As profitability pressures on property/casualty insurancecarriers continue to increase, innovative insurers are turningtheir focus inward with back-to-basics initiatives to improveefficiency in their core operations, with claims being ofparticular interest. Many have invested in replacing legacy claimsystems with modern technologies, but simply replacing technologywithout looking at the whole picture of the claim adjusting valuechain is unlikely to allow the new technologies to deliver fullvalue to the claim adjusting operation.

In addition to new technology investments (and regardless oftheir current claim adjusting technology), insurers have a numberof strategies available that can help them enhance their claimoperations, improve efficiencies, and better control costs.

Triage and Segment

Good claim people are an increasingly scarce resource. In itsOctober 2008 salary survey, Claims Magazine reported that 33percent of current company adjusters are 55 or older, and 70percent are 45 or older. Only four percent are under age 35. Infact, in its March 2006 report, “How Insurance Companies Can Beatthe Talent Crisis,” Deloitte Consulting predicts a shortage of84,000 adjusters by 2014.

Round-robin claim assignment or a one-size-fits-all approachcannot be sustained in light of these developments. Highlyexperienced resources must be reserved for two places: For claimsthat truly require their expertise (or portions of claims, such asindividual coverages), and for knowledge transfers to lessexperienced claim professionals. This transfer can come aboutthrough co-adjusting claims, conducting regularly scheduled claimreviews, or leading as a claim team's designated technicalguru.

In addition, these experienced resources are invaluable if andwhen an insurer wishes to migrate to rules-based claim technologiesor predictive analytic models. These systems must be “shown” whatto look for and what to do. This logic and knowledge resides withan insurer's seasoned adjusters.

To be successful, the strategy must include a performancestructure that does not penalize the experienced claim resourcesfor handling fewer losses or force them into a managerial rolewhere their skill sets may be diluted by a myriad of unrelatedduties. Tapping into the expertise of willing but retired adjustersmight also be considered in the training of the next generation ofadjusters, claim file reviews, handling a diminished case load ofclaim files, or assisting in other knowledge transferactivities.

Off-Loading

At many insurance companies, the adjuster still remains the hubof all claim handling activities, resulting in a lot ofcoordinative efforts like vendor scheduling that may not be thebest use of the adjuster's unique skill set. Typically, theseskills should be focused on activities such as coverage evaluationor settlement negotiation.

A set of preferred partner agreements and firmly adhered toservice level agreements can provide much assistance to theadjuster who needs to coordinate every aspect of the claim file.For instance, enabling preferred body shops to self-approvesupplements up to a specified value, and giving preferred rentalagencies latitude to coordinate with preferred body shops for aone- or two-day extension of rental vehicles can increaseefficiency.

However, for these off-loads to achieve the desired goals ofbeing cost effective while freeing up adjuster time, they must bemonitored via appropriate audit methods and service levelagreements must be clear as to the guidelines, limits, andpenalties for straying. To some extent, the insurer may wish toprovide the insured with the ability to self-adjust their ownsimple losses via telephone or web-based quick claim options. Infact, many insurers have some degree of these capabilities alreadyin place.

Single Source of Truth

In order to most efficiently use the specialized skill sets ofeveryone engaged in the handling of a claim, all parties must beutilizing the same and current information. Photocopying, mailing,or faxing paper is time-consuming and expensive, and theinformation is only as accurate as the most recent update.Out-of-date claim information can lead to poor claim decisions.

At a minimum, insurers should look to a consistently updatedclaim status overview that is electronically accessible by allparties involved with the claim. This overview can indicate whetherthere are any changes or issues related to coverage, liabilityassessment, damages, and recovery, along with the contactinformation of the individual responsible for the change.

“Single source” is an area where modern claim technology can addtremendous value. In its September 2006 report, “Technology EnabledClaims Performance Improvement,” analyst firm Celent estimates thata four-to-six percent reduction in pure losses and a 10-12 percentreduction in loss adjustment expenses are feasible through theselection and application of appropriate modern claim technologies.This estimate represents a four-to-five point improvement in theinsurer's combined ratio.

Share with Others

Receiving a claim from an insured gives the insurer the idealopportunity to validate the type and quality of the risk andcompare it to what is in the underwriting file. If the insured islisted as a florist and the workers' compensation claim is for ahot tar burn, this is important information. Likewise, a quickcomparison of the mileage of a damaged insured vehicle from theclaim file to the year of vehicle and estimated annual mileage fromthe underwriting file can point out potential discrepancies betweenthe written risk and the actual risk. Thus, what is uncoveredduring the claim process should be shared with the underwriter tohelp them analyze and more effectively price their books ofbusiness, further mitigating the insurer's overall exposure.

The traditional method of communicating this type of informationis paper-based, a slow and cumbersome process. This slow exchangecan be exacerbated by an adjuster who is focused solely onresolving claims and does not recognize the importance of resolvingunderwriting inconsistencies. Many times, adjusters work on theassumption that underwriting will identify and resolve the issues.The underwriter may detect an inconsistency, but simply decide tohandle it at renewal time. In the meantime, claims can continue toflow in and be paid while less-than-risk-appropriate premiums arecollected. What is missing is the proactive exchange of informationbetween the adjuster and underwriter.

At a minimum, both claims and underwriting need to have an openand respectful communication channel, with these types ofcommunications viewed as part of the process. Thisinterdepartmental information exchange is another area where theappropriate modern technology applications can offer value. Thisinvolves having the claim system and the underwriting systemautomatically “talk” to each other, via a series of business rules,and comparing the data elements of the claim against the risk. Whenappropriate, the system flags both underwriting and claimprofessionals.

Spread the Savings

Accident-free discounts that benefit the policyholder have beenpart of the underwriting pricing process for decades. Is there anopportunity to bring claim-saving rebates to the policyholder, aswell?

For instance, insurers might consider making minor changes inclaim handling criteria and/or policy language to create a lowercost claim resolution alternative. An example might be in aclaimant loss-of-use situation. Say the claimant is unable to usetheir sport utility vehicle (SUV) due to an accident that isanother insured's fault. Traditional claim logic and/or the demandof the claimant might be to rent them a like kind and quality SUVfor the duration of the repair. Even with an insurance carrierdiscount, the cost could be upwards of $100 per day.

A second option might be to compel the claimant into a lessexpensive rental, using the argument, “We owe you a basictransportation vehicle.” This approach would save some indemnity onthe auto physical damage liability coverage, but might have asignificant impact on the adjuster's ability to establish a goodrapport with the claimant when it comes time to settle bodilyinjury liabilities.

Another option might be to take a hybrid approach by empathizingwith the claimant that it is indeed awkward to be out of their SUVfor the duration of its repair, but say, “We would be happy toprovide a much less expensive mid-size rental vehicle and $15 perday” as a loss-of-full-use consideration.

These are just a few innovative options insurers can explore tohelp them better control their claim costs and enhance theiroperations. Implementing modern claim technologies will benecessary to fully enable insurers to achieve their ever increasingservice and cost efficiency claim handling goals, but thosetechnology changes alone are not the complete solution. Insurerscan take forward thinking actions today and supplement thoseactions with appropriate technology changes when appropriate.

Mike Mahoney is a product marketing manager at GuidewireSoftware, a provider of core technology solutions to theproperty/casualty insurance market. He can be reached [email protected], www.guidewire.com.