Property and casualty claims used to be the kind of career thatcould last a lifetime. Experience was king and loyalty was highlyrewarded. Today, however, the business climate has changeddramatically. In order to gain market share and hold down costs,insurers are constantly on the lookout for mergers and acquisitions(M&As). The 2008 financial crisis is putting even more pressureon insurers to raise capital quickly or seize other opportunitiesfor growth.

However, as we have seen in numerous high-profile insurancemergers throughout the years, M&A activities only yieldanticipated results when there is a smooth transition of people,operations, and technology. Nowhere is this approach more crucialthan in claims.

Lookout for Land Mines

What if a project to unite claim data from multiple systemsfails? What if expenses dramatically increase rather than decrease?What if boxes of paper claim files are lost during the merge,leading to preventable lawsuits? To avoid these potential problems,it is imperative for claim organizations to follow these bestpractices during a merger and acquisition.

Develop a Strategic Roadmap. Companies should define businessdrivers to confirm strategic business direction, human performanceelements, key business activities and relationships, informationand application functionality on which the business operates,technical services that support application execution, and thephysical network and computing platform on which the enterpriseoperates.

Evaluate Your Own Technology. Are databases,platforms, and architectures scalable? A critical success factorfor M&As is reusability and integration of existingapplications, especially when common information is accessed frommultiple sources. Technology and business perspectives should beevaluated, and enterprise architecture components should becompared to best practices in business architecture, organizationand governance, business process architecture, applications anddata architecture, technology architecture, and infrastructure.Assess the scalability of your applications to ensure the combinedvolume can be accommodated.

Expect the Unexpected with Integration. Don'tunderestimate the integration challenge. It is not realistic toassume data can be dumped into one existing system, flip a switch,and move forward with no problems. Proper pre-merger due diligencemust include analysis and identification of agency, policy, claim,legal, and vendor systems. A roadmap or strategy to close gapsbetween disparate systems is important to prevent loss of data orinaccurate financials. Seek outside expertise when necessary forinterface work. In addition, don't presume the acquiring companyhas the best claim system. The acquired company might be smaller,nimbler, and have better technology and processes. Hire aconsultant to conduct a thorough assessment before making anychanges. This also will provide an opportunity to combine the bestapplications and processes of each into a much better combinedentity.

Beware of Compliance Issues. During an M&A,be aware of where the buyer and seller companies do business.Companies should adhere to state unfair claim practice acts and beprepared to understand Patriot Act issues. Also, if the acquiredcompany writes business globally but the acquiring company doesnot, make sure linguistic and currency issues are considered duringsystem integration. Lastly, data residency requirements should begiven attention. In other words, make sure data is housed inaccordance with statutory requirements. Create claim file extractsand batch files when appropriate.

Use a Phased-In Approach. Tackle the mostvolatile claim exposures first. For example, if both buying andselling companies write predominately commercial auto, beginintegrating these exposures first. If the most expensive,high-profile exposures are in environmental, start there. Segmentlines of business, then prioritize blocks of business for systemintegration.

Keep in mind that not everything needs to bemerged. The first notice of loss call center should bemerged, as well as back-office processes such as mail rooms,imaging centers, print centers, training centers, advertising andgraphics, statistical and state reporting, and reinsurance.However, claim applications should be separately evaluated,especially if they handle different lines of business that haveunique processing requirements.

Keep Costs in Mind. Business and IT executivesare sometimes in conflict. While the CIO may want a successful,big-bang claim system integration with all lines of business, allmodules, and all conversions on day one, the COO is more focused onreducing operating expenses, but not allocating sufficienttechnology spend or resources to execute the claims systemintegration plan. An outside consulting firm with superior businessand IT expertise can be invaluable in bridging this gap.

Ensure Functionality. Is the system easy touse? For most insurers, post-merger claim system integrations arehighly visible, with many touch points. A relativelystraightforward upgrade can impact multiple lines of business andnumerous downstream systems, so it is critical to ensure the systemmeets business objectives. Upgrades and enhancements can be addedlater, when warranted.

Add Historical Claim Data with Care. A majordecision during integration is determining how to treat historicalclaim data. It is costly and labor intensive to fully convert claimdata. Although some insurers are able to justify cost and insist onconverting all client data, this is generally not recommended.Instead, treat customers as new customers in the system on ago-forward basis and manually add claim histories for a select few,and only when warranted.

Conduct a Security Checkup. Evaluate userentitlements. Address privacy concerns to validate who can gainaccess to data and when to limit it to preserve data privacy.

Exercise Discipline. Agree on must-havefeatures versus nice-to-have features. Clearly define parameters toensure business and IT goals are aligned. If internal objectivesare not in sync, customers and revenue will be lost. Tie IT andbusiness strategies to business opportunities and you will drivebusiness results.

Avoid Complexity. Employees in the neworganization have enough to worry about without the addedcomplexity of technology. Start with a claim system that allows youto effectively move department operations forward. Work with avendor that employs the continuous delivery approach based uponproven, agile software development methods, rather than deliveringhuge amounts of source code at once. Effective, large-scaleinsurance applications provide a steady stream of updates to avoidoverwhelming end users.

The next time your claim organization is facing a merger oracquisition, do not be afraid to sweat the small stuff. Effectivebest practices for claim system integrations can mean thedifference between a failed merger and a profitable business thatis positioned well for the future.

Tom Filep, CPCU, is a partner and insurance industry expertin the financial services practice of Computer Sciences Corporation(CSC). He may be reached at 908-392-6511, [email protected],www.csc.com.

Scott Kemmerer is a Chicago-based partner and insuranceindustry expert in the financial services practice of CSC. He canbe reached at 630-472-2561, [email protected], www.csc.com.

Special thanks to contributor Elizabeth Mowery, who is adirector of product delivery for CSC's property and casualtydivision. She may be reached at 803-333-5792, [email protected],www.csc.com.