The claims department has long awaited itsturn at the table for technology investment dollars, but recenttrends suggest its fortune is improving. Organizations that take astrategic view of claims technology—and can articulate the benefitsto those who hold the purse strings—are best positioned to gettheir fair share of the budget pie.

As the "money out" side of the business, claims has longstruggled to gain the budget attention of the "money in" side.

"Claims has always been at the end of the line when it comes tospending because for years, the more compelling places to putinvestment were producer portals, new business functionality inpolicy administration systems, or other sales-focused systems,"says Donald Light, director of Celent's Americas Property/Casualtypractice. "The challenge for claims has been to articulate thebusiness value created by claims projects and to get closer to itsfair share of IT investment resources."

Those drivers include better decision-making, reduced claimsleakage through faster settlement, intelligent claims assignment,and other advantages gained through modern claims systems thatimpact the bottom line. They also include objectives that targettop-line growth, such as improved customer service that leads toincreased retention and new sales.

"Companies with a strategic view of claims see the connectionbetween claims and increased brand awareness and building customerloyalty," adds Frank Petersmark, CIO advocateat consultancy X by 2. "They see the potentialfor expense management, using analytics to reduce loss payments,and reserving adequately so they can deploy capital elsewhere.However, it takes the right sort of person to articulate thosebenefits and frame the conversation in the right sort of way."

A Seat at the Table

There is evidence that claims organizations have been successfulin having that conversation and turning the tide on claimsinvestment. According to recently released CEB TowerGroup research,40 percent of insurance executives expect to increase theirspending on claims management systems in the years ahead, with anincrease in global claims technology expenditures projected at overfive percent through 2017. In SMA's 2013 "Insurance Ecosystem"report of insurer technology spending, claims administration wasranked fifth, up from ninth in 2012, and the group expects thatupward trend to continue.

"There is going to be continuously increasing spending onclaims," says Karen Furtado, partner at SMA. "Some of that spendingcomes from enterprise suite deals where claims technology is partof the bundle, but companies are also making independentinvestments in new claims solutions."

Light sees three drivers behind the trend in core systemreplacement: first, eliminating the hard coding of user interfaces,rules, and workflows with configurable systems; second,incorporating better analytics; and third, enabling greaterproductivity.

"Core replacement projects are all targeted to increase theability of adjusters to handle claims in a quality way," hesays.

Claims Are Core

California Casualty's customers are firefighters, lawenforcement officers, and teachers, and the company understands howthose customers base their insurance-buying decisions.

"We do business in fire stations, police stations, and schoollunchrooms. One person's claim experience is told and re-told toevery other potential customer there, and we can't afford to have anegative claims experience because it can impact sales," says JimKauffman, senior vice president, California Casualty. "I can't beatthe drum enough about how important customer service in claimsis."

At California Casualty, claims spending is strategic and on parwith—or even ahead of—other areas. A Guidewire customer since 2008,the insurer recently completed an upgrade to the latest version ofthe ClaimCenter platform.

Prior to the upgrade, California Casualty had developed twotools in ClaimCenter targeted at enhanced claim service. The firstis a workflow tool that automatically triggers claim file activitybased on specific conditions. The second is a "recurring activitypattern" tool that launches activities at pre-determined intervalsof time when specific conditions are met, such as the need to makea payment within a prescribed period of time.

One area where automated workflows have produced a bottom-linebenefit is subrogation. Previously, the claims process atCalifornia Casualty had been linear, where claims were assigned toa subrogation specialist only after settlement. Using the workflowtool, claims with subrogation indicators are electronically routedfor handling, with the claims and subrogation investigationprocesses occurring simultaneously.

Gloria Medlin, a senior claims business analyst at CaliforniaCasualty, illustrates the change in process with a claim involvinga fire caused by a defective appliance. "Claims adjusters areunderstandably worried about repairing damage from the fire andputting the house back together, but the investigation needs topreserve the appliance that caused the fire so subrogation canhappen. Being able to segment a claim and have multiple peopleworking on the claim from different disciplines can ensure thathappens and that other areas aren't overlooked," she says.

Increasingly, subrogation and salvage management capabilitiesare being incorporated into modern claims administration systems,including the latest version of ClaimCenter. "Traditionally, bothsubrogation and salvage have been up to an individual claimadjuster to identify and assign, but insurers realize that's notthe best way," Light says. "Just as you can have a modern systemcreate its own 'fraud score' to refer a claim to a specialinvestigator, it can also create its own 'subrogation score' toidentify opportunities and manage the subrogation process."

California Casualty has been able to achieve a5.5-percentage-point increase in its subrogation recoveries sincecreating the workflow three years ago. "We're also getting a betterview of the high-level health of the claim," Medlin says.

For California Casualty, an investment in the ClaimCenterupgrade ensures that the claims staff has access to the latesttechnology tools. Additionally, the company is planning newfunctionality rollout now that the latest system is online,including a Google map overlay that will help desk adjusters betterunderstand loss details on distant claims.

"Because we are a virtual claims department, we don't know whatthe intersection of two roads looks like in a particular area,"Kauffman explains. "By using a Google map overlay of an accidentlocation, adjusters will be able to examine what the area lookslike and take more detailed recorded statements in less time, whichleads to better loss results and higher customer satisfaction."

Analytics and Intelligence

It seems that analytics is a hot topic in many areas ofinsurance, including claims. "We continue to see investment inanalytics in claims, particularly for fraud," says Karen Pauli,research director in the Insurance practice at CEB TowerGroup. "Thereason for that investment is intuitive to claims—they understandthe need to find the fraudsters among claims submissions." Usingtheir fraud-fighting experience as a springboard, claimsdepartments are targeting analytics to other areas of the claimsoperation as well.

"One of the main reasons insurers have been deploying predictiveanalytics in claims is early evaluation," Furtado says. "They wantto better understand the attributes of that claim and based onthose attributes ensure that claims are routed to the properadjuster."

Universal North America was launched in 2004 as a virtualoperation, using a TPA for all claims handling. Because ofcontinued growth and a desire to control the entire claimsexperience, the company moved its claims processes in-house in2012.

"One of the issues identified for improvement by our claims teamwas the length of the claims cycle," explains James R. Watje, vicepresident, IT and Operations for Universal North America.

When the company moved claims in- house, it also began lookingfor tools that would add analytics and reporting capabilities andprovide actionable information across the department, from managersto line-level adjusters. "Based on the need to improve the claimsexperience, our claims management required an improved ability totrack response time to insureds and find ways to reduce the cycletime from reporting a loss to closing that claim," says Watje.

Universal North America deployed iPartner's Insurance Scorecardin 2012 to provide reporting and analytics. Adjuster-level dashboards show a variety of KPIs, such ascontacts made within 24 hours, closed ratios, and estimates versusclosed paid amounts, and illustrate how individual adjusters areperforming compared to those metrics and other employees. Thosedata are rolled up to manager dashboards that provide drill-downcapability.

With the Insurance Scorecard in place for a year, UniversalNorth America sees an improvement in the claims process, includinga 26.6-percent increase in same-day contact, an 18-percent drop inthe time of estimate to payment, and a 23-percent decrease in timeto first payment.

"Transparency is essential to the improvement we've realized,"Watje says. "It would be much more difficult to confirm that peopleare living up to metrics and standards we've established withoutthe dashboard, and certainly it's a big part of everybody buyinginto the expectations we've set for performance."

"Also, now that we have claims detail in the data warehouse thatiPartners built, wecan drill into that data and measure business metrics whenever weneed to," he adds. "Ultimately, we feel that will give us benefitsbeyond claims, such as making sure we're targeting the right nichesof business and giving us better pricing targets."

Comparative Intelligence

California Casualty began using Guidewire Live in fall 2012 totake analytics beyond the walls of the enterprise. Guidewire Liveis a cloud-based platform that allows insurers to compare andcontrast their performance to other Guidewire customers acrossdozens of operational metrics. Customer data is anonymized, andGuidewire Live clients also have access to third-party content suchas weather, geographic, and demographic data. Some Live apps arefree to Guidewire customers, and others are priced based on thesize of the company.

Using Guidewire Live, California Casualty is able compare itsperformance before making changes. For instance, by accessingcustomer satisfaction benchmarks, claims management believed thecompany had room to improve in the appraisal satisfaction process.They discussed that information with the independent appraisalvendor and determined that additional phone calls to customerswould 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 toincur that expense," Kauffman says. "Going forward, we can now lookat our customer satisfaction before and after the change in Live tosee the impact and whether that money was well spent."

California Casualty also used before-and-after analysis todetermine that changing from house counsel to outside law firms inone state resulted in an increase in both legal expenses andaverage indemnity payments. In Tennessee, the insurer usedGuidewire Live to root out the cause of a homeowner's loss ratioproblem.

"Using Live, we could call up a map of Tennessee, combine thatwith all the homeowners' claims for the past 12 months, and overlaythe policy concentration on top of that," Kauffman explains. "Thatanalysis allowed us to see that we had a high concentration ofproperties in certain areas of the state, which created adisproportionate impact on the overall results of the state whenstorms impacted those areas."

California Casualty used that analysis to create a marketingplan to write more business in other areas of the state and balanceout that concentration problem. "A picture is worth a thousandwords, and being able to create a picture to show the problem madeunderstanding the true cause much easier," says Kauffman.

Managing Litigation

Claims that enter litigation tend to be the most expensive,which has led some claims organizations to target litigationmanagement as another area to apply claims technologyinvestment.

"The opportunities are there for improved processing inlitigation, including applying appropriate analytics to assessclaims severity and pull claims with characteristics that couldlead to litigation out of the standard workflow and straight to asenior claims person," says Pauli. "That's the first opportunityfor improvement—the sooner you get to an ugly claim, the sooner youcontrol your ultimate payout."

"The second opportunity to apply litigation managementtechnology would be using analytics to assess when a claim shouldgo to a specialty litigation unit or a specialty legal firm," shecontinues. "The third opportunity is to manage the cases you havesent to a legal firm, including looking for times when you need toreinsert yourself back into claims," she adds.

Global insurer XL Group has been using TyMetrix 360° in NorthAmerica since 2011. In mid-2012, the company expanded the use ofthe litigation management platform worldwide.

"We wanted to standardize some of the processes to the best ofour ability and provide more insight into the information that ispossible through TyMetrix," says Jack Rowan, head of claimsoperations for XL Group in North America. "We wanted to automatethe litigation management process as much as possible while keepingadjusters involved in the claim files in a way that was streamlinedand efficient."

XL Group's objectives for litigation management technologyinclude controlling legal spend and optimizing claim results.

"We call it 'demand management,'" Rowan says. "How and when ouradjusters are engaging firms, and how we best utilize those firmsto get the best outcomes. We also wanted to understand how ourpanel firms are doing compared to others. TyMetrix is a powerfulmechanism to provide a feedback loop with our panel firms andtarget improvement."

TyMetrix 360° is a hosted platform that is integrated into theXL Global Claim system and is accessed by XL Group's claimsoperations and outside counsel to share documents, managee-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 andcollaborating," says Lorenzo Berenguer, global vendor manager, XLGroup.

Once a claim is assigned to a law firm, the firm is notified andenabled for access in the TyMetrix system. "Firms can see what'sbeen assigned to them, what actions and payment have been approved,what invoices are outstanding, and which adjusters are assigned toparticular matters," Berenguer adds. "Adjusters can see the lawfirms assigned to particular claims.".

The system provides XL Group greater visibility into mattermanagement. "It facilitates electronic view of invoices," Rowansays. "More important, it provides analytics around thoseinvoices."

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 furtherenhancing our ability to talk to law firms by providing a commonplatform. We can also assess who the top firms are in a particulararea," allowing the insurer to negotiate with those firms and makedecisions around which firm to use on a particular claim."

XL Group reports that its legal spend is down from 2011, butdeclines to cite a specific figure. "We keep tracking that figurealong with the indemnity loss and want to make sure the benefitscontinue," Rowan says.

Financial Fortunes

Although claims technology spending is projected to increase,how successful the "money out" side of the business will be inclaiming its piece of the budget pie remains to be seen.

"Insurance companies are in business to make money, and therealways seems to be more political weight, attention, and excitementaround other investments. Board meetings don't start with adiscussion of how the claims landscape looks—it starts with salesand marketing opportunities," says Petersmark, but adds that claimsdepartments do have the power to impact their ultimate budgetdestinies.

"It will come down to how well a claims organization is able toposition itself within the enterprise—whether it has the people whocan advocate for claims as more than just a pass-through for payingthings," he explains.

Pauli points out that there are some areas where, in fact,claims was a first-level beneficiary of technology. "In terms ofmobility technology, the very first thing almost every carrier didin external-facing mobile investment was to develop first notice ofloss apps," she observes.

"Carriers realized that getting claims information quickly andgetting on-the-spot pictures were beneficial," Pauli adds. "Thesmart carriers have looked deeper in the enterprise to realize thata connection between those mobile apps to a modern core system wascritical to maximize their investment in mobile technology."

"From both a claimant and producer point of view, developingcapabilities to not just report on claims, but also check on claimstatus and have conversations and interchanges on mobile platformsis increasingly important," says Light. "When claims happen, thereis also frequency of contact that results with claimants, repairshops, and so on. The ability to support mobile platforms on boththe consumer and business side is an area that will continue togrow."

Furtado says the bright spot in technology for claimsorganizations is that the majority of projects that are undertakenare successful in terms of both technological implementation andbusiness impact, which can't be said for all areas of insurancetechnology deployment.

"When they do invest in technology, claims departments aregetting where they want to go," she explains. "The combination ofusing more modern claims systems with advanced workflow and moremodern approaches is yielding both successful deployments andbusiness benefits more often than not."