As soft market conditions persist, insurers continue to findthemselves under pressure to show a clear, definable and achievablereturn on investment for their information technology projects,especially claim-related initiatives.

The opportunity for improvement in claims organizations isgarnering the attention of many a claims executive. Whether thegoal is reduced leakage or improved claims efficiency, the industryis taking a closer look at investments in new claim technology toalleviate excessive claim costs.

However, claims executives are not alone in their pursuit of acompany's precious capital and resources, so they must come to thetable well prepared with a good business case to warrant theinvestment.

Long gone are the days of investing in technology fortechnology's sake, as insurance executives have grown weary of thelofty promises of tech benefits that have too often fallen farshort on delivery.

Today's environment has returned to a more conservative andtraditional approach–the tried and true return on investmentanalysis that separates fact from wishful thinking when it comes tothe company's bottom line.

Given the potentially wide-reaching benefits from claims techinvestments, it is often best to use a broader list of ROI driversthan has traditionally been employed for IT projects at insuranceorganizations.

The ROI methodology may vary by the type and size of the claimproject, but will typically contain a combination of financialanalysis, strategic perspective, professional judgment and plain,old business common sense.

In developing an ROI model around a claims technology project itis appropriate to keep the following drivers in mind:

Insurers often consider replacing their legacy claimsenvironment with modern claims systems to achieve significantimprovements in key areas, such as increased claims-handlingefficiency and consistency, enhanced productivity, decreased claimsprofessional administrative load, reduced training time,accelerated claim-cycle times, increased ability to transfer claimsadjusting tasks to automated system tasks, preferred businesspartner relationships, or fast-track claims-adjusting units.

Insurers can realistically set their sites on combined ratioimprovements of four-to-five points, and should use this goal as akey criterion when evaluating and selecting claim applications andtechnology. Improvements should be expected through reduced claimsoperational overhead, decreased allocated and unallocated lossadjustment expense, and reduced indemnity and expense leakage.

ROI models aren't necessarily well suited to capturing “soft”benefits, and some executives shy away from these intangible goalswhen considering technology investments. However, there may beproject returns that are demonstrably achievable in nontraditionalreturn areas–such as target-market perceptions, ease of doingbusiness, and customer and employee satisfaction with the claimshandling experience.

Certainly customer satisfaction with the claims-handling processis a key contributor to every carrier's reputation and to customerretention.

During tough market times, IT project payback periods aregenerally under increased pressure, and there is often thetemptation to eliminate any project that doesn't meet a specifiedpayback period.

Although insurers need to have some level of payback timeframeflexibility, there is a school of thought that considers 18-to-24months the outside edge for a tech investment showing tangible,positive business benefit.

The insurance market space is in constant flux, and attentionshould be paid not only to a technology's ability to meet thecompany's short-term objectives, but also its ability to easily andrapidly be modified or reconfigured to meet new or changing goalsand business processes, as well as expanded business partnerinfrastructures.

For each ROI driver, a baseline should be clearly understood andwell-documented to evaluate, select and ultimately measure theresults of a claims tech investment.

However, care should be taken to avoid making data collectionmore important than reaching a supportable business decision withina reasonable timeframe, and with the key desired business outcomeskept in focus.

Too often insurers get caught in the familiar analysisparalysis, costing time and delaying benefits. Sometimes enoughreally is enough when it comes to data collection.

In addition to setting baselines, the market search and ITevaluations that follow can become unnecessarily long efforts.

Overly long and complex IT evaluations can often be avoided witha careful ROI analysis that encourages claims organizations tofocus on the few vital benefits that can be achieved in arelatively short timeframe, while avoiding putting too muchattention on the trivial many.

When it comes to ROI, one size does not fit all, and the methodselected should be based upon a realistic and balanced perspectivethat considers the size of the project, the delivery timeframe andthe project's costs in comparison to its desired technological andbusiness benefits.

Insurers also need to keep in mind that relying solely uponfinancial ROI calculation techniques for projects that have impactbeyond the IT infrastructure could easily cause them to overlooksome of those vital business benefits so key to the company's final“go or no-go” IT decision.

And, like it or not, sometimes insurers have to make technologydecisions just because it makes good business sense. With claimsprocessing being a key core process to the organization–whichimpacts not just the cost of doing business but the all-importantcustomer satisfaction and retention–making investments inclaims-related technology might very well be one of those “businesssense” times.

Unfortunately, there is no magic formula for the best approachto ROI for claims tech investments. While the formula may vary,however, the ingredients typically remain the same.

Evaluation must balance common sense, operational cost savingsor avoidance, internal and external business partner satisfaction,and desired business outcomes against the hard costs of the techinvestment–and, in today's claims environment, the intolerable costof doing nothing.

“Too often insurers get caught in the familiar analysisparalysis, costing time and delaying benefits. Sometimes enoughreally is enough when it comes to data collection.”

Mike Mahoney