Human Factors Drive Demand For Tech To Bolster Claims-Function Weaknesses

Spurred by a looming personnel crisis, the rising number of massive catastrophes and a search for savings, insurers are putting an increased focus on claims operation technology, according to industry professionals and analysts, who say these factors and other pressures over the past few years have resulted in an emphasis on tech changes that range from the back office to frontline adjusters.

The actions they describe involve everything from systems and software to global positioning software and analytic efforts that may help pinpoint fraud or identify overly expensive medical providers.

One example of this increased activity in the claims sector can be seen at Northbrook, Ill.-based Allstate, where the company at one point brought together 700 information technology and claims personnel to create its "Next Gen" claims system. Spokesman Raleigh Floyd said the company has spent $125 million thus far to streamline 90 legacy systems down to a single new system.

He explained that with Next Gen, the company now has a Web-based collaborative tool so everyone involved in a claim can work on a single file. It ties in adjusters and office claims people, aiming for a "one-and-done claims call" from a claimant, said Mr. Floyd.

Allstate's Next Gen planning kicked off in January 2005. A rollout for property business in Ohio and California was completed for all property last month, and a rollout for auto business is planned 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-based business process management firm, said that after his company's annual customer focus session with executives, adjusters and supervisors, the firm determined one of the claim sector's biggest problems is a shrinking talent pool of experienced adjusters.

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

His firm said Mr. Narasimhan is "betting the house" they have the answer for the loss of experienced adjusters by creating an automated system that looks at a claim and automatically tells an adjuster the best methods for handling it and what steps to take.

Additionally, the system will display for supervisors and executives how claims processing is trending and how individual adjusters are faring. Adjusters can also see how they are scoring.

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 green screens," he noted.

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

There are also emerging systems that identify a claim's potential to be a large loss, and which require a more skilled adjuster, said Mr. Light.

Hurricanes, he noted, have focused attention on the need for geo-positioning devices to locate an insured's damaged properties.

Mike Mahoney, product marketing manager at Guidewire in San Mateo, Calif., said there will be a shortage of 84,000 adjusters in 10 years, so technology must be employed to leverage networks and embed insurers' best claims practices within an easily maintained and 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 the claims operation can improve their combined ratio by four or five points, 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't designed to be operational," he said.

Ian Cunningham, CEO of Scene Genesis in Rochester, N.Y., said midtier 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," he explained.

"Right now a lot of adjusters have multiple applications on their screen that don't talk to each other," he noted.

Karen Pauli, an analyst with Tower Group, said her organization's study finds that all claims organizations have had to entirely replace or significantly upgrade because of the 2002 Sarbanes-Oxley Act's accounting and corporate governance requirements.

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

Ms. Pauli noted that among newer areas for technology development, there are predictive systems that analyze the activity of 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, with offerings that range from very detailed software to those that do a basic "triaging" of claims.

Difficulties arise with the extent of interaction of the new technology with existing systems, she explained, noting problems that could occur with "20-year-old mainframe monoliths."

Depending on complexity, installations of claims systems can take six months to a year-and-a-half. Anecdotally, Tower hears that "carriers say they pay for claims systems in about three years--some more, some less," she said.

Kimberly Harris-Ferrante, research director for the financial services industry at Stamford, Conn.-based Gartner, said insurers seeking efficiency are taking a range of actions, from replacing core claims systems to investing in call centers and improving first notice of loss.

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

Indeed, she said, some companies are enabling policyholders or agents to do the first notice of loss entry through a Web portal.

The claims area, she enthuses, is "a very wonderful space. There's a plethora of technology coming out." The analyst mentioned mobile adjuster technology, supply chain portals and claims analytics.

There is a growing improvement of existing systems, such as geographic information systems, she said. Using GIS when a catastrophe occurs enables losses to be mapped with a dot showing where every policyholder is located so that adjusters can make a proactive inspection.

"That's not new technology, but it's a new application of that technology," she explained.

Ms. Harris-Ferrante also noted that companies now try to apply fraud analysis technology in real time, as soon as a claim is entered. "So, before you spend even an hour looking at a case, you determine the probability of fraud right there at data entry," she explained.

If the technology raises a red flag, she said, an insurer can immediately route the case to a special investigations unit or specialized adjuster.

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