Filed Under:Carrier Innovations, Information Security

Storm Front

For the past several years, forecasters have sounded the alarm about the looming talent crisis in claim management. Nevertheless, some companies may be skeptical of those prognostications in today's economy, with a high rate of unemployment nationwide and questionable prospects for near-term recovery.

However, carriers should be aware that, first off, the rate of unemployment in insurance remains about six percent lower than the national average, according to the U.S. Bureau of Labor Statistics. "The industry is well positioned for continued employment growth," says Margaret Resce Milkint, managing partner at executive search firm The Jacobson Group.

Furthermore, she stresses strategic hiring in claims isn't simply a matter of adding warm bodies to staff. The challenge is finding people with the aptitude for claims.

"There still is a very strong demand for talent," Milkint says. "The core disciplines of claims, underwriting, and actuarial are where you need to have the right skills in place to run your company successfully, and those skills will be increasingly hard to come by."

"The talent crisis will grow over the next decade," says Steve Laudermilch, senior manager and a member of the claims consulting practice at Deloitte. Deloitte Consulting's Talent Strategies Practice recently dissected U.S. Bureau of Labor Statistics data and predicted the industry as a whole will need to increase its adjuster staff by more than 50 percent by 2016 (see next page).

At the same time as the talent crisis looms on one front, today's gloomy economy and still-soft P&C marketplace have converged to cast a cloud over carrier profitability. The analogy of the perfect storm may be a bit overused, but it's also a fitting description of the challenge facing insurers' claim operations.

Riding out the storm that is brewing from this convergence of events requires claim departments drive efficiency into their operations. It's certainly not a new goal but one that has been given greater urgency by the challenges facing all companies today.

"Insurers saw loss adjustment expenses increase by 5.3 percent from 2007 to 2008. At the same time, direct premiums written dropped by almost two percent. It's an ugly condition for managing your claim expense ratio," says Clint Harris, vice president of insurance research at Conning Research & Consulting.

"The economy itself has created the need to do more with less," Laudermilch says. "Claim departments are turning toward proven technologies, including business analytics, rules-based claim systems, and predictive modeling, to drive up efficiency and keep expenses in line."


Missouri Employers Mutual Insurance (MEM) recently completed a core system modernization project that has allowed the workers' compensation carrier to reduce claim staff and improve adjuster efficiency while simultaneously improving service to injured employees.

MEM had undertaken a number of technology upgrades in claims over time, including deploying Vertafore's ImageRight document management and workflow solution to image claim documents. However, claims were administered by a legacy client-server system that MEM had highly customized over the years and that no longer was supported by the platform vendor. Because IT involvement was required for even the smallest changes to the administration system, a backlog of change requests had accumulated.

"We had taken a significant step toward automation with ImageRight, but we had gone about as far as we could with the previous administration system as it stood,"
says Mike Foerst, CIO at MEM. "We needed a platform that would minimize administrative work while at the same time maximizing the care that could be given to injured workers."

MEM performed a companywide systems review in 2006 and targeted its claim system as a high-priority replacement project.

"We needed a system that would align with our strategic goals and objectives," says Annelle Whitt, assistant vice president of claims at MEM. "The previous system was limited. It couldn't handle out-of-state claims. It couldn't handle other lines of business, and in light of where we wanted to go with the company in terms of offering different types of products, we needed a system that would grow with us. We also needed an architecture upgrade and a system that was more easily maintainable and user-friendly."

The carrier considered an internal rebuild but ultimately chose Guidewire's ClaimCenter. "With the changes that had occurred in technology and architecture and with the backlog of changes that had already piled up internally, it came down to the fact that even though we could do it internally, the time to market was more appealing with the Guidewire solution," says Foerst.

MEM and Guidewire utilized an agile development methodology to break the massive core replacement project into manageable tasks. "The development approach and regular meetings helped us focus our efforts on what we determined our core functions to be--paying benefits, investigating claims, and paying bills," says Whitt. Deployment of ClaimCenter began in 2007 and was completed in November 2008.

Despite a relatively smooth technical deployment, the project was not without its challenges on the business side. "The biggest issue was change management," Whitt explains. "Our previous claim system had been highly customized, and our claim staff members were very involved in defining the modifications that had been made. So, from their perspective, they were changing from a very functional system to something that was unknown."

Managing that change involved planning, education, and direct involvement with claim staff. "I put in a lot of 'windshield time,'" Whitt says. "Once we went live and staff became comfortable with the new system, it became a nonissue for most people, but we still need to be conscious of any issues they have."

MEM also surveys staff members regarding how they like the system and how they assess its functionality. On a five-point scale, ratings increased from 2.5 immediately after deployment to about four today.

With the system in place for several months, MEM has been able to assess its benefits. The biggest has come from automated claim assignment. In the past, claim supervisors reviewed each claim, determined the appropriate adjuster, and transmitted the file along with notes and instructions. Today, claims are triaged and assigned based on configurable rules in the Guidewire system.

As a result, MEM has been able to trim its number of claim territory managers from four to two. More important, adjusters receive claims quicker. "Something we emphasized in the project early on was the sooner the loss gets to representatives, the better their ability to manage the claim," Whitt says.

Deloitte has attached numbers to the benefits of faster, automated claim assignment. "We have conducted analysis of claim data sets, and claims that require an adjuster reassignment cost three times more on average than those that don't," Laudermilch says. "Claim handoffs create a drag on efficiency and drive loss and expense costs up. The initial routing is the most critical part of the claim process."

Providing decision support to adjusters--including rules-driven red flags, automated acquisition of third-party data, and predictive modeling--can "take the grit out of the process," he adds, and remove the responsibility of performing lower-level tasks. "You can use business rules to prompt the system to advise and task adjusters to do certain things. This has a dual effect of enhancing claim outcomes and job satisfaction because adjusters are focused on the high-value tasks," he says.

MEM has seen adjuster job satisfaction increase post-deployment. In the past, hard coding in the claim system would fire off diary alerts based on blanket claim department criteria and high-level claim characteristics. Today, adjusters have control over the number and type of alerts that are set on individual claims.

"They can manage their files based on what they need to do," Whitt explains. "It puts the onus on the claim reps to be on top of their files, and it's given them the opportunity for greater [process] ownership while providing them the tools to do so. It also complements the makeup of our staff, because 80 percent of our claim reps are senior claim reps with an average experience of 14 years."

Additionally, ClaimCenter has automated other tasks, such as closing "medical-only" claims that have been inactive for a specified period of time. This has allowed MEM to trim its medical claim staff from two to one. Moreover, MEM projects that adjuster productivity will increase by more than 12 percent, from an average caseload of 120 to 135, within the next three years.

From an IT standpoint, the system replacement has eliminated the backlog of change requests. "Even though we're still early in the rollout, the tools make it easier to make changes. Many are simply rule changes or adjustments. Even changes to integration points are relatively painless. We've been very happy with the architecture and the configurability and extensibility of the system," Foerst says.

As part of its business case for selecting ClaimCenter, MEM projected an internal rate of return of 16 percent attributed to efficiencies gained through the system. Reassessing the rate of return since deployment, that figure is now closer to 19 percent, according to Foerst.

"The system also has provided better measurement of eight strategic KPIs that define where we want to go from a performance standpoint from 2009 through 2014," Whitt indicates. Those include increasing subrogation referrals; increasing caseloads with no impact on service; providing better claim handling; reducing medical costs, indemnity costs, and litigation rates; decreasing mail-handling and bill-keying times; and increasing fraud recovery.

MEM also has examined other processes throughout its claim operation to increase efficiency. For instance, the insurer had used medical bill repricing services for many years but had entered bills into the claim system first before sending them to the service provider. With a change in provider to Corvel, bills now are sent for repricing first. Corvel returns adjustments to MEM via EDI, reducing data entry.


Whereas MEM built on a foundation of imaging for its claim system project, it was a claim administration upgrade that led to an enterprise content management deployment at Hastings Mutual, which writes personal, commercial, and farm lines P&C.

Hastings converted a DOS-based claim platform to ClaimCenter in 2004. At the time, the company had a department-level imaging system in underwriting but still dealt with paper in all areas of the claim operation. Additionally, pieces of the file could be scattered between home office and field staff. Seeing the benefits of managing electronic claim files via ClaimCenter, Hastings sought to extend its investment in OnBase, previously used in the underwriting department, as an enterprise content management solution.

"Our intent was to integrate OnBase with ClaimCenter so that our employees would not have to use two systems. It was all about imaging the claim file and providing automated workflow through a single user interface," says Bob Eshelbrenner, vice president of IT and CIO.

Beyond creating a completely electronic claim file, Hastings looked to centralize the imaging of incoming claim documents and automate their distribution to the fullest extent possible. That required two more pieces of technology: mail opening and extracting hardware from Opex and capture and exchange software from Kofax.

The Opex machine opens mail and performs high-level document sorting to identify certain types of documents, such as checks, which need to be routed for physical handling. All documents are imaged, and Kofax detects information on documents, such as key phrases or company logos, to determine their appropriate destination. Policyholder information is applied to the image and document and is routed, with the only exception being documents requiring manual review.

"Previously, we would have to presort documents in the mailroom and send them to the appropriate department for imaging," Eshelbrenner says. "This combination of technologies enables us to take and process documents as they come, support the whole integration of imaging with claims, and provide a straight-through process."

The project, completed in 2006, has had an impact on the entire company. "When we started the claim project, we looked to that solution [OnBase, Opex, and Kofax] to get the maximum efficiency in claims from imaging and move documents to the claim department faster. However, we found it gave us a more efficient way to handle content on an enterprise basis," says Eshelbrenner.

Hastings also was able to move functions formerly performed by its claim area to the mailroom without increasing headcount to the mailroom. In turn, it has been able to reassign mail processing staff in claims to other needed roles.

"Some of the previous roles that were required to determine the type of mail and assign it to the right file have totally disappeared," says Ray Rose, claim manager for Hastings. "We now have just one person who handles all the mail functions needed when there are issues around particular pieces of mail. In the past, at one point we had three people looking at mail. We have been able to redeploy those resources."

It's also enabled Hastings to improve claimant response. "With everything on paper, people constantly were searching for claim files. We had people in the field who had part of the claim documents and no real ability for someone in the home office and field to use the same information and document at the same time. Now, individual file handlers can look at a single, complete file simultaneously. That's helped us be more efficient," Rose says.

Hastings has been able to expand claim service to its independent agents, too. "Previously we had no capability to extend information to our agents or other partners in the claim process," Rose says. "We've implemented features within ClaimCenter and OnBase that allow us to generate documents that are sent automatically to agents or insureds."

Going forward, Hastings plans to augment the dashboards and management reporting provided by its current claim technology platform with additional business intelligence tools from InetSoft. "The project is designed to give better information to the claim managers by delivering additional real-time reports on claim volume," Eshelbrenner says.

Hastings is an example of how it's not just one system that makes for a best-practices claim process. "Claim automation is a gradual process. We started with a core system and, adding OnBase imaging, took a major step forward. But there's no one piece that makes that happen; it's the integration of all those pieces," says Eshelbrenner.


Efficiency's benefits extend beyond measurable KPIs. "Insurers can differentiate themselves in the marketplace by handling claims and making fair settlements in rapid way," Harris says, adding insurers continue to show successes in leveraging rules, business analytics, and predictive modeling for adjuster decision support.

"Carriers have an obligation to their insureds as well as their own stakeholders to ensure they're not paying for claims they aren't liable for. These are the things that make claim handling a central part of what it means to be a P&C company," he asserts.

Pressure will continue on claim operations not only to handle claims quickly but to identify fraud and other problems as early in the process as possible. This need is exacerbated by the potential for increased fraud driven by a deteriorating economy. For instance, a report recently released by South Carolina's Insurance Fraud Division showed a greater than 40 percent increase in convictions in 2008 over 2007, with the division's president blaming the economy for driving more people to commit fraud.

"Predictive analytics certainly is coming into a greater use in the claim operation. When we interview claim professionals and heads of claim departments, they cite benefits of not just uncovering fraud but also being able to identify claims where they could increase speed to payment and speed to close," Harris says.

"It's more comprehensive than back-room analytics," he points out. "Companies are looking to enhance their adjusters' expertise by using analytics. They are building desktops that can help individual claim adjusters with claims while feeding those claim results back into the analytic model to refine it, see how they are progressing, and discover what's working best."

Equally important, technology is proving its worth not just as a staff support mechanism but also a talent attractor. "Any time we take on any level of a claim search, the technology piece is front and center," Milkint says. "Companies that are making investments in technology do use it as a recruiting tool, because the strong claim professional will gravitate toward that state-of-the-art technology."

Despite the drumbeat to do more with less, insurers still have an appetite for making strategic investments in claims, provided the business case is solid.

"They are willing to spend, but they also are looking for returns. They are looking for an ROI that will make sense to them," Harris says.

"Business action powered by claim technology and data analytics is critical in driving claim excellence," Laudermilch says. "The idea is to take these scarce resources you have and, faced with the talent shortfall and economic crisis, make sure people are as effective as possible and making the best decisions possible."

Featured Video

Most Recent Videos

Video Library ››

Top Story

Crime doesn't pay for the newest members of the Hall of Shame

There is no honor among these scammers for the millions in fraud they perpetrated.

Top Story

A dozen ways to prevent theft during the holidays

It's the most wonderful time of the year — not just for you and your family, but for thieves, too.

More Resources


eNewsletter Sign Up

Carrier Innovations eNewsletter

Critical news on the latest tech solutions, information security, analytics and data tools and regulatory changes to help decision-makers at insurance carriers keep their business thriving – FREE. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.