Insurers that improve their claims systems today are achieving two resultscost cutting and enhanced customer servicefrom a single effort. Carriers now have not only the appetite but the budget to improve strategically the entire claims process, investing in new management systems and workflow-focused tools.
BY MICHAEL P. VOELKER
What a difference a year makes.
Twelve months ago, claims technology projects still were struggling to get their piece of the IT budget pie, with carriers focusing on policy administration and infrastructure. As a result, most of the claims work going on had been tactically oriented and tool focused.
Today companies are realizing the value of claims strategically. We definitely are seeing a growing interest in how to improve the overall end-to-end claims process, particularly compared with two years or even a year ago, says Kimberly Harris-Ferrante, vice president of research at Gartner. Budgets have begun to open up for larger claims projects, and in a study soon to be released by Gartner, 62 percent of P&C carriers report they actively are assessing technologies that can support and improve the overall claims process.
Claims to the Core
Focusing on strategic projects means companies have had to identify exactly what their strategy is. As the money out side of the business, claims traditionally had been an area where cost-cutting projects ruled the day. Customer service was an afterthoughtgood if it improved as a result of a new system deployment but not a problem if it didnt.
Carriers have come to realize that view is shortsighted. There is a strong correlation between customer retention and customer experience in claims, notes Marek Jakubik, managing director and co-founder of the Insurance Technology Group. Thats worrisome news for some carriers, given a recent study by Accenture and SAP that showed 20 percent of P&C claimants were dissatisfied with the service they received.
Therefore, the most comprehensive strategy for a claims technology project is both to reduce cost and improve customer service. Those carriers [that accomplish that objective] will continue to gain market share, says Deborah M. Smallwood, insurance practice leader at TowerGroup.
Finding they need a robust claims management system to support their strategic objectives, carriers increasingly have been willing to do wholesale replacement of legacy claims administration platforms. There are a number of [claims administration] vendors out there that have seen an uptick in business, Smallwood reports.
One carrier that recently traveled the legacy-replacement path is Horace Mann. The company wanted to improve its overall claims operation, targeting such goals as real-time claim visibility, faster claim turnaround, streamlined processing, and more responsive customer service. However, its 20-year-old, AS400-based claims system simply wasnt up to the task.
The system needed to be modernized, says Robert Kambe, vice president of claims operations at Horace Mann. We realized we were falling farther and farther behind [our competitors].
Beginning in early 2003, Horace Mann began replacing the AS400 system with Claims Workstation from Fiserv. It deployed the new system to all claims staff by November of that year, although it took a year to convert fully open claims from the old system. Also in 2003, the carrier installed a new interactive voice response (IVR) telephony system from Siemens, coinciding with its initiative to consolidate 16 claims offices into six regional offices.
Previously, call center reps would take claim information from a caller, collecting just enough information to open a claim. The information would be routed manually to an adjuster who would contact the claimant for additional information before beginning the claim, and the process was paper intensive. Today, the IVR system automatically routes calls to the appropriate regional office loss unit. There, reps enter loss information and comments into Claims Workstation, which assigns preliminary loss reserves and transfers the claim to the assigned adjuster on the first call in 85 percent of claims, a process Kambe calls a warm transfer assignment. Horace Mann also provides a Web-based first notice of loss, and one rep in each office handles assignment of Web-initiated claims.
Horace Mann has achieved what Kambe describes as a significant reduction in the need for adjusters to call back to obtain preliminary claim information. Additionally, claims automatically are routed to supervisors based on the companys referral parameters, and electronic files mean multiple people can review claims simultaneously. He also indicates the average time claims remain open has been cut in half, which impacts both service and cost. The longer a coverage remains open, the more expensive it is, so handling it sooner rather than later is a huge expense-control item, says Kambe.
With the new Fiserv system, application and database servers, and other infrastructure investments, the project cost exceeded $3 million. However, Horace Mann was able to achieve a return on its investment in the first year simply by being able to eliminate 10 claims offices, which Kambe credits the project with enabling. We will remain at present staffing levels even though we will continue to grow in auto and property policy counts through 2005 and 2006, he says.
Go With the (Work)Flow
Automation of the workflow beginning at the first notice of loss and extending throughout the life of the claim is a common goal in the claims projects undertaken by many insurers. Insurers are looking at process managers, rules engines, and analytic tools to help make claims more efficient and effective, to improve productivity and streamline the supply chain, and to improve performance from a profitability standpoint. Also, using rules engines [that are a standard feature of workflow systems] to extract core functionality that was embedded in claims systems frees up maintenance work, as well, notes Smallwood.
Although companies have a bevy of workflow systems to choose from in the document management and business process management (BPM) technology industries, carriers prefer a solution provider that offers insurance expertise, Harris-Ferrante asserts. Most popular among carriers is buying a claims-specific workflow tool, such as Staffware [by Tibco] or [ClaimCenter by] Guidewire[a vendor that] has built claims rules into the BPM solution, she explains.
Hastings Mutual completed a deployment of Guidewires ClaimCenter system in April 2004. Like Horace Manns project, it was a complete replacement of a legacy claims administration platformin Hastings case, a DOS-based mainframe system. ClaimCenter is deployed on dual application servers with failover support, and the application required a new database server, as well. The system interfaces with Hastings existing policy administration and financial reporting systems.
The project also coincided with a needed PC upgrade throughout the claims department. [Previously] we werent able to move the claims department to newer hardware that could support newer operating systems, e-mail, Office applications, and other applications because we always had needed to include DOS support, says Bob Eshelbrenner, Hastings CIO.
The biggest initial impact of Guidewire was the implementation of a rules-based workflow that allows Hastings to triage claims effectively. The system automatically routes new losses to triage supervisors, who assign a severity ranking of one, two, or three. The system then automatically will assign severity-three claims to a field adjuster and severity-one claims to an inside rep. Severity two may stay inside or go out, depending upon workloads and other variables in the claim detail. The system also has the ability to segment claims so, for instance, the collision part of a claim may be handled by an inside adjuster but the bodily injury portion could be assigned to a field rep.
In addition, Hastings has seen greater consistency in loss reporting and better workload balancing. In the past, supervisors would look at loss reports and decide to whom to assign them, and every supervisor handled things a bit differently, says Ray Rose, Hastings claims manager. Some adjusters also were trying to do more than they should have done by taking on every claim that came to them even if it killed them. Besides assigning claims equally and objectively, ClaimCenter provides supervisors with dashboards that let them continually monitor workloads. Rose credits the system with helping Hastings keep its staffing level despite an increase in business and reduce its need for independent adjusters.
The carrier also has used the new system as the basis for improving workflows with external business partners. One of its first initiatives after deploying the ClaimCenter system was a project to improve its bill review process. Previously, its bill review vendor, ReviewWorks, would adjust and return anywhere from 2,000 to 3,000 bills per month to the carrier, each of which needed to be entered manually into Hastings claims system before payments could be made. That process could take one clerk several weeks to complete.
Today, the vendor sends Hastings a data file ClaimCenter uses to adjust claim amounts automatically. Checks are cut, matched with explanation of benefits forms, and maileda process that now takes a clerk as little as one day. Its not that we couldnt have done that type of integration with bill review or other vendors with the mainframe system, but it would have been much clunkier, Eshelbrenner says.
Tighter integration of disparate workflow tools is the goal of direct-to-consumer personal auto insurer Esurance. Currently, losses reported to the carriers central loss reporting unit in Sioux Falls, Iowa, either by phone, fax, or Web, are entered by loss assigners into Esurances FileHandler claims management system, built by JW Software. Loss assigners also use the Web-based ClaimsPort system from ProcessClaims to make physical damage appraisal assignments to independent adjusters, repair shops, and other business partners.
Having a Web-based workflow tool for appraisal assignment is important to Esurance because, unlike with staff adjusters, the carrier cannot control the technology platform independent adjusters use. ProcessClaims, which hosts the system on an ASP basis for Esurance, also is able to integrate directly with popular estimating systems from the vendors repair shops use such as CCC Information Services, Mitchell 1, and ADP Claims Services Group.
Mark Hofmann, claims technology manager at Esurance, reports ProcessClaims system, which was deployed in 2004 to replace an earlier fax-based workflow, was responsible for a 25 percent reduction in time between report of loss and completion of vehicle inspection. Going forward, Esurance wants to integrate the system fully with FileHandler to present a more unified workflow for staff.
Right now, we are working on sending [claims] data to [ClaimsPort] to reduce the amount of manual entry. Thats phase one of a two-phased approach, Hofmann says, with the second phase being the automatic upload of inspections, appraisals, photos, and other information from ClaimsPort to the FileHandler system. The carrier also is working on enabling remote wireless access to the system for staff appraisers.
Rules-based workflow can help insurers correct problems with claims before they are paid, anywhere from detecting fraud to confirming estimates are in line with expectations. At Horace Mann, the rules engine in Claims Workstation scores claims in real time against a number of predetermined fraud flags and makes referrals to special investigative unit (SIU) staff.
Although the company would not quantify the impact of automated fraud referrals in terms of claim declinations or successful prosecutions, it has led to what Kambe calls a modernization of the SIU process, where referrals are more consistent than the previous method that relied solely on adjuster intuition. It also led to a doubling in the size of Horace Manns SIU department.
Esurance uses a rules-based intelligence component of ProcessClaims system to apply point thresholds to estimates based on such factors as damage estimate, labor rates, and type of damage. We determined about 30 percent of our estimates didnt need to be reviewed by our desk auditors, Hofmann says, whereas previously 100 percent of estimates were reviewed. As a result, Esurance has been able to reduce the staff needed to audit estimates and eliminate bottlenecks in the auditing process that held up approval and payment of estimates, thereby improving turnaround and customer service.
Yet despite the impact of workflow tools on carriers strategic objective of reduced cost and improved customer service, automation often has been a tough nut to crack in insurance, mainly because of the perpetuation of paper files in the claims process. There is simply a strong historical attachment to paper, Insurance Technology Groups Jakubik points out.
Hastings, for example, has deployed an OnBase document management system from Hyland Software in its underwriting area but has not yet extended that system to claims. Currently, any images or documents received or generated electronically, such as digital faxes of loss notices and photographs, are stored in a repository of the ClaimCenter system, and paper claim files still are established. The company is working on extending the OnBase system enterprisewide, and once that project is completed, images will be moved from ClaimCenter to the central OnBase system and paper files will be eliminated.
Measure for Measure
Not only do carriers share a common challenge to workflow automation in claims, but they also make a common mistake. It amazes me companies will begin with automating existing processes, says Harris-Ferrante. You can make your existing process go faster, but why would you want to if youre going in the wrong direction?
Before AutoOne Insurance began deploying an imaging and workflow system in 2005, it considered the way various claims processes were undertaken. In one instance, claims associates were sending clerks instruction sheets saying, Make this payment, explains Adam Karol, the insurers assistant vice president of claims. We identified it took just as long to make the payment as it did to send the instruction, so now, all our associates make their own payments.
Another impediment to success regardless of the type of project is carriers often lack the ability to assess a new systems impact. A lot of them are just guessing, claims Tim Gillespie, principal consultant at Doculabs.
AutoOne decided to deploy performance management software from the Opus Group, which allows the carrier to design, model, and then monitor process changes. You really need to have true, accurate data to benchmark your project, see if it works, and determine whether you need to go down a different road, Karol says. AutoOnes first step was to track all activities undertaken by claims staff and record baseline measures for those activities in the Opus system. It then uses Opus to pull transactional data from its claims administration system and continuously track claims activity.
The company uses the system to assess the before-and-after impact of workflow changes and new technology deployments. Modeling tools permit AutoOne to run what-if scenarios that model the impact of workflow changes and to staff proactively. We are growing rapidly by both product line and state, so we need to make sure we have the data to support our claims staffing that allows us to do that, Karol says.
On a tactical level, AutoOne supervisory staff also uses dashboards in the Opus system for day-to-day workload monitoring. Historically, [supervisors] would wait for end-of-week reports related to incoming, closed, and open claims. The dashboard tools [in Opus] allow managers to lead their staff proactively, Karol comments.
Having the Opus system in place will be important to the success of the imaging and workflow systems pending deployment, Karol maintains, and making process changes modeled with the tool is delivering AutoOne a greater than two-to-one ROI on the Opus project. Our cost savings come from being able to reallocate and realign resources into other projects within the organization much more solidly than if it were done on a gut feeling basis, says Karol.
Even if carriers create more sophisticated systems of measurement within the claims department itself, Harris-Ferrante argues insurers still lack the ability to assess the true strategic impact of claims projects to their overall business. They can tell you performance datait took X days to handle a claim before and Y days now, she says, but when it comes to assessing how claims service impacts customer retention and satisfaction, they cant measure the effect accurately and objectively, an effort that would fall under the umbrella of enterprise analytics.
Therefore, at least for the near future, insurers will continue to operate with the anecdotal understanding improvements in claims service (which they can measure) do positively impact customer satisfaction and retention, and their strategic claims projects will reflect that.
Cost and service should both matter to carriers, Smallwood contends. Its a different industry today.