Insurance, along with banking, was among the first industries toadopt information technology, back in the 1970s and early 1980s.What was a bold move at the time, however, has burdened today'sinsurance industry with a legacy of inflexible, archaic, andunfriendly systems that are poorly suited to the demands of today'sbusiness.

The root of the problem stares every claim adjuster in the facewhen he logs onto the claim processing system each morning: acryptic, text-based screen that can be navigated only by typingarcane key combinations into non-intuitive places on the screen.Twenty years after Apple commercialized the point-and-clickinterface, most adjusters still do their jobs without a mouse or,for that matter, a shift key, as their systems only use capitalletters. More importantly, these aging systems have no impact on aclaim's eventual outcome, serving simply as record-keepingdevices.

Although well aware of the time warp in which claim adjusters(and most other people in the industry) live, the majority of claimand IT departments have only nibbled around the edges of theproblem. Wary of replacing systems that few people in the companystill have the skills to understand, companies have instead boltednew tools onto the peripheries of those systems, providingincremental benefits but leaving the core problem untouched.

Some of these new tools include imaging systems for electronicversions of correspondence and other documents, damage or liabilityestimation tools, medical bill review systems, and electronicnetworks for communicating with vendors. Although these can improvethe lives of claim adjusters, they fail to address the criticalflaws of today's core claim systems, the ones that adjusters spendmost of their time on. Among these flaws are handling every claimthe same way, an inability to adapt to business changes, a failureto provide data management needs, and productivity-destroying userinterfaces.

The Diagnosis

Replacing a claim administration system, the system of recordfor basic claim data and financial transactions, can be a dauntingprospect. It is one, however, that every company will have toaddress, sooner or later. With that in mind, here are our top sixsigns that your claim system is obsolete:

6. Your CIO calls you and says you have to get rid ofit.

This can be for any number of reasons. There are legacy claimsystems that, in 2004, cannot, and never will, run on Windows 2000,let alone Windows XP. There are claim systems that require outdatedand insecure networking technologies. There are claim systems thatno longer have the support of their vendors. Whatever the reason,your system has become a costly and potentially insecure burden toyour company's technological infrastructure.

5. You have a brilliant new model for segmenting claims,but the system has no idea what a segment is.

Historically, most claim organizations handled all claims thesame way, by giving them to adjusters and waiting for them tofigure out how much to pay. Not surprisingly, most claim systemsare simple record-keeping devices that allow adjusters to keeptrack of their work on each claim. Today, however, managing eachclaim according to its specific requirements is the key toimproving claim outcomes while managing adjustment expenses. Anyanalysis of claim segments and outcomes will be worthless, however,if the claim system does not know what to do with it. If yoursystem does not have the flexibility to manage claims correctly, itneeds to go.

4. You have a 24-hour claimant contact standard, but noway to enforce it, or even remind people of it.

Leading claim organizations analyze their processes, determinethe criteria that separate successful outcomes from unnecessarycosts, and implement mechanisms to ensure that those criteria arebeing met. Contact standards are one example among many, includingvehicle repair cycles and times to settlement offers. If “contactclaimant” are just two words like any others, buried somewhere in afile note, your claim system cannot help improve performance. Youneed a claim system that knows what a deadline is, and can takeaction if it is not met.

3. Your friend at another insurance company says thathis new system has reduced claimant contact time by half, and letsagents get detailed claim information online.

Competition is an inescapable part of the insurance business,and the companies that can best serve their customers and agentswill take business away from those who cannot. For years, companieshave said that the claim experience is the most importantdeterminant of customer satisfaction, but some of them are puttingtheir money where their mouths are by finally investing in thetools the claim department needs. New systems can help claimdepartments streamline loss reporting, reduce cycle times, improveinformation availability, and provide better service to theircustomers. In today's highly competitive market, you cannot affordto let your claim organization fall behind.

2. Your 13-year-old daughter cannot figure out how touse it.

Your 13-year-old-daughter may not be a claim adjuster, but shecan pick up just about any piece of computer software in minutes,without a manual. Modern software applications have intuitiveinterfaces based on common standards shared by everything fromMicrosoft Word to Yahoo Mail. Chances are that your daughter has amore powerful and intuitive system to manage her MP3 collectionthan your adjusters have to manage claims. If she cannot figure outhow to use your character-based, all-caps claim system, your nextnew adjuster won't, either.

1. Your data is trapped in free-text notes, electronicimages, or paper files.

The foundation of an effective claim process is data. Adjustersneed good data to make decisions, and managers need good data todraw inferences and refine the process. Traditionally, claim datawas trapped on the pieces of paper in claim files; with imagingsystems, it now is trapped inside the electronic images of thosepieces of paper. You cannot figure out the average duration of areplacement rental vehicle if you do not have a field for it. Youcannot figure out the average severity of a cell phone-relatedaccident if your system does not know what a cell phone is. Yoursystem needs the ability to provide the data you need, when youneed it. Otherwise, you will be operating on the basis of bestestimates and wild guesses.

More than Record Keeping

A modern claim system, one that runs on modern technology, canadapt to the requirements of individual claims, and enforces bestpractices, is critical to improving your claim organization. Itgoes beyond the traditional claim administration system, designedfor data storage and financial transactions, to become a claimprocess management system, designed to control the way claims arehandled. Freed from the limitations of paper files and scannedimages, claims become fountains of information, the lifeblood ofany successful insurance business.

Adjusters need information, not only about claims, but alsoabout the claim-handling process itself, such as how long it takeseach repair shop to repair a vehicle, or how long workers withdifferent types of injuries take to return to work. If you canretrieve exactly the data that you need to retrieve, you have theinformation you need to refine your claim process. Analyzinghistorical claims can highlight what factors lead to litigation orexcessive settlements, and which lead to rapidly and fairly closedclaims. It can show which activities must be completed immediatelyfor different types of claims, and which activities should beassigned to specialists, rather than left to field adjusters.

If your claim system can take this information and feed it backinto the claim process, you have the power to influence the waythat claims actually are managed. You can test the impact ofprocess changes in the field and determine whether they have had apositive effect on claim outcomes. You can use automatic alerts toidentify potentially problematic claims and act on themimmediately. You can adapt your claim process to deal with newstates, new lines of business, new regulatory environments, or newcompetitors.

No longer a constraint that your organization has to cope with,your claim system can give you the power to innovate and improvethe claim process from first report of loss to finalsettlement.

Marcus Ryu is vice president of consulting services atGuidewire Software. He can be reached [email protected].