By Ron Lang

In the last few years, insurers have kept themselves busysending out a steady flow of press releases announcing their newand innovative strategies for keeping policyholders and agents intouch through the Internet. Until recently, these online serviceshad been primarily informational, offering simple options such asreviews of claim status or retrieval of archived data. Now,however, the paper-intensive and highly interactive claim processis moving to the Internet center stage. The more complex andcumbersome the claim transactions, the greater the opportunity forthe Internet to provide efficient ways of handling thosetransactions.

The competitive insurance market continues to make progress tomeet the elevated claim management expectations of consumers. Thewidespread adoption of the Internet leaves insureds and agentsexpecting all claim-related processes to be available online, withquick, cost-effective, and consistently good service.Unfortunately, these expectations fail to consider the complexityof the claim-handling process, including contractual and regulatoryrequirements, leaving a perception that the insurance industry isdragging its Internet feet

A Call for Claim Action

Using the Internet to open up the claim administration processto insureds, agents, and service providers allows carriers toprovide better service, while affecting results and overall claimcosts. Even a minuscule efficiency improvement can translate into asignificant impact on profitability, with the dual benefits ofadministrative cost savings and reduced loss costs.

Industry factors, such as increasing competitive servicepressures, the need for reduced combined ratios, and theanticipated surplus crunch resulting from rising interest rates,have left carriers with a newfound sense of urgency to improveclaim handling. As a result, carriers are being forced to identifyareas of opportunity for claim-processing improvements and searchfor more flexible and adaptable claim systems and technologies.

In recent years, there has been a stampede to the Internet, withpromises of improved efficiency being used to justify almost anyInternet-related proposal. Unfortunately, efficiency has becomesynonymous with doing the same process faster for less cost.Efficiency needs to be redefined before carriers can make effectivedecisions that will make or break their claim efficiency equations.When it comes to claim processing, more than cost and speed need tobe taken into consideration. The quality of the process (ease,speed, accuracy, and effectiveness) contributes to or detracts fromcustomers' satisfaction.

The ideal claim efficiency equation is Efficiency = Cost + Speed+ Quality, with quality as the non-negotiable. Due to thecomplexity of the claim process, adding new programs ortechnologies often requires additional dollar and resourceinvestments. The speed and quality benefits, therefore, need tocarry the load for a balanced equation.

The Internet offers the advantage of accuracy. Carriers canobtain all the claim details firsthand from the sources (insured,agent, broker, or vendor), interacting directly with the insurancecompanies' systems. Just as easily, however, this interaction canturn into a disadvantage when outsiders lack the knowledge or skillto effectively use in-house systems. When insurance professionalsare left to identify, analyze, and correct incomplete or inaccuratetransactions initiated by external users, the service, time, andcost advantages quickly evaporate.

Traditional claim management systems tended to focus on adjusteractivities and were designed without consideration for customer andagent participation, especially in the earliest steps of theprocess, such as first notice of loss or claim reporting. Yet,study after study cites the avoidable claim-related costs thatresult from delays in initial claim reporting. Given the importanceof this first step, an investment in Internet claim-reportingcapabilities has the potential to improve almost everyclaim-related cost.

Among the benefits associated with earlier claim reportingare:

Earlier intervention by claim experts to oversee theprocess,

Quicker settlement,

Less frequent and shorter litigation,

Better care of the injured worker and faster return to work, inthe case of workers' compensation and disability claims,

Use of preferred and contracted vendors and providers,

Customer access to insurance company experts and serviceproviders.

Obstacles and Enablers

If the Internet offers so much potential for improvedclaim-handling efficiency and customer service, wouldn't fullyutilizing this powerful communication tool be at the top of everycarrier's To Do list?

At one time, those in the insurance industry were viewed astechnology enthusiasts, on the forefront of all the latest trends,leading the way with innovative business systems. However, when itcomes to the Internet, insurers still are considered laggards whencompared to their financial services counterparts in banks andbrokerage firms. This apple-to-orange comparison, however, fails totake into account the complexity of typical insurance transactions,especially those involving claims.

It was fairly clear sailing to the Internet for other financialservices entities, once the security issues were resolved. Commonbanking or brokerage Internet transactions are simple, with definedbeginnings and ends. Transactions, such as checking accountbalances or requesting transfers of funds, do not compare incomplexity to the multi-step, multi-user, multi-directionalprocesses involved in filing, adjudicating, and paying insuranceclaims.

Despite the challenges that this complexity presents, theinsurance industry is stepping up the pace in Internet adoption forclaim management. All claim transactions are not created equally,however. Although inquiring on the status of a claim in progressvia the Internet is a fairly simple transaction, the process ofclaim reporting is much more intricate: paper intensive, involvingmultiple parties, requiring extensive claim details, involving theupdating of multiple systems, burdened with regulatory procedures,and requiring hard-copy supporting documents.

Another early stumbling block to offering online claim serviceswas the need for experts well trained and familiar with insurancevocabulary, who would be able to enter, codify, and processtransactions properly. Infrequent users, such as claimants oragents, may be unfamiliar with the specialized knowledge andvernacular of the claim professional. This expertise now can becaptured and replicated with rule-based programming.

This new rule-based effort requires new technologies, however,along with new applications and new costs. Therefore, a carrierneeds to bend the rules of the efficiency equation and incuradditional costs in order achieve the required process speed andquality.

The insurance industry and software vendors already are makingheadway by offering interfaces specifically designed for occasionalusers, with a combination of support services.

Legislation and Standards

Daily progress is being made to eliminate the laundry list ofadditional regulatory and cultural obstacles. Ongoing discussion atthe state and federal levels seeks to resolve issues such aselectronic signatures and electronic documents. Standard boardsalso are at work at ACORD and federal government agencies inattempts to make electronic claim submission and processing moreefficient and secure. These efforts are bringing us closer to beingable to implement a completely interactive and paperless claimprocess.

Internet technologies, such as J2EE (Java 2 Enterprise Edition)and .NET, support a modular transformation of legacy systems. Themodular approach allows carriers to introduce smaller, manageablepieces of a claim-processing program to the online environment,while avoiding the high-risk, high-cost approach of replacing theentire claim management system at one time. Carriers can prioritizetheir Internet claim-processing requirements and introduce themincrementally, without any major disruption to the claimoperation.

With development and deployment already well underway, some ofthe first Internet claim functions already are in use, withadditional capabilities to come in the near future. A variety ofsoftware vendors are offering, or are planning to offer, firstreports of injury in workers' compensation, including allsupporting transactions and processes required to fully establishclaims; electronic submission of all claim documents, from claimservice providers or insureds; electronic formats for payments andclaim documents, such as Explanations of Benefits; and access to,and management of, claim data for actuarial, reinsurance,underwriting, and financial use.

Although the insurance industry may have been considered a bitpragmatic and slow-footed in its adoption of the Internet forbusiness transactions, we are seeing a more aggressive trend amongcarriers. Market service pressures are part of the impetus, but thelong term objective to reduce overall claim costs is the overridingincentive. The earliest Internet adopters in our industry alreadyare enjoying the benefits and may have gained an early competitiveadvantage. However, the mainstream insurance market is gainingspeed in the Internet race, as its exploitation has become abusiness necessity.

As the use of Internet technologies and services become morepervasive in the insurance industry, we expect to see an increasein the availability of online, self-service offerings. These willallow agents and brokers, and the policyholders themselves, tooriginate and process transactions, yielding speed, accuracy, andresource gains for all insurance process participants — in otherwords, claim efficiency.