Many insurance carriers have made the bold decision--and in somecases have completed the journey--to replace their legacy claimsadministration system. There has been plenty of hype and manyinterviews touting successful conversions, while others continue tolive day-to-day with the rigid, ugly legacy systems they have beensuffering under for years.

Doesn't the grass sound so much greener on the other side of thefence? Of course it does. But just how green is that grass? Howmuch green will it cost to get that new turf for a claimdepartment? Is there risk of injury trying to get over the fence?And is it all worth it?

The new claim system grass should be much greener, since the newbreed of claim administration system employs modern technologiesand offers features and opportunities unavailable in legacysystems. New systems are functionally richer than legacy systems,particularly in areas that interest managers and supervisors.

Legacy systems tend to concentrate on the financial andaccounting aspects of claims-handling (setting reserves, makingpayments and the like). Modern systems address these same needs butalso pay much needed attention to the distribution, tracking andbalancing of work.

Value-added features available with new systems typicallyinclude automated assignment, load balancing, supervisory oversightand best practices workflows.

These modern systems are also highly configurable, usingrules-based technologies to modify system behavior rather thanrequiring computer code to be written.

With the ability to change the system configuration quickly andeasily, the constant stream of change requests that created thedreaded maintenance backlog in a legacy environment should besignificantly reduced.

New technology claim systems also have far better capabilitiesfor capturing "fielded" rather than free-form data, creatinggreater opportunity for data analysis in support of such criticalactivities as fraud detection, large-loss analysis and tracking,and predictive modeling.

So, why the qualified "should be"?

There is risk in selecting a new system without fullyunderstanding what it does and how closely it fits yourrequirements. Without the best fit, a company may find theanticipated benefits can only be achieved after a long andexpensive implementation process, during which the business usersexperience a loss of capability.

For example, the first workers' compensation insurer toimplement a new claims administration system may see a lot of brownpatches in the lawn before the healthy green grass appears, andthose brown patches translate into more time and money spent.

The cost of the "best fit" new claims system depends on a numberof variables about a specific environment.

Obviously, if a company writes one line of business in one stateand has relatively simple functional requirements, it will cost alot less to purchase, configure, integrate and implement a newclaim system than for a multistate, multiline carrier.

However, excepting the smallest and simplest of carriers, thisproject will be a seven-figure undertaking. If the company is abig, complex carrier, the cost could easily reach eight figures.(See accompanying infographic to see what kinds of costs areinvolved.)

Climbing the new claim-system fence is not without its risks,and is a costly and lengthy endeavor. A significant portion oflegacy replacement projects fails either partially or completely.Common reasons for failure include:

o Choosing an inappropriate vendor solution.

o Failing to control the business requirements.

o Changes in senior management during the project.

o Lack of senior management commitment.

Not only are these types of projects expensive, they typicallyrequire a two-to-four-year span of time to complete. Just think ofthe things that can happen to a business in that period of timethat could put enormous stress on the company's ability to stayfocused on completing such a large and complex project.

Is it all really worth it? Yes, but only if a company choosesthe vendor solution carefully and funds and controls theimplementation project appropriately.

Anecdotal evidence so far indicates that the implementation of anew claims administration system supports lower expenses, betterclaim outcomes, higher customer service and greater managementinsight into claims.

These results in combination provide a compelling outcome.However, the benefits are backend-loaded, while the risks and costsare all up front.