Spurred by a looming personnel crisis, the rising number ofmassive catastrophes and a search for savings, insurers are puttingan increased focus on claims operation technology, according toindustry professionals and analysts, who say these factors andother pressures over the past few years have resulted in anemphasis on tech changes that range from the back office tofrontline adjusters.

The actions they describe involve everything from systems andsoftware to global positioning software and analytic efforts thatmay help pinpoint fraud or identify overly expensive medicalproviders.

One example of this increased activity in the claims sector canbe seen at Northbrook, Ill.-based Allstate, where the company atone point brought together 700 information technology and claimspersonnel to create its “Next Gen” claims system. Spokesman RaleighFloyd said the company has spent $125 million thus far tostreamline 90 legacy systems down to a single new system.

He explained that with Next Gen, the company now has a Web-basedcollaborative tool so everyone involved in a claim can work on asingle file. It ties in adjusters and office claims people, aimingfor a “one-and-done claims call” from a claimant, said Mr.Floyd.

Allstate's Next Gen planning kicked off in January 2005. Arollout for property business in Ohio and California was completedfor all property last month, and a rollout for auto business isplanned for this summer.

“Claims is where we get our customer satisfaction numbers.Getting it right can make or break a company,” noted Mr. Floyd.

Badri Narasimhan, vice president at Insurity, a Hartford-basedbusiness process management firm, said that after his company'sannual customer focus session with executives, adjusters andsupervisors, the firm determined one of the claim sector's biggestproblems is a shrinking talent pool of experienced adjusters.

He said adjuster training typically involves giving new recruitsan 8,000-page manual to memorize and having them look over anexperienced adjuster's shoulder as they process claims.

His firm said Mr. Narasimhan is “betting the house” they havethe answer for the loss of experienced adjusters by creating anautomated system that looks at a claim and automatically tells anadjuster the best methods for handling it and what steps totake.

Additionally, the system will display for supervisors andexecutives how claims processing is trending and how individualadjusters are faring. Adjusters can also see how they arescoring.

Insurers have to be more agile to train and retain personnel,according to Donald Light, senior analyst with Celent in New York.Younger people balk at ancient technology and “don't do greenscreens,” he noted.

He mentioned a variety of interactive technology and wirelesstech that gives adjusters field assignments and lets them estimateand send information back to a desk adjuster.

There are also emerging systems that identify a claim'spotential to be a large loss, and which require a more skilledadjuster, said Mr. Light.

Hurricanes, he noted, have focused attention on the need forgeo-positioning devices to locate an insured's damagedproperties.

Mike Mahoney, product marketing manager at Guidewire in SanMateo, Calif., said there will be a shortage of 84,000 adjusters in10 years, so technology must be employed to leverage networks andembed insurers' best claims practices within an easily maintainedand updated system that is simple to use and train on.

With insurers chasing dollars in a declining rate environment,claims technology gets the attention because a cost-savings on theclaims operation can improve their combined ratio by four or fivepoints, according to Mr. Mahoney.

But this can't be accomplished without real change, he added.“The trend is for legacy systems to go away. Legacy systems weren'tdesigned to be operational,” he said.

Ian Cunningham, CEO of Scene Genesis in Rochester, N.Y., saidmidtier carriers are currently in a technology upgrade cycle,having lagged behind for a few years.

The big push is for open systems and connectivity to move data“from the right side of the corporation to the left side,” heexplained.

“Right now a lot of adjusters have multiple applications ontheir screen that don't talk to each other,” he noted.

Karen Pauli, an analyst with Tower Group, said herorganization's study finds that all claims organizations have hadto entirely replace or significantly upgrade because of the 2002Sarbanes-Oxley Act's accounting and corporate governancerequirements.

She added that the claims volume and destruction of 9/11 andHurricane Katrina have focused additional attention onclaims-handling.

Ms. Pauli noted that among newer areas for technologydevelopment, there are predictive systems that analyze the activityof medical providers for high payment levels, overmedication,overtreatment and fraud.

Collision repair shops can be subjected to a similar analysis,she said.

There are a lot of claim system vendors, she noted, withofferings that range from very detailed software to those that do abasic “triaging” of claims.

Difficulties arise with the extent of interaction of the newtechnology with existing systems, she explained, noting problemsthat could occur with “20-year-old mainframe monoliths.”

Depending on complexity, installations of claims systems cantake six months to a year-and-a-half. Anecdotally, Tower hears that“carriers say they pay for claims systems in about three years–somemore, some less,” she said.

Kimberly Harris-Ferrante, research director for the financialservices industry at Stamford, Conn.-based Gartner, said insurersseeking efficiency are taking a range of actions, from replacingcore claims systems to investing in call centers and improvingfirst notice of loss.

Some new strategies involve building service-oriented systemsatop old legacy claims systems, sometimes by using a Web portal,explained Ms. Harris-Ferrante.

Indeed, she said, some companies are enabling policyholders oragents to do the first notice of loss entry through a Webportal.

The claims area, she enthuses, is “a very wonderful space.There's a plethora of technology coming out.” The analyst mentionedmobile adjuster technology, supply chain portals and claimsanalytics.

There is a growing improvement of existing systems, such asgeographic information systems, she said. Using GIS when acatastrophe occurs enables losses to be mapped with a dot showingwhere every policyholder is located so that adjusters can make aproactive inspection.

“That's not new technology, but it's a new application of thattechnology,” she explained.

Ms. Harris-Ferrante also noted that companies now try to applyfraud analysis technology in real time, as soon as a claim isentered. “So, before you spend even an hour looking at a case, youdetermine the probability of fraud right there at data entry,” sheexplained.

If the technology raises a red flag, she said, an insurer canimmediately route the case to a special investigations unit orspecialized adjuster.