As soft market conditions persist, insurers continue to find themselves under pressure to show a clear, definable and achievable return on investment for their information technology projects, especially claim-related initiatives.
The opportunity for improvement in claims organizations is garnering the attention of many a claims executive. Whether the goal is reduced leakage or improved claims efficiency, the industry is taking a closer look at investments in new claim technology to alleviate excessive claim costs.
However, claims executives are not alone in their pursuit of a company's precious capital and resources, so they must come to the table well prepared with a good business case to warrant the investment.
Long gone are the days of investing in technology for technology's sake, as insurance executives have grown weary of the lofty promises of tech benefits that have too often fallen far short on delivery.
Today's environment has returned to a more conservative and traditional approach--the tried and true return on investment analysis that separates fact from wishful thinking when it comes to the company's bottom line.
Given the potentially wide-reaching benefits from claims tech investments, it is often best to use a broader list of ROI drivers than has traditionally been employed for IT projects at insurance organizations.
The ROI methodology may vary by the type and size of the claim project, but will typically contain a combination of financial analysis, strategic perspective, professional judgment and plain, old business common sense.
In developing an ROI model around a claims technology project it is appropriate to keep the following drivers in mind:
Insurers often consider replacing their legacy claims environment with modern claims systems to achieve significant improvements in key areas, such as increased claims-handling efficiency and consistency, enhanced productivity, decreased claims professional administrative load, reduced training time, accelerated claim-cycle times, increased ability to transfer claims adjusting tasks to automated system tasks, preferred business partner relationships, or fast-track claims-adjusting units.
Insurers can realistically set their sites on combined ratio improvements of four-to-five points, and should use this goal as a key criterion when evaluating and selecting claim applications and technology. Improvements should be expected through reduced claims operational overhead, decreased allocated and unallocated loss adjustment 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 goals when considering technology investments. However, there may be project returns that are demonstrably achievable in nontraditional return areas--such as target-market perceptions, ease of doing business, and customer and employee satisfaction with the claims handling experience.
Certainly customer satisfaction with the claims-handling process is a key contributor to every carrier's reputation and to customer retention.
During tough market times, IT project payback periods are generally under increased pressure, and there is often the temptation to eliminate any project that doesn't meet a specified payback period.
Although insurers need to have some level of payback timeframe flexibility, there is a school of thought that considers 18-to-24 months the outside edge for a tech investment showing tangible, positive business benefit.
The insurance market space is in constant flux, and attention should be paid not only to a technology's ability to meet the company's short-term objectives, but also its ability to easily and rapidly be modified or reconfigured to meet new or changing goals and business processes, as well as expanded business partner infrastructures.
For each ROI driver, a baseline should be clearly understood and well-documented to evaluate, select and ultimately measure the results of a claims tech investment.
However, care should be taken to avoid making data collection more important than reaching a supportable business decision within a reasonable timeframe, and with the key desired business outcomes kept in focus.
Too often insurers get caught in the familiar analysis paralysis, costing time and delaying benefits. Sometimes enough really is enough when it comes to data collection.
In addition to setting baselines, the market search and IT evaluations that follow can become unnecessarily long efforts.
Overly long and complex IT evaluations can often be avoided with a careful ROI analysis that encourages claims organizations to focus on the few vital benefits that can be achieved in a relatively short timeframe, while avoiding putting too much attention on the trivial many.
When it comes to ROI, one size does not fit all, and the method selected should be based upon a realistic and balanced perspective that considers the size of the project, the delivery timeframe and the project's costs in comparison to its desired technological and business benefits.
Insurers also need to keep in mind that relying solely upon financial ROI calculation techniques for projects that have impact beyond the IT infrastructure could easily cause them to overlook some 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 technology decisions just because it makes good business sense. With claims processing being a key core process to the organization--which impacts not just the cost of doing business but the all-important customer satisfaction and retention--making investments in claims-related technology might very well be one of those "business sense" times.
Unfortunately, there is no magic formula for the best approach to ROI for claims tech investments. While the formula may vary, however, the ingredients typically remain the same.
Evaluation must balance common sense, operational cost savings or avoidance, internal and external business partner satisfaction, and desired business outcomes against the hard costs of the tech investment--and, in today's claims environment, the intolerable cost of doing nothing.
"Too often insurers get caught in the familiar analysis paralysis, costing time and delaying benefits. Sometimes enough really is enough when it comes to data collection."