Insurers today face revenue pressures, increased competition, and a business environment fraught with potential financial risks. In such a dynamic environment, complex legacy-system transformations are challenging and chancy. Business process management (BPM) technology, however, can be an excellent fit for insurer processes and interactions that span across many people and systems. Moreover, BPM systems present an opportunity for continuous improvement of those processes and interactions without radical or disruptive reengineering exercises. The main obstacles to greater BPM acceptance are the many myths and misconceptions that abound regarding the negative impacts of large-scale process reengineering or redesign. The equation for BPM effectiveness includes standardization, exception management, rules management, and access to composite applications.
Business process management brings together business knowledge and information technology to design and improve operational processes. The expectations of BPM and the flood of process efficiencies it can yield excite software vendors. However, those leading the charge for alignment of business process and technology also are weary of what lies ahead. The industry survived the process reengineering revolutions of the 1980s and 1990s and is ready to hit mental delete buttons. The burning question: Is there really a way to redesign and continuously improve at the same time?
We believe BPM is an enabling technology that can address many of the risk, pricing, and other market-driven issues insurers face today, including the following challenges:
o Marginal increases in revenue put increased pressure on the need for administrative cost reductions and operational efficiencies in order to meet bottom-line goals.
o The market's increased focus on risk exposure has insurers looking closely at how cases are underwritten.
o Competition in the industry has put increased attention on customer experience and maintaining the consistency and quality of customer interactions.
o Increased emphasis on regulatory and compliance issues has many insurance organizations scrambling to produce compliance reports and solve process breakdowns to avoid fines, sanctions, and negative publicity.
o Additional pressures apply to health insurance companies that face ever-increasing healthcare delivery costs and the need to reduce medical cost expenditures while supporting changing consumer needs.
First movers in the insurance industry already have started leveraging BPM technologies to improve operations. In order to achieve widespread adoption, however, some myths must be debunked and some misconceptions clarified.
The Mythology of Managing Processes
Myth #1: BPM is reengineering. Radical redesign is not a place where our company wants to go.
BPM is not equivalent to business process reengineering (BPR). BPM can be implemented without making drastic changes to a business process. While the two can be undertaken together, implementing a BPM solution while attempting to reengineer a business process can be an overwhelming challenge. The changes associated with implementing a new foundational software application and new business processes often are demanding for the business to adopt and for IT to deliver successfully.
Plan sponsor setup in health insurance, or with retirement plan providers, is a case in point. In most of these organizations, a number of key manual and system processes are needed to set up a plan sponsor prior to enrolling individuals for coverage. While the high-level process can be standardized, lower-level processes are unique as most business operations and service strategies are stratified by market segments. Setup processes that are used for large national accounts can be dramatically different from those used for small-market accounts. While processes differ for each segment type, the back-end systems support and modifications typically are the same for all plan sponsor installations. Reengineering to standardize and rationalize segment-specific processing is not needed and is likely not desired. However, leveraging a BPM solution to support unique plan-sponsor servicing, along with alignment of common back-end systems work, can produce administrative and operational savings.
Gaining efficiencies in account establishment, reducing claim turnaround time, and improving customer relations by eliminating duplicate data generated by multiple systems are important transformation topics. In the BPM world, you do not throw away existing processes, nor do you radically change to fit the software. You model and/or prototype the process (if it is new) using any combination of people, systems, and business rules. The initial process and rule-set can be established and then continuously monitored and measured.
Changes can be implemented gradually within that framework--there's simply nothing radical about it.
Myth #2: There can be no exceptions to the process. Standardization is critical.
While standardization of business processes is "nice to have," it is not a prerequisite for BPM, nor is it a required outcome of a BPM solution. Many large insurance firms have grown through acquisitions, resulting in disparate processes in different departments for the same functions. While process standardization across the enterprise may be attempted, the reality is standardization sometimes is not possible. For example, variations in process execution based on geography often are driven by state-specific regulations. Variations in customer service may be based on the stratification of policy values or profitability.
Underwriting, rating, and risk evaluation are rife with examples of "exceptions," even though standardization is assumed. The underwriting process often is a multiple-step process involving risk evaluation across many criteria. Numerous factors are considered and weighed to determine if a policy will be offered, especially in the cases of nonstandard insurance policies or individual medical underwriting. In those situations, unexpected risk exposure quickly can cut into profitability and there can be varied and subjective interpretation in the risk evaluation process.
Leveraging BPM can easily help and efficiently automate risk evaluation of quantitative criteria and streamline underwriting execution, particularly when multiple subjective criteria need to be routed through one or more underwriters or business functional areas for approvals.
Standardization, where possible, is a great strategy. Automated decisions for underwriting and price quotation should be the norm. However, the human element is critical. Exceptions embody critical business information and can be key marketplace differentiators. BPM systems support the management and tracking of processes and process exceptions. This, in turn, supports predictive modeling and can help improve the quality of information available for decision-making.
Map processes and make the effort to note the commonalities, then leverage BPM tools to manage and streamline the differences.
Myth #3: Many applications have processing logic built into them. So, our company needs to rebuild systems in order to implement a BPM solution and new processes.
Legacy claims and benefits processing systems, member data applications, and billing systems all have some degree of process logic built into them. However, BPM solutions do not necessarily require insurance organizations rebuild these systems.
Rules engines within BPM systems achieve loose coupling for business processes. Analysts can define the context of the rules so that pertinent rules are executed when a claim is processed or a price is quoted. For example, consider the power of a codified business rule for analysts to have the ability to approve claims below specific thresholds, depending on the type of coverage that applies to the specific policy. Creating such rules in a rules engine that is loosely coupled to the BPM application can provide the ability to adapt rules in accordance with changing business needs without significant recoding of core applications. Integrating BPM with existing applications can help leverage existing investments and reduce the risks associated with mass system replacement.
There is no need to rush to the drawing board to redesign applications once rules engines are in the equation.
Myth #4: A company needs to solve for a service-oriented architecture (SOA) before it can attack BPM.
BPM often is depicted as moving up the application infrastructure stack, with SOA and integration solutions being the foundation upon which BPM is built. This thinking poses a challenge for many organizations.
Quantifying ROI on an SOA investment on its own is difficult, and layering a BPM implementation on top makes ROI even less clear. As BPM is a business-facing and process-influencing technology, there are greater opportunities to make significant business impact and earn ROI. However, with BPM, an integration strategy still is needed to deliver enterprise applications effectively. Thus, the logical approach is to build them together, focusing on use of SOA to achieve business integration and BPM to support the business with process and technology alignment. Trying to solve for SOA in totality and then looking to BPM can be a risky, costly, and time-consuming endeavor.
SOA is an enabling architecture that allows access to enterprise technology and information. It is an approach that enables reuse and encourages loose coupling of system components. Business services may represent discrete steps in a process or include an entire process. A consumer can read about the business service and decide whether to use it. Most BPM product suites allow the definition of rules and processes and the invocation of business services. Both services and events from the human/computer boundary can be seamlessly integrated.
There is no "chicken-and-egg" situation with regard to SOA and BPM.
A BPM-enabled Insurance Organization
The adjoining diagram (see link at end of article) depicts the key processes in a typical group-oriented insurance organization, facilitated by use of a BPM foundation. Here, BPM integrates SOA-enabled composite applications and other enterprise applications with manual tasks in the context of a business process.
Why should an insurance provider consider BPM technology? By adopting and leveraging BPM, insurers can achieve several benefits:
o Improved scalability: The efficiency of human/computer interaction can be improved, restricting interactions to key steps needing user input while automating the rest.
o Increased visibility: Process flows spanning external and internal entities, such as in sales, underwriting, and customer service, can be measured and monitored.
o Reduced costs: Similar, yet distinct, process flows for holder/sponsor setup and enrollment can be modeled once and implemented multiple times.
o Enhanced business agility: Composite architectures (enabled by SOA) that span legacy systems for benefits and product management, underwriting, and claims in new configurations can be leveraged without radical redesign.
o Faster time to market: An increased number of products can be designed and deployed with a reduced time to market.
As with other successful technology adoption, the end-user population likely will devise innovative solutions using the BPM technology that were unforeseen at the outset. Results in one business area will drive adoption across others.
However, a cautionary note is important: BPM is not a panacea for all technology problems. Consider processes for BPM if a viable business case exists. Rule-intensive, interaction-intensive, or exception-intensive processes are natural candidates.
For those organizations waiting on the sidelines and looking for guidance in their BPM journey, consider the following steps industry leaders have taken:
o Invest in understanding common processes and exception management and get business buy-in. BPM will not succeed as a technology-driven initiative; it needs to be business driven.
o Recognize people are integral to the process improvement, so invest time in evangelizing your BPM initiative. Enlist BPM "champions."
o Establish a governance model that represents the correct group of key stakeholders across business and IT areas.
o Pilot BPM by using a medium complexity process to get started and measure the results.
Business agility and process flexibility achieved through this enabling technology can help insurers stay ahead of their competition while keeping administrative and systems costs under control. Attaining a balance between business and technical expectations will enable the results desired under BPM implementation.
Renu Pandit is a senior manager in the Business Integration and Optimization service line of Deloitte Consulting. She specializes in leading consulting teams with IT strategy and operations experience, knowledge, and skills in providing services to clients in support of their efforts to design and develop business transformation solutions. Her current focus is on helping her clients to derive value through the use of composite application architectures.
Rakinder Sembhi is a manager in the Technology Integration services area of Deloitte Consulting, advising organizations across multiple industries on planning, design, and delivery of integration and BPM solutions.
I-Ping Li is a manager with Deloitte Consulting with more than 10 years of large-scale systems integration, program management, and information technology strategy experience across healthcare, public sector, and telecommunications clients. He currently serves as a national training leader for Deloitte's Business Integration and Optimization practice.
The content of "Inside Track" is the responsibility of each column's authors. The views and opinions are those of the authors and do not necessarily represent those of Tech Decisions.
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