Sometimes the decision to build a system internally iswise. When it comes to claims solutions, though, a recent studycomes down firmly on the buy side.

Claims is one of the most important processes in the world ofproperty/casualty insurance because of its significance on aninsurers bottom line. With combined ratios for P&C insurersaveraging 96.9 for the first quarter of this year, insurers arewalking a tightrope. Pure loss and loss adjustment comprise morethan 70 percent of that figure, so any savings a carrier can findin the claims department is welcome in the world of profit andloss.

Celent Communications recently ex-amined a number of claimssystems on the market, and Donald Light, senior analyst in Celentsinsurance group, came away with the view few carriers have theability to build their own claims systems. It is not a small oreasy system to put together, he says. You probably can count on thefingers of both hands the number of insurance companies that reallyhave the skill base to start from ground zero and say, Were goingto build a modern claims system with all these functionalities. Theother 1,990 [P&C] insurance companies really should look at oneof the vendor solutions. Given insurance company IT resources, hebelieves it is an overwhelming task even for the handful ofinsurance companies that actually could do the job.

The simple reason is the cost of building a proprietary claimssystem. A large insurance company can buy at a fraction of theexpense, says Light. The difficulty [in building] is claims systemshave to work closely with policy administration systems and firstnotice of loss systems and financial loss systems. The ability tointegrate claims quickly, easily, and accurately is a specializedskill. That is daunting to all but a very small group of insurancecompanies.

One step insurers can take to gain control of the claimsoperation is to purchase an imaging or document managementsolution, Light advises. Im still surprised, to be frank, at theamount of paper that flows through insurance company systems, hesays. He blames claims and new business as the main culprits. Itsinefficient to have paper floating around, and it leads toinaccuracies and bad decisions because paper gets mislaid, explainsLight. The idea of making all your information digital has somepowerful business benefitsthats why we say image management/contentmanagement should be part of any good claims solution. The natureof the claims adjustment process is at least two peoplethe adjusterand the adjusters managermust have access to that data. If youvegot additional files [digitally] accessible to everyone with theproper privileges, you dont have to worry who had it on their desklast and why it hasnt been returned to the file.

While few claims systems offer litigation managementcapabilities, Light points out this is an area where carriers canadd on to their systems to have access to an increasingly importantarea of the claims management field. You have specializedlitigation management solutions that have grown as a softwarecategory themselves, he says. This is a case where both theeconomic value and the inherent complexity of managing the work ofa few dozen different law firms, with hundreds to thousands ofcases, justify that kind of focus in terms of a softwareapplication. Its a bonus if you have that capability built in. Iwouldnt take a lot of points away if a claims solution says itdoesnt have it as long as it integrates with a variety offree-standing litigation management solutions.

Because claims solutions are so expensive, its likely insurerswill purchase first document imaging or content management systems,according to Light. But in terms of size of deals, claims is anarea that has nudged its way into the spotlight in the last coupleof years, especially as the market softens, and I think its prettymuch a given the P&C market is softening now, he says. If thecombined ratio starts creeping over 100, [insurers] are going tolook at their claims system to see whether it has the ability tocontrol expenses and control their payoffs.

ROBERT REGIS HYLE