Few insurance companies dispute the need to transform outdated billing functions. For most, both the challenges and opportunities are clear.
Foremost among the challenges: rigid billing processes and antiquated systems clearly affect customer retention, making it difficult to implement flexible billing plans, timely invoicing, customer self-service, and other innovations. Aging legacy billing systems also lack effective security and documentation - and are supported by information system technicians often nearing retirement. The direct financial impact is significant too - due to high maintenance costs, inaccurate reporting, exceptions and other manual processes, bad-debt reserves and write-offs, the inability to apply cash across multiple accounts, and other factors.
Insurers today also recognize the high-impact opportunities made possible by billing transformation: paperless billing, enhanced offerings and customer service, and improved processes for payments, cash management, and collections. Moreover, automated billing systems reduce the cost of complying with burdensome regulatory and accounting requirements - and reduce errors caused when billing documents are manually retrieved for internal control tests.
For all these reasons, "we see the billing transformation wave as pretty significant - it's reasonably low risk and high impact," says David Connolly, a Palo Alto, Calif.-based partner at Ernst & Young who specializes in operational transformation initiatives for insurance and financial services firms. "What I seem to be spending more time on with clients is not trying to convince them to do billing transformation, but more answering their questions of 'how do I get this right, how do I get the impact?'"
His answer? In a nutshell, Connolly says successfully transforming the billing function requires a clear roadmap - with clear priorities and distinct steps - followed by disciplined implementation.
Drawing the transformation roadmap
Connolly identifies a handful of key waypoints on the roadmap to successful transformation - building your business case (around desired benefits), identifying your billing requirements (not just current needs, but anticipating the future), selecting the right software platform vendor (in-house, custom systems are no more), and IT integration (do it fast, and don't get hung up on legacy data).
Prioritization and focus are essential to success. Connolly cites a large insurer that kicked off an organization-wide change initiative by allocating projects in an egalitarian fashion to every area of the business. "That's a recipe for disaster, because so much concurrent change overwhelms the organization," he explains. Instead, Connolly admonishes clients, "Do one or two operational segments at a time, starting with areas with the highest business impact and with the closest alignment to the company's goals."
Building the business for billing transformation shouldn't be hard for insurers saddled with legacy systems - but identifying the requirements for a transformed billing demands a careful, future-focused approach as well as an outside-in perspective.
"Too often, insurers design and implement a new billing system based mostly upon their current processes and requirements," Connolly says. To identify billing requirements that anticipate future needs, he recommends benchmarking against industry-leading practices. "You have to go to outside and compare yourself with leading practices - you can't benchmark yourself," he warns.
Vendor selection poses another potential pitfall for insurers that rely primarily on a vendor's ranking by industry analysts. Regardless of competitive ranking, companies should select vendors that most closely match their functional needs while best integrating into the insurer's existing technical infrastructure, Connolly says.
Connolly does not perform vendor selection for Ernst & Young's clients, but he recommends that they use a rigorous vendor selection process that includes detailed scoring and a proof of concept phase.
"The hardest part is the proof of concept," Connolly says. "We recommend that our clients give vendors two weeks to model it by configuring their product to meet a certain business function."
Once the platform is selected, Connolly recommends an implementation approach that embraces an agile methodology: "every 30 days something is ready for testing, don't allow scope creep, and don't let any job run for more than a year." This fosters two outcomes - on-time delivery, and on-budget (or fixed-cost) implementations.
Many insurance companies get hung up on what to do about legacy data. "Conversion is a big issue because legacy data usually is a mess," Connolly says. For that reason, "we prefer that insurers write new business on the new system, and let the old policies burn off on the old system. This typically saves money even though the systems have to run in parallel for the next year."
The last step for the organization is making the actual shift to a newly transformed billing function. Unfortunately, change management often is an afterthought for companies, especially when the leader of the overall transformation also is responsible for change management.
"The best-run projects dedicate a person and teams who address change management from the very beginning, because transformation leads to a very significant difference for anyone who touches billing," Connolly says.
Sidebar
10 Steps to Billing Transformation
A phased approach to billing transformation helps insurers realize savings and other tangible results from each phase to fund and build momentum for the subsequent phase. Ernst & Young's David Connolly recommends the following 10 critical steps for success:
- Establish the Business Case: Define goals and expectations, then set a clear charter and stick to it.
- Define your Requirements: Each insurer has some degree of unique business and technology requirements. Define them up front and compare to industry leading practices to assure the future is considered today.
- Select your vendor carefully: Custom solutions are now eclipsed by established vendor packages. Define robust selection criteria tailored to your unique business and technical environment. Insist that software vendors configure their system in a proof of concept to meet your more complicated business requirements before you invest.
- Deliver in short-term phases: Implement significant portions of the project in one year or less to prove & realize solution benefits and to avoid a run-away project.
- Manage the project risk: Put in place a contract structure that has the chosen systems implementation partner putting "skin in the game" with regard to fees and delivery timeline.
- Do Not Allow "Scope Creep": Avoid costly overruns by sticking with the project scope defined at the project inception, deferring late-discovered requirements to a subsequent phase.
- Ensure Effective Change Management: Dedicate a senior-level change manager to support the overall business and technology resource transition/training to the new system from day one of the project.
- Effective use of Agile Methodology: Every 30-45 days, a significant scope of work is tested and ready for accuracy review, typically making the overall systems delivery timeline shorter than would be realized using the Waterfall delivery methodology.
- Avoid Costly Data Conversion: Whenever feasible, insurers should run legacy data off on the old systems platform and handle new business on the new platform to reduce systems deployment risk.
- Set Measurable Benchmarks: Once up and running, establish monitors to measure successes against expectations set forth during the business case definition.
