While claims transformation is a major focus for insurancecarriers, too many companies initially address systems needswithout first paying proper attention to improving the businessprocesses and operating models that drive the claims area.

Claims management has become an area for strategic innovationand growth, as carriers place increasing emphasis on innovation todifferentiate themselves in a crowded, mature and increasinglycommoditized industry.

Insurers are dedicating a significant amount of focus onclaims-related business and technology initiatives to improvecustomer service, total claims results, operational efficiency andstaff retention.

One significant risk to companies that choose to "make do" withtheir current claims operations is "claims contagion"--the negativetrickle-down effect of poor claims operations performance, whichcan eventually extend to all business operations.

Even those who do recognize and respond to opportunities mustensure they look beyond technology to real business strategies.

Performance issues in the claims-handling process may result inlost or unprofitable business, redundant or inaccurate casereserves, increased capital requirements, and added costsassociated with higher staff attrition rates and loss ofintellectual capital.

The issues can reduce the ability to identify operational riskin claims and underwriting processes, and can mask warning signsthat may point to greater risk exposure for the entireorganization.

Equally important, optimal business value can be undermined bythe risk that rating agencies could reduce an insurer's securityoutlook.

While the soft market had some companies shifting gears towardmore top-line concerns, the carriers that will ultimately assume aleading position will invest in claims to promote further marketdifferentiation, gain market share and protect their bottomline.

At their best, claims improvements reduce business uncertaintythrough better risk management and enhance a carrier's financialperformance.

Better data management leads to more effective decision-making,and increased resource capabilities provide greater control overoperational risk in underwriting and claims processes. Superiorservice and a positive customer experience during the claimsprocess can drive brand enhancement and differentiation in themarketplace.

Improvements also contribute to managing insurance soft and hardmarket cycles, while maximizing company profitability by helping tolower loss and expense ratios and identifying redundantreserves.

Most significantly, at a time when insurers are embracing newglobal accounting and capital standards, an improved claims processwill support a successful compliance and regulatory agenda thatincludes international financial reporting standards and SolvencyII--the updated set of regulatory requirements for insurance firmsoperating in the Europen Union.

Leading insurance carriers are combining claims technologyinvestments with a review of--and, where required, upgradeto--their related business process and organizational structures,both to improve their operations and charter projects that drivemeaningful change, as well as deliver true bottom-line value.

A notable development shaping the future of claims is a single,interfacing claims management system that replaces or consolidatesmore costly, archaic legacy systems with modern, flexibletechnology.

Another essential component is "claims-leakage" analysis, whichfocuses on current claims processes and identifies gaps andopportunities relative to leading claims practices. The outcomesprovide companies a perspective for evaluating their competitiveindustry position against that of their peers.

Carriers should not underestimate the "people impact" of newclaims technology and business processes. In addition to formalchange-management programs, organizations are also addressing lossof knowledge capital, which manifests itself through resourceattrition and a retiring workforce.

Insurers are addressing claims staff retention by developingcareer paths with better defined expectations and progression,realigning hierarchical relationships across the organization andimplementing more practical performance management scorecards atall levels.

Further analysis reflects that claims organizations must alsomeet regulatory demands by embedding compliance into theiroperations, technology and claims-handling processes.

When constructing a business case for claims transformation,carriers should have a clear framework for capturing and measuringbenefits.

Increasingly, claims executives are looking to nonfinancialdrivers in their business cases to illustrate the strategicimportance of claims to the entire organization. It is important tolink these to more tangible measurements--such as the impact ofcustomer satisfaction on policyholder retention.

Due to the inherent complexity of claims-processing and itscritical role within an insurance carrier, any effort to transformthe organization will require significant investment, commitmentand discipline.

The importance of implementing structured, independentgovernance and measurement throughout the claims process cannot beunderestimated.

Carriers that have undertaken claims-transformation initiativesare already realizing the return on their investment. Many havebegun to recognize that success at the operational level willultimately drive improved risk management and increased businessthat, if priced effectively, will generate additional profits.

One of the most important attributes is an improved securityrating, which reflects financial stability and growth. Insurancecompanies with higher financial ratings have access to morecapital, are better positioned in global insurance markets and havethe reputation to attract quality customers.

Whether an organization is beginning the claims-transformationprocess or in the midst of a multiyear program, one thing is clear:Those companies not making investments risk being left behind bytheir competitors as the claims function continues to grow inimportance as a strategic differentiator in the marketplace.