As the "money out" side of the business, claims has long struggled to gain the budget attention of the "money in" side.
"Claims has always been at the end of the line when it comes to spending because for years, the more compelling places to put investment were producer portals, new business functionality in policy administration systems, or other sales-focused systems," says Donald Light, director of Celent’s Americas Property/Casualty practice. "The challenge for claims has been to articulate the business value created by claims projects and to get closer to its fair share of IT investment resources."
Those drivers include better decision-making, reduced claims leakage through faster settlement, intelligent claims assignment, and other advantages gained through modern claims systems that impact the bottom line. They also include objectives that target top-line growth, such as improved customer service that leads to increased retention and new sales.
"Companies with a strategic view of claims see the connection between claims and increased brand awareness and building customer loyalty. They see the potential for expense management, using analytics to reduce loss payments, and reserving adequately so they can deploy capital elsewhere," says Frank Petersmark, CIO advocate at consultancy X by 2. "However, it takes the right sort of person to articulate those benefits and frame the conversation in the right sort of way."
A Seat at the Table
There is evidence that claims organizations have been successful in having that conversation and turning the tide on claims investment.
According to recently released CEB TowerGroup research, 40 percent of insurance executives expect to increase their spending on claims management systems in the years ahead, with an increase in global claims technology expenditures projected at over five percent through 2017. In SMA's 2013 "Insurance Ecosystem" report of insurer technology spending, claims administration was ranked fifth, up from ninth in 2012, and the group expects that upward trend to continue.
"There is going to be continuously increasing spending on claims," says Karen Furtado, partner at SMA. "Some of that spending comes from enterprise suite deals where claims technology is part of the bundle, but companies are also making independent investments in new claims solutions."
Light sees three drivers behind the trend in core system replacement: first, eliminating the hard coding of user interfaces, rules, and workflows with configurable systems; second, incorporating better analytics; and third, enabling greater productivity.
"Core replacement projects are all targeted to increase the ability of adjusters to handle claims in a quality way," he says.
Claims are Core at California Casualty
California Casualty's customers are firefighters, law enforcement officers, and teachers, and the company understands how those customers base their insurance-buying decisions.
"We do business in fire stations, police stations, and school lunchrooms. One person's claim experience gets told and re-told to every other potential customer there, and we can't afford to have a negative claims experience because it can impact sales," says Jim Kauffman, senior vice president, California Casualty. "I can't beat the drum enough about how important customer service in claims is."
At California Casualty, claims spending is strategic and on par with—or even ahead of—other areas. A Guidewire customer since 2008, the insurer recently completed an upgrade to the latest version of the ClaimCenter platform.
Prior to the upgrade, California Casualty had developed two tools in ClaimCenter targeted at enhanced claim service. The first is a workflow tool that automatically triggers claim file activity based on specific conditions. The second is a "recurring activity pattern" tool that launches activities at pre-determined intervals of time when specific conditions are met, such as the need to make a payment within a prescribed period of time.
One area where automated workflows have produced a bottom-line benefit is subrogation. Previously, the claim process at California Casualty had been linear, where claims were assigned to a subrogation specialist only after settlement. Using the workflow tool, claims with subrogation indicators are electronically routed for handling, with the claims and subrogation investigation processes occurring simultaneously.
Gloria Medlin, a senior claims business analyst at California Casualty, illustrates the change in process with a claim involving a fire caused by a defective appliance. "Claims adjusters are understandably worried about repairing damage from the fire and putting the house back together, but the investigation needs to preserve the appliance that caused the fire so that subrogation can happen. Being able to segment a claim and have multiple people working on the claim from different disciplines ensures that is done and that other areas aren't overlooked," she says.
Increasingly, subrogation and salvage management capabilities are being incorporated into modern claims administration systems, including the latest version of ClaimCenter. "Traditionally, both subrogation and salvage have been up to an individual claim adjuster to identify and assign, but insurers realize that's not the best way," Light says. "Just as you can have a modern system create its own 'fraud score' to refer a claim to a special investigator, it can also create its own 'subrogation score' to identify opportunities and manage the subrogation process."
California Casualty has been able to achieve a 5.5 percentage-point increase in its subrogation recoveries since creating the workflow three years ago. "We're also getting a better view of the high level health of the claim," Medlin says.
For California Casualty, an investment in the ClaimCenter upgrade ensures that the claims staff has access to the latest technology tools. Additionally, the company is planning new functionality rollout now that the latest system is online, including a Google map overlay that will help desk adjusters better understand loss details on distant claims.
"Because we are a virtual claims department, we don't know what the intersection of two roads looks like in a particular area," Kauffman explains. "By using a Google map overlay of an accident location, adjusters will be able to examine what the area looks like and take more detailed recorded statements in less time, which leads to better loss results and higher customer satisfaction."
Analytics and Intelligence
Analytics is a hot topic in many areas of insurance, including claims. "We continue to see investment in analytics in claims, particularly for fraud. The reason for that investment is very intuitive to claims organizations—they understand the need to find the fraudsters among your claims submissions," says Karen Pauli, research director in the Insurance practice at CEB TowerGroup.
Using their fraud-fighting experience as a springboard, claims departments are targeting analytics to other areas of the claims operation as well.
"One of the main reasons insurers have been deploying predictive analytics in claims is early evaluation," says Furtado. "They want to better understand the attributes of that claim and make sure based on those attributes that claims are routed to the proper adjuster."
Universal North America was launched in 2004 as a virtual operation, using a TPA for all claims handling. Due to continued growth of the company and a desire to control the entire claims experience, the company moved claims processes in house in 2012.
"One of the issues identified for improvement by our claims team was the length of the claims cycle," explains James R. Watje, vice president, IT and Operations for Universal North America.
When the company moved claims in house, it also began looking for tools that would add analytics and reporting capabilities and provide actionable information across the department, from managers to line-level adjusters. "Based on the need to improve the claims experience, our claims management required an improved ability to track response time to insureds and find ways to reduce the cycle time from reporting a loss to closing that claim," says Watje.
Universal North America deployed iPartner's Insurance Scorecard in 2012 to provide reporting and analytics. Adjuster-level dashboards show a variety of KPIs, such as contacts made within 24 hours, closed ratios, and estimates versus closed paid amounts, and illustrate how individual adjusters are performing compared to those metrics and other employees. Those data are rolled up to manager dashboards that provide drill-down capability.
With the Insurance Scorecard in place for a year, Universal North America is seeing an improvement in the claims process, including a 26.6 percent increase in same day contact, an 18 percent drop in the time of estimate to payment, and a 23 percent decrease in time to first payment.
"Transparency is essential to the improvement we've realized," Watje says. "It would be much more difficult to confirm that people are living up to metrics and standards we've established without the dashboard, and certainly it's a big part of everybody buying into the expectations we've set for performance," Watje says.
"Also, now that we have claims detail in the data warehouse that iPartners built, we can drill into that data and measure business metrics whenever we need to," he adds. "Ultimately, we feel that will give us benefits beyond claims, such as making sure we're targeting the right niches of business and giving us better pricing targets."
California Casualty began using Guidewire Live in fall 2012 to take analytics beyond the walls of the enterprise. Guidewire Live is a cloud-based platform that allows insurers to compare and contrast their performance to other Guidewire customers across dozens of operational metrics. Customer data is anonymized, and Guidewire Live clients also have access to third-party content such as weather, geographic, and demographic data. Some Live apps are free to Guidewire customers, and others are priced based on the size of the company.
Using Guidewire Live, California Casualty is able compare its performance before making changes. For instance, by accessing customer satisfaction benchmarks, claims management believed the company had room to improve in the appraisal satisfaction process. They discussed that information with the independent appraisal vendor and determined that additional phone calls to customers would likely create improvement—but at a price.
"The cost of additional phone calls would be $10 per claim, which would increase our loss adjustment expense, but we decided to incur that expense," Kaufman says. "Going forward, we can now look at our customer satisfaction before and after the change in Live to see the impact and whether that money was well spent."
California Casualty also used before-and-after analysis to determine that changing from house counsel to outside law firms in one state resulted in an increase in both legal expenses and average indemnity payments. In Tennessee, the insurer used Guidewire Live to root out the cause of a homeowner's loss ratio problem.
"Using Live, we could call up a map of Tennessee, combine that with all the homeowners' claims for the past 12 months, and overlay the policy concentration on top of that," Kaufman explains. "That analysis allowed us to see that we had a high concentration of properties in certain areas of the state, which created a disproportionate impact on the overall results of the state when storms impacted those areas."
California Casualty used that analysis to create a marketing plan to write more business in other areas of the state and balance out that concentration problem. "A picture is worth a thousand words, and being able to create a picture to show the problem made understanding the true cause much easier," says Kaufman.
Claims that enter litigation tend to be the most expensive, which has led some claims organizations to target litigation management as another area to apply claims technology investment.
"The opportunities are there for improved processing in litigation, including applying appropriate analytics to assess claims severity and pull claims with characteristics that could lead to litigation out of the standard workflow and straight to a senior claims person. That's the first opportunity for improvement—the sooner you get to an ugly claim, the sooner you control your ultimate payout," says Pauli.
"The second opportunity to apply litigation management technology would be using analytics to assess when a claim should go to a specialty litigation unit or a specialty legal firm. The third opportunity is to manage the cases you have sent to a legal firm, including looking for times when you need to reinsert yourself back into claims," she adds.
Global insurer XL Group has been using TyMetrix 360° in North America since 2011. In mid-2012, the company expanded the use of the litigation management platform worldwide.
"We wanted to standardize some of the processes to the best of our ability and provide more insight into the information that is possible through TyMetrix," says Jack Rowan, head of claims operations for XL Group in North America. "We wanted to automate the litigation management process as much as possible while keeping adjusters involved in the claim files in a way that was streamlined and efficient."
XL Group's objectives for litigation management technology include controlling legal spend and optimizing claim results.
"We call it 'demand management,'" Rowan says. "How and when our adjusters are engaging firms, and how we best utilize those firms to get the best outcomes. We also wanted to understand how our panel firms are doing compared to others. TyMetrix is a powerful mechanism to provide a feedback loop with our panel firms and target improvement."
TyMetrix 360° is a hosted platform that is integrated into the XL Global Claim system and is accessed by XL Group's claims operations and outside counsel to share documents, manage e-billing, and collaborate on matter management.
"Law firms benefit by having access to all their matters 24/7, so it creates efficiency over other methods of sharing and collaborating," says Lorenzo Berenguer, global vendor manager, XL Group.
Once a claim is assigned to a law firm, the firm is notified and enabled for access in the TyMetrix system. "Firms can see what's been assigned to them, what actions and payment have been approved, what invoices are outstanding, and which adjusters are assigned to particular matters. Adjusters can see the law firms assigned to particular claims," Berenguer adds.
The system provides XL Group greater visibility into matter management. "It facilitates electronic view of invoices," Rowan says. "More important, it provides analytics around those invoices."
Analytics enable XL Group to rank law firms by files handled, total expenses, and claim outcomes.
"We can track that over time," Berenguer says. "It is further enhancing our ability to talk to law firms by providing a common platform. We can also assess who the top firms are in a particular area," allowing the insurer to negotiate with those firms and make decisions around which firm to use on a particular claim.
XL Group reports that its legal spend is down from 2011, but declines to cite a specific figure. "We keep tracking that figure along with the indemnity loss and want to make sure the benefits continue," Rowan says.
Although claims technology spending is projected to increase, how successful the "money out" side of the business will be in claiming its piece of the budget pie remains to be seen.
"Insurance companies are in business to make money, and there always seems to be more political weight, attention, and excitement around other investments. Board meetings don't start with a discussion of how the claims landscape looks—it starts with sales and marketing opportunities," says Petersmark, but adds that claims departments do have the power to impact their ultimate budget destinies.
"It will come down to how well a claims organization is able to position itself within the enterprise—whether it has the people who can advocate for claims as more than just a pass-through for paying things," he explains.
Pauli points out that there are some areas where, in fact, claims was a first-level beneficiary of technology. "In terms of mobility technology, the very first thing almost every carrier did in external-facing mobile investment was to develop first notice of loss apps," she observes.
"Carriers realized that getting claims information quickly and getting on-the-spot pictures were beneficial," Pauli adds. "The smart carriers have looked deeper in the enterprise to realize that a connection between those mobile apps to a modern core system was critical to maximize their investment in mobile technology."
"From both a claimant and producer point of view, developing capabilities to not just report on claims, but also check on claim status and have conversations and interchanges on mobile platforms is increasingly important," says Light. "When claims happen, there is also frequency of contact that results with claimants, repair shops, and so on. The ability to support mobile platforms on both the consumer and business side is an area that will continue to grow."
Furtado adds that the bright spot in technology for claims organizations is that the majority of projects that are undertaken are successful in terms of both technological implementation and business impact, which can't be said for all areas of insurance technology deployment.
"When they do invest in technology, claims departments are getting where they want to go," she says. "The combination of using more modern claims systems with advanced workflow and more modern approaches is yielding both successful deployments and business benefits more often than not."