The Three-Legged Race

The challenge to connect all sides in the claims triangle means insurance carriers must look beyond their own self-interest to ensure quality repair work is performed for policyholders who purchase the insurers' product for this expressed purpose. "It's an area that's difficult to tie together in an informational, transactional, or workflow kind of network," says Donald Light, senior analyst in Celent's insurance group. "There are a lot of organizational and technological challenges. Technology finally is producing some capabilities that will allow interesting solutions to appear."

Analysts at Gartner have discovered multiple claims strategies in today's market, according to Kimberly Harris-Ferrante, research vice president. These strategies are contingent upon the vision of the company, she explains. "There are some claims strategies that are cost based--[carriers] still are trying to reduce the cost of the claims operation," she says. Such tactical strategies involve automating some of the manual processes in the claim cycle. "[Insurers] are looking at processes that might be broken and the opportunities available to do them cheaper," she says.

Carriers also are changing their processes as a way to grow revenue, Harris-Ferrante points out. Such changes focus on increased customer satisfaction, more rapid claims servicing as a way to improve customer loyalty, and the ability of the agent to check the status of a claim to help the customer. "You will hear companies talking about the ability to manage risks and improve the service through collaborative networks," she says. "You hear about how you deal with the claims supply and service partners, how you deal with the lawyers with litigation management, and the like. [Insurers] are looking at the whole concept of supply chain management being put into a claims context."

Quality of Claims

Massachusetts Personal Lines is a separate dedicated business unit for OneBeacon Insurance Group, and it is located in a highly regulated insurance market, reports Bob Woods, vice president of claims. "We are one of the only states where our rates are set by the commissioner of insurance," he indicates. In a situation such as this, claims costs are critical to profitability. However, one of the key problems the insurer faced was leakage. "Our leakage was too high, and our quality was too low," he says.

One way Woods describes claims leakage is in terms of dealing with car rental companies. If a carrier allowed a claimant to rent a vehicle while the customer's car was in the shop and the rental extended beyond the time the claimant actually needed the rental, that amounts to claims leakage, he explains. Such leakage also can be traced to other parts of the claim cycle, although not all carriers look at leakage, adds Woods, who believes it is a telling indicator of the health of a company's claims department.

The traditional approach to solving problems in the claims area is to hire more people, he notes, but increased employment costs can harm the carrier's loss ratio projections, especially if the carrier continually has rate decreases forced on it by regulators. Seeking a different approach, Woods was led to Opus Group, a consulting firm that examined the insurer's audit results, leakage results, and productivity. "In that review, we hit on two critical pieces to help us improve quality," he says. "Reduce leakage, and improve employee costs."

Opus helped Massachusetts Personal Lines discover the leakage, find where the quality was going astray, and assess whether the carrier had enough supervisors to do file reviews. "We have an extremely powerful claims system--the Accenture claims platform," says Woods. "There is voluminous data in that system. Our thought was, Would it be possible to come up with ways to stop leakage before it happens? If we could do that, we could come up with a better way for our supervisors to review the files. If, in fact, the claims system was telling our supervisors when their employees were not doing what we asked them to do, we then could use exception management to look at those employees."

Another part of the claims discussion involves preestablished relationships with third-party providers vs. open networks. If a carrier has relationships with certain business partners, the insurer can receive specialized pricing for claims and possibly better response times. Of course, carriers have to remember customers may not want to use those specialized service providers. "It can't be all or nothing," Harris-Ferrante says.

Strategies in the claims department are focused on specific supply partners that either are preferred or nonpreferred vendors. Carriers enter into different types of service agreements based upon their relationships with the service providers. Often, this dictates the speed of service and how fast the information exchange is between the two parties, continues Harris-Ferrante. "There are new portals appearing that try to help with the open exchange model, but right now, we see a lot of the large carriers still have those one-off relationships with the preferred networks," she says.

Hastings Mutual Insurance does not have a direct repair provider (DRP) program for automobile claims. "We look at it as part of what customers want to do with their vehicles," says Ray Rose, claims manager. "We do estimate reviews and talk to the shop." For glass repairs, though, the customer, the agent, or even the glass vendor can report the claim. "The vendor has policy information, so it can confirm the fact the policy exists. It can send out a work order to the glass shop to get going on the claim or even do a three-way call that can engage [the carrier,] the vendor, and the customer and pick a time to do the work," he says. Because there is an offer and acceptance component to its glass program, Hastings ensures the billing is set the way it's supposed to be and everything proceeds smoothly from that point.

An issue Hastings looked at in considering a DRP is the substantial cost per unit going through that program. "One of the things we've never really seen from the industry is a lot of savings on DRP programs," says Rose. "It seems like the savings are on the expense side, not the loss side. For us, we want to be sure we get reasonable savings on every estimate--in other words, it's written fairly and properly--and not just say, 'Here you go, you are under a DRP. Go ahead and fix it.' And then we get a fairly significant expense bill, too, because it was run through a program."

For Hastings to get into a DRP, the carrier would have had to add claims staff people to run the program and do reinspections or hire a third-party vendor to perform that function. "If we could see a program that would show some loss savings, we would be more attracted to it," says Rose.

Hastings does a number of audit and customer satisfaction surveys at the end of each month, which helps unearth problems in the claims process. "Because we are an independent agency company, if there is an issue [with the customer], our agents will let us know," Rose says. "They are pretty good about informing us of any problems. That's worked out well for us in the past."

Network Shy

In the area of personal auto coverage, Light contends the auto repair industry also has been a reluctant participant in terms of membership in networks established by insurance companies. To make the network work, he believes there needs to be good levels of communication established by the claims operation. "Being able to have the right kind of connectivity on site and to integrate that into the daily and hourly work processes is another step happening in the more forward-looking repair shops," he says.

If you look at some of the portal solutions established by large personal lines carriers, Light asserts carriers have made some significant investments in not only identifying the third-party providers but also having informational, work status, and workflow capabilities within those portals. From a consumer point of view, he believes carriers have a front-end problem of establishing a good substitute for the call center. "Most consumers who have an accident still want to talk to a human being," Light points out. "They'll find their agent or hopefully be directed to a call center, either run by an insurance company or also third-party groups."

As carriers enter preferred networks, one practice that is changing is how the payments are made. Traditionally consumers have the check, and they use that to pay the body shop. With all the new technology in the marketplace, it is allowing insurers to pay the service provider directly vs. having the consumer pay the bill. "Some consumers like that, and some don't," comments Harris-Ferrante.

Join the Network

Insurance carriers need to offer positive incentives for establishing provider networks for their claims operations. If they can give the claimant a set of incentives where things are faster, easier, and economically more rewarding to stay in network, customers will respond. Consumers already are accustomed to dealing with physician networks through their health insurance, and Light doesn't find it is a stretch to reach that same stage eventually with auto repair providers. "Unlike the relationship with a physician, which has all sorts of personal and deep ramifications, the advantage for the P&C industry is, for most people, an auto repair shop is an auto repair shop," he says. "The natural attachments that may be part of the medical care decision of inside network vs. outside network aren't really present."

The insurance industry has an opportunity to make such a relationship work, Light maintains, because policyholders almost always are inexperienced claimants, averaging fewer than one accident every decade. "Insurers can say, 'We have such a wonderful deal for you. Here's where you get your rental car. Here's a repair shop you can go to. We'll arrange for the towing to the repair shop. We'll drop off the rental car, and this will be the Class A service at the Class A price,'" says Light, adding consumers want something easy. "If the insurance company tells consumers it has a great deal for them, customers are likely to go along with it," he says.

To establish these networks, Harris-Ferrante notes exchange models are needed, which are more subscription based. In one-to-one connections, a carrier must create the portal and have the service provider either log in to the portal or the carrier needs the ability to log in to the provider's portal. "Somehow you have to get the two working together sending data back and forth," she says. "That's where you get into a lot of technology challenges, which is why [carriers] tend to have a select number of service providers and not a large network."

In talking to carriers that offer homeowners insurance as well as personal auto, Harris-Ferrante explains these carriers are studying the whole gamut of providers from end to end. "For auto, you are talking about tow shops and repair facilities," she says. "But when you get into homes damaged by lightning or a hurricane, you have to deal with folks who can come in and deal with that damage. It's definitely a different animal and not as mature a network as the auto industry."

The benefits of these networks include reduced settlement time and the ability to do the claims work faster and cheaper. There also are customer service benefits, Harris-Ferrante believes, because when customers call in and want to know the status of a claim or get a tow truck because they just wrecked their car, it's a positive experience from a customer perspective if all those pieces line up nicely. "At the end of the day, it's helping the insurance company to have all this information electronically so it can start analyzing the data, it can start looking at where processes are effective and where they aren't, and it can have data in real time to see if it is fraudulent," she says. "The more [claims departments] become electronic and use data-mining and analytic technology, they're going to be able to gather more insight on where they are taking losses and where events are occurring that need to be improved, and they can apply that to things such as underwriting and risk selection as well as changing the processes."

Using the Data

Massachusetts Personal Lines used the data it had compiled from audits of its own claims system to identify points in the claim cycle where potential leakage could occur, reports Karen Cronin, project manager for personal lines claims. For example, she explains if, at a certain point in the claim, a recorded statement has not been taken, a trigger will go off with the supervisor. "We built these proactive trigger points that would flag to supervisors to inform them [a certain activity] did not occur on this claim and to review it because if it continues on this path, it would lead to potential leakage," she says.

By identifying where the carrier was finding leakage, Cronin adds, triggers could be developed as a warning system. The target at that point was to reduce leakage by 20 percent, she states, which would equate to a little more than $2 million in savings for personal lines. The leakage results vary by lines, but Cronin indicates for the first half of 2004 leakage was up compared with the first half of 2005. "In our liability line, we've seen a 40 percent decrease in leakage," she says. "In our property lines, it's dropped in excess of 60 percent. It varies by line. The triggers are not the only thing addressing leakage. They are in conjunction with a lot of other issues OneBeacon is doing right now."

Woods acknowledges the carrier can't put a finger on the total number, but with the leakage triggers and the exception management--getting supervisors involved in the more appropriate files and not wasting their time--there has been a cumulative effect.

"A couple of our biggest areas for leakage were in our evaluation and disposition stage," says Cronin. "[Car] rentals were a big piece of that. The recorded statement and the early identification of injuries also were areas these triggers have been able to impact."

Exception management has been a big factor for the carrier, too, according to Woods. "It ensures we ask employees to do something, and the way we've automated these triggers, it tells us when they do," he says. "And it alerts a supervisor when they don't. If employees do everything we say they should, ideally the supervisor never would see a file. That's in a perfect world."

New System

One of the benefits of the new Guidewire claims system installed by Hastings has been the ability to do automatic assignments of claims adjusters. Hastings can segment a claim down into parts, Rose explains, and send it to the appropriate adjuster based on exposure, severity, and cause of loss. The system automatically sets up loss reserves and builds up activities for the adjuster. "In the handling of the claim, it makes sure we do the things we should do," says Rose.

Hastings is an independent agency company; the majority of all claims goes through its agents. Hastings' agents can issue payments on small claims. The agents will send a loss notice electronically, and once the carrier gets it into the system, the carrier can process the claim entry.

Hastings believed a proprietary system would be a burden for an independent agency force. "Most of [the agents] already have a loss-reporting component built into their agency systems," says Rose. "The thought was if we built a claims system, [the agents] would have to enter [claims] there, and I don't think a lot of them would want to do that. I think they just would want to enter claims into their own system so they can track them in their own agency." Hastings' agents enter claims into their own systems, and that produces a loss report, which is e-mailed to the carrier. Agents are able to get online with the Hastings Web site to access claims information. "They can look at what the current reserve is, whether it has been paid, and who the adjuster and supervisor handling the claim are," says Rose.

In working with third-party providers, such as car rental agencies, Rose has found most providers offer electronic portals, so Hastings can inform them there is a loss and provide them with the claim number. "It helps us coordinate all the paperwork so customers don't have to get involved in as much of that [paperwork] as they did in years past," he says.

Easy Access

Once the initial claim is filed, Light observes claimants are more likely to log in and go to a consumer- or claimant-oriented portal to follow status of the claim; take advantage of some of the carriers' services, such as rental cars; track the progress of repairs; and check the status of a cash settlement. "The good news is there is a significantly higher proportion of people who are comfortable being online," says Light, estimating 75 percent or more of the driving public has some Web access. "It's a question of at what point in the claim cycle you can move people over to the Web where they're comfortable as opposed to where the insurance company would like to see them operate," he says.

Yet despite all the service options, it's still not always easy to meet a customer's expectations in handling a claim, Rose points out. "Every customer comes at it from a different perspective," he says. "A lot of people never had a claim before and don't know what to expect. We try to put them back to where they were before the accident."

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