In recent years, business process management (BPM) has commandedthe spotlight. As one of the latest buzzwords, it is discusseduniversally at industry conferences and seminars. However, thereare still many questions that require clarification.

BPM is a business philosophy of process improvement thatcombines elements of Eastern and Western management strategies,such as Kaizen (“continuous improvement”), Total Quality Management(TQM), and Six Sigma. It is also a management discipline thatrequires a carrier's resource commitment and established governanceprocesses to be successful. However, it doesn't necessarily dictatea formal structured methodology.

Phasing It In

The BPM lifecycle typically consists of the followingphases:

• Design. Analyze and document the “as is” and “to be” businessprocesses.
• Model. Represent the “to be” processes in a modeling language,notation, or visual diagram. Identify potential bottlenecks andperform “what-if” analyses on the processes to determine how theymight operate under differing circumstances.
• Implement. Build the automated components and document themanual components of the business processes and testing to ensurethat they meet pre-established performance and acceptancecriteria.
• Assess. Monitor the statistics and performance of theimplemented processes to identify breakdowns and bottlenecks forcorrection or improvement.
• Optimize. Modify and fine-tune the business processes untilthey meet or exceed the target business goals, objectives, andmetrics.

At this point, the cycle begins again with the design phase. Itcontinues iteratively, delivering incremental process improvementsuntil either the business targets are achieved or cost or timeconstraints are encountered.

The Benefit to Claims

A carrier's claim department is especially suited for a BPMimplementation for a multitude of reasons. First and foremost, theclaim function is human-centric and labor intensive, with manymanual processes that can benefit from BPM modeling andautomation.

Second, claim processing represents the largest operational costof a carrier. Thus, gaining operational efficiencies via processimprovement can significantly impact the bottom line. There is alsopotential for controlling claim leakage by reducing the claim cycletime through BPM initiatives.

Additionally, claim handling has many internal and externaltouch points with so many people, systems, and work flows involvedin the process that it requires the intricate coordination ofactivities and flow of information across various departments,vendors, business partners, and customers.

BPM can effectively handle these complex processes that spandepartmental and organizational boundaries. BPM and claimprocessing is also a good match because it can enabletransformation of a carrier's claim work flows — from adocument-centric environment where documents are routed toend-users for review and follow-up to an adjuster-centricenvironment where the focus is on quickly and accurately assessinga claim.

Finally, it is often wise to introduce BPM at a departmentallevel before adopting it as a platform to be used throughout theorganization. The nature of the claim process enables it to bebroken up into smaller chunks that do not require the existingsupporting systems to be replaced in one fell swoop.

Companies should carefully evaluate any claim managementsoftware packages that supposedly enable BPM to ensure that thesoftware meets certain minimum qualifications. Software should havean integrated BPM/workflow engine, as well as a SOA-enabled, webservices architecture. A system should contain pre-built processtemplates that are highly configurable and quickly modifiable by abusiness analyst. Also necessary is support for business rules thatenable advanced workflow automation, adherence to carrier-specificpolicies, and exception handling. One last word of advice is tolook for reporting or analytics that enable the carrier to monitorthe performance of its BPM process models.

Modeling the Claim Lifecycle

Figure 1 illustrates how the claim lifecycle can be modeledusing BPM concepts. For ease of understanding, this example doesn'tincorporate formal diagramming techniques or standardnotations.

1. A business analyst would first define the valid states in whicha claim can exist. The end-user would be able to view such statesthrough a data field labeled “claim status,” which is typicallydisplayed on claim-management system screens.
2. Next, the analyst identifies the transitions that are allowablebetween claim states. In this example, a claim in the “new” statecan only transition to an “open,” “closed,” or “voided” state, asdepicted by arrows protruding from the “new” oval.
3. The analyst then defines the events that trigger thetransitions from one state to another. For example, the “openfinancials” event triggers the transition from “new” to “open.”This can even be the creation of any financial transaction,including setting a reserve or making a payment.
4. Finally, the analyst identifies any business rules that shouldbe invoked either before, during, or after a state transition hasoccurred. In our illustration, the business rules “claimants,insured units and coverages identified,” “user financial authoritylimits not exceeded,” and “policy limits not exceeded” areevaluated after the “open financials” event has occurred. Moreover,if all three rules have successfully passed validation, then theclaim is automatically transitioned to the “open” state.

Admittedly, this is a simplified example of a highly complexprocess. Once a claim is in the “open” state, a multitude ofadditional processes require modeling. This includes thoseprocesses that center around the following business objects:reserves, payments, recoveries, financial adjustments, checks,claim notes, diaries, notifications or alerts, inbound documents,outbound forms or correspondence, and claim contacts.

The advantages of modeling business processes in this manner aremultifold. First, it yields process visibility throughout theorganization for possible reuse and integration opportunities. Italso equips companies with the capability to perform “what if”analyses on the process models in order to identify potentialbottlenecks or problem areas. Another positive is that it allowsfor prototyping of business processes to determine feasibilityprior to a full-scale implementation in a live productionenvironment. Companies can quickly modify process models to respondto changing business drivers or market conditions, as well.

The Big Payoff

By successfully implementing BPM, carriers can improve variousaspects of their business. They can experience increased visibilityof business processes and continuous process improvement andoptimization. Additionally, a company can become more flexible inresponding to emerging business trends and changing marketconditions. Business and IT costs are reduced on the developmentand maintenance of business processes and systems. Companies mayalso notice that speed-to-market for new products, coverage, andservices accelerates. Other improvements relate to operationalefficiencies, the enhancement of which can lead to a more solidfoundation for process automation and establishing straight-throughprocessing. Customer service and satisfaction levels rise throughthe integration of disparate and disconnected work flows into aholistic service delivery model. All of this can lead toimprovements across an organization: Consistency in processing isenforced; company policies; and industry “best” practices areinstitutionalized; and human errors are minimized.

One should keep in mind that BPM is not a panacea. It requires amajor commitment from carriers in terms of time and resources —both human and financial — in order to be successful. Carriersshould fully expect to face a multi-year timeline and investment tosuccessfully introduce BPM in their organizations. However, byselecting the claim function to introduce BPM at an insurancecompany, measurable benefits can be achieved well before thediscipline is adopted enterprise-wide. Additionally, carriers canexpect to reap ongoing rewards as continuous process improvementtakes hold throughout the organization.