Anyone with an ounce of sales resistance will recoil frompromises of a product that is “new and improved” because experienceteaches that even if the former is true, the latter may not be.Historical experience with claim technology by some insurancecompanies only confirms the skeptic's prejudice. Some technologyinitiatives promise far more than they can deliver, and even thosethat worked added cost and complexity.

Despite the industry's somewhat troubled adoption record, theupside potential of current claim technology is, in fact,demonstrable. An analysis of more than 10,000 claims and interviewswith more than 3,000 claim personnel revealed that up to 45 percentof claim handlers' time is spent on activities that do not affectthe outcome of a claim.

Mutually Assured Mediocrity

Of course, simply being aware of such possibilities may not beenough for a particular company to commit to renovating a claimsystem through new technology investments. Some insurers aredistracted by concerns beyond buyer's remorse, such as coping withcompeting technology standards, adjusting to the hardening andsoftening of the market, and coping with increasing globalfinancial uncertainty. Their complacency also has been fostered bya kind of mutually assured mediocrity, whereby everybody counts onthe limits of each other's capabilities.

The greatest drag on progress is caused by the recalcitrance ofthe legacy systems and processes themselves. Claim systems bear themark of their origin as financial systems designed to supportreserves, payment processing, and statistical coding. This corefunctionality remains detached from the claim-handling processbecause most claim handlers still perform the lion's share of theirwork manually, only entering data into their claim applications asrequired. Critical data is isolated in physical files or databaseswith limited access, and the battery of related claim tasks —including retrieval of information, exchange of expertise withinthe claim area, and management of vendors — is performed withlimited process discipline in a time-intensive, repetitive, anderror-prone fashion.

Insurers have enjoyed some efficiency gains and services byapplying package technology solutions to different segments of theclaim process. But that is unlikely to be a viable strategy for thelong haul. Each separate set of capabilities increases the overallburden on the claim professional, not to mention the complexity ofthe systems, increasing maintenance challenges, and driving up thetotal cost of ownership. Because of integration challenges, up to50 percent in any given claim-technology investment can be consumedby what are, in effect, non-discretionary costs.

Both a Business and IT Issue

The answer is not to bolt on more and more blocks of isolatedfunctionality, but to build a new foundation of process andtechnology. The new systems and the new technology organizationsunder construction today begin with reusable, net-centric,component-based applications built on services-orientedarchitecture. This architectural approach embodies the realizationthat claim transformation is both a business and IT issue. Itabandons the simple view of technology-as-utility, and insteadespouses the simultaneous deconstruction and re-engineering ofbusiness processes and the technologies that support them.

Services-oriented architecture makes it possible to rebuild coreclaim functionality piece-by-piece, then add new capabilities wherenone existed before. It provides a flexible framework that can beapplied to ease the work of claim handlers, automating some tasksand creating electronic linkages between all parties to a claim,where manual, paper-driven hand-offs once prevailed. It alsofacilitates automation and coordination across the enterprise,enabling claim leadership to fulfill the expectations of otherbusiness areas, such as underwriting and product development. Theblueprint for claim technology requires automated support foralmost every activity in the claim-handling process while allowingfor an open architecture that make its possible to integrate andreuse functional components.

The companies that recognize the power of this approach to claimtransformation know that it takes them far beyond wringing a fewpennies out of the process. For them, the end game is to bettermanage their financial and service results — and to not merelynose-out their competitors, but to leave them in the dust.

Their ambition is rooted in the proven capabilities of thetechnology, which allows insurers to capture more detailed,accurate information in a timelier manner. In turn, they cansegment claims more precisely and re-evaluate them as conditions onthe loss change. Resources can be assigned automatically, down tothe level of individual claim activity, distinguishing betweenvarious levels of risk, and ensuring that low-risk claims arehandled quickly and with maximum automation, while high-risk claimsare given the necessary attention.

Services-oriented architecture also provides electronic linkagesto bridge gaps formerly spanned by manual steps between disjointedapplication functionality. By automating the routine, technologyexpedites virtually every transaction — every letter, every filedocument, every phone call and inquiry, each work step, and allpayments.

A centralized, holistic approach to capturing and gaining accessto data can deliver huge dividends. It can offer claim handlersinformation at just the moment when it is needed in areas likefraud detection, recovery opportunity identification, and proactiveinjury, treatment, and return-to-work management.

The component-based development approach of services-orientedarchitecture also helps claim departments take advantage ofsubsequent technological innovations. With the ability to collector discard functional components, insurers can take full advantageof new advances without massive investments of time and money. Butperhaps more importantly, its piece-by-piece approach allows acompany's transformation to occur gradually, reducing the typicalrisks of many large-scale automation projects.

Reusable components within a service architecture offer a kindof “jump start” that greatly accelerates delivery and theachievement of business benefits. One insurer was able to reusemore than 90 percent of pre-existing components and eliminate yearsfrom its projected implementation time. With this level ofreusability, several insurers have gone from project start tofull-scale implementation at a model office in less than a year.The applications they implemented were sizable, supported all linesof business and all jurisdictions, and were successfully integratedwith a variety of legacy policy and financial applications.

Of course getting to the point where such benefits can berealized requires a significant initial investment in people,focus, dollars, and commitment — claim transformation is nothingless than strategic and must be on the CEO's agenda. It willinvolve a multi-year investment where the duration and terms aresolemnly agreed to by IT and the business sponsors.

Tomorrow's Winners

The companies willing to make that investment ahead of theircompetitors will enjoy a window of opportunity that could last fromtwo-to-five years or more. Carriers that take a wait-and-seeattitude before implementing their own component-based solutionwill be two-to-three years behind the leaders. Others that chooseto work on their own to rebuild their systems from the ground upmay lag five or more years behind — perhaps longer if the projectfalters or they exhaust their corporate stamina along the way. Eachof these insurers will face a long struggle to survive whencompetitors begin to offer customers lower premiums and a betterclaim experience. They also may face the possibility of acquisitionby an aggressive competitor armed with a more effective operatingcapability.

Every insurer's leadership sets itself growth objectives, butthe reality is that there are only so many customers to go around.Those who lose customers will find the reacquisition of them to bemuch more costly than retention — and much more difficult ascompetitors' reputations for superior claim resolution spreads.Insurers who recognize today that the total solution includes newtechnology with new business processes, and claim handlers trainedin both, will be tomorrow's winners.

Michael Lucarini is senior executive in charge of globalclaim solutions in Accenture's Insurance practice. Nicole Michaelsis a senior executive in charge of Accenture's claim technologyinitiatives for North America.