such as first notice of loss (FNOL), litigation management and total loss evaluation. They track rental time and salvage percentages, subrogation recovery, as well as catastrophes, for more accurate reinsurance recovery. They actually do take advantage of web services which facilitates the flow of data into and out of new systems. But all this good stuff may not be enough.

Transformation The claims executive should be thinking about transformation of the organization, as well as development of the staff toward greater things. When the chief claim officer (CCO) tells the story of streamlining the redundant activities of multiple offices into one command center, and the ULAE savings that it generates -- only then will the CFO stop doodling. Functions such as print, imaging and check dispersal deliver economies of scale when centralized, and are capable only when automation is upgraded to the latest and greatest. Capturing FNOL in a command center not only streamlines the workforce around this activity but also improves customer service with potentially immediate settlement of routine losses. Splitting the features of a claim into manageable specialties is best accomplished through new technology and offers immediate loss savings because specialization brings focus and expertise to a claim. The adage "time is money" applies to claim handling like few other insurance operations. A strategy to reduce the cycle time of a claim from FNOL to resolution results in better Claim service and reduces indemnity costs and allocated expenses. Productivity improves when cases don't linger as long. To suggest a 10 percent per claim savings goal is conservative and entirely feasible. Do the math for your own organization and I'll bet you've just validated a perpetual software license!

Legacy claim systems have no useful method to manage the assignment process of claims to internal staff or to vendors. One Claim executive told me he was able to reduce his outside adjuster expense by 30 percent annually because the new software not only tracked assignments better but helped his organization determine how to utilize his field reps more effectively. He not only saved money but improved customer service because we all know a company person takes better care of an insured than an independent. The CCO need only point to this metric -- 30 percent annual savings -- to more than validate the annual maintenance costs of a new system.

Perhaps less weighty, but just as valid, is that our workforce is getting younger every day. The new generation of claim professionals expects technology that accommodates their skills. Green screens? I don't think so. In my own experience I realized a savings from four weeks to one to train newly hired adjusters on the new system. Actually, most people took less than a week, but let's not split hairs. The end result was almost immediate segues from orientation to productivity. What's even more compelling is the fact claim professionals are attracted to companies with modern, not old technology. These are the managers and CCO's of tomorrow. They need and want to understand the holistic advantages of modern technology to advance their careers.

Rules of the Road Of course you want a system that meets your needs, has a solid track record and is managed by good people. But you also need a rules engine as badly as the actuaries need a rating tool. Good rules engines are the clay to transformational excellence. They help you build, maintain and change your entire organization in weeks, not years. You'll still need IT (sorry) to test and retrofit the workflow changes, but it's not like your legacy system. These engines work for you. I oversaw a Claims system replacement where the new VP decided to change the entire organizational structure during user acceptance testing (the last stage before going live). After we stopped whining we realized this was a great opportunity to test our new tool. Three weeks later we had changed and tested all of the new rules for a radically different claims organization. We barely skipped a beat.

Cautionary Thoughts Transformation is never easy and is often messy. Employees' futures are at stake. Customer service must be weighed against pure dollar savings, and reserve fluctuations must be carefully monitored and managed as the radical changes to process take shape. But it is, after all, the claim executive's duty to the organization to think larger than the inherent benefits of software. He or she must have grand goals. The future is a wild ride of regulation for insurers and transference of the claim handling to private entities. The kind of claims we handle and the know how to adjust them change around every corner. Claims organizations need to be agile and smart -- old technology is neither. But making the case to replace your tired claim system requires imagination, vision, creativity and the courage to transform.

About the author: Bill Garvey has over three decades of insurance operations and IT executive and management experience. Based in Halifax, Nova Scotia, Bill is principal of Eastern Shore Consulting, which assists insurers in building the business case for legacy system replacement, selecting the best software, and enabling a successful implementation. He can be reached at (902) 457-7350 or visit

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