Insurers that improve their claims systems today are achievingtwo resultscost cutting and enhanced customer servicefrom a singleeffort. Carriers now have not only the appetite but the budget toimprove strategically the entire claims process, investing in newmanagement systems and workflow-focused tools.

BY MICHAEL P. VOELKER

What a difference a year makes.

Twelve months ago, claims technology projects still werestruggling to get their piece of the IT budget pie, with carriersfocusing on policy administration and infrastructure. As a result,most of the claims work going on had been tactically oriented andtool focused.

Today companies are realizing the value of claims strategically.We definitely are seeing a growing interest in how to improve theoverall end-to-end claims process, particularly compared with twoyears or even a year ago, says Kimberly Harris-Ferrante, vicepresident of research at Gartner. Budgets have begun to open up forlarger claims projects, and in a study soon to be released byGartner, 62 percent of P&C carriers report they actively areassessing technologies that can support and improve the overallclaims process.

Claims to the Core

Focusing on strategic projects means companies have had toidentify exactly what their strategy is. As the money out side ofthe business, claims traditionally had been an area wherecost-cutting projects ruled the day. Customer service was anafterthoughtgood if it improved as a result of a new systemdeployment but not a problem if it didnt.

Carriers have come to realize that view is shortsighted. Thereis a strong correlation between customer retention and customerexperience in claims, notes Marek Jakubik, managing director andco-founder of the Insurance Technology Group. Thats worrisome newsfor some carriers, given a recent study by Accenture and SAP thatshowed 20 percent of P&C claimants were dissatisfied with theservice they received.

Therefore, the most comprehensive strategy for a claimstechnology project is both to reduce cost and improve customerservice. Those carriers [that accomplish that objective] willcontinue to gain market share, says Deborah M. Smallwood, insurancepractice leader at TowerGroup.

Finding they need a robust claims management system to supporttheir strategic objectives, carriers increasingly have been willingto do wholesale replacement of legacy claims administrationplatforms. There are a number of [claims administration] vendorsout there that have seen an uptick in business, Smallwoodreports.

One carrier that recently traveled the legacy-replacement pathis Horace Mann. The company wanted to improve its overall claimsoperation, targeting such goals as real-time claim visibility,faster claim turnaround, streamlined processing, and moreresponsive customer service. However, its 20-year-old, AS400-basedclaims system simply wasnt up to the task.

The system needed to be modernized, says Robert Kambe, vicepresident of claims operations at Horace Mann. We realized we werefalling farther and farther behind [our competitors].

Beginning in early 2003, Horace Mann began replacing the AS400system with Claims Workstation from Fiserv. It deployed the newsystem to all claims staff by November of that year, although ittook a year to convert fully open claims from the old system. Alsoin 2003, the carrier installed a new interactive voice response(IVR) telephony system from Siemens, coinciding with its initiativeto consolidate 16 claims offices into six regional offices.

Previously, call center reps would take claim information from acaller, collecting just enough information to open a claim. Theinformation would be routed manually to an adjuster who wouldcontact the claimant for additional information before beginningthe claim, and the process was paper intensive. Today, the IVRsystem automatically routes calls to the appropriate regionaloffice loss unit. There, reps enter loss information and commentsinto Claims Workstation, which assigns preliminary loss reservesand transfers the claim to the assigned adjuster on the first callin 85 percent of claims, a process Kambe calls a warm transferassignment. Horace Mann also provides a Web-based first notice ofloss, and one rep in each office handles assignment ofWeb-initiated claims.

Horace Mann has achieved what Kambe describes as a significantreduction in the need for adjusters to call back to obtainpreliminary claim information. Additionally, claims automaticallyare routed to supervisors based on the companys referralparameters, and electronic files mean multiple people can reviewclaims simultaneously. He also indicates the average time claimsremain open has been cut in half, which impacts both service andcost. The longer a coverage remains open, the more expensive it is,so handling it sooner rather than later is a huge expense-controlitem, says Kambe.

With the new Fiserv system, application and database servers,and other infrastructure investments, the project cost exceeded $3million. However, Horace Mann was able to achieve a return on itsinvestment in the first year simply by being able to eliminate 10claims offices, which Kambe credits the project with enabling. Wewill remain at present staffing levels even though we will continueto grow in auto and property policy counts through 2005 and 2006,he says.

Go With the (Work)Flow

Automation of the workflow beginning at the first notice of lossand extending throughout the life of the claim is a common goal inthe claims projects undertaken by many insurers. Insurers arelooking at process managers, rules engines, and analytic tools tohelp make claims more efficient and effective, to improveproductivity and streamline the supply chain, and to improveperformance from a profitability standpoint. Also, using rulesengines [that are a standard feature of workflow systems] toextract core functionality that was embedded in claims systemsfrees up maintenance work, as well, notes Smallwood.

Although companies have a bevy of workflow systems to choosefrom in the document management and business process management(BPM) technology industries, carriers prefer a solution providerthat offers insurance expertise, Harris-Ferrante asserts. Mostpopular among carriers is buying a claims-specific workflow tool,such as Staffware [by Tibco] or [ClaimCenter by] Guidewire[a vendorthat] has built claims rules into the BPM solution, sheexplains.

Hastings Mutual completed a deployment of Guidewires ClaimCentersystem in April 2004. Like Horace Manns project, it was a completereplacement of a legacy claims administration platformin Hastingscase, a DOS-based mainframe system. ClaimCenter is deployed on dualapplication servers with failover support, and the applicationrequired a new database server, as well. The system interfaces withHastings existing policy administration and financial reportingsystems.

The project also coincided with a needed PC upgrade throughoutthe claims department. [Previously] we werent able to move theclaims department to newer hardware that could support neweroperating systems, e-mail, Office applications, and otherapplications because we always had needed to include DOS support,says Bob Eshelbrenner, Hastings CIO.

The biggest initial impact of Guidewire was the implementationof a rules-based workflow that allows Hastings to triage claimseffectively. The system automatically routes new losses to triagesupervisors, who assign a severity ranking of one, two, or three.The system then automatically will assign severity-three claims toa field adjuster and severity-one claims to an inside rep. Severitytwo may stay inside or go out, depending upon workloads and othervariables in the claim detail. The system also has the ability tosegment claims so, for instance, the collision part of a claim maybe handled by an inside adjuster but the bodily injury portioncould be assigned to a field rep.

In addition, Hastings has seen greater consistency in lossreporting and better workload balancing. In the past, supervisorswould look at loss reports and decide to whom to assign them, andevery supervisor handled things a bit differently, says Ray Rose,Hastings claims manager. Some adjusters also were trying to do morethan they should have done by taking on every claim that came tothem even if it killed them. Besides assigning claims equally andobjectively, ClaimCenter provides supervisors with dashboards thatlet them continually monitor workloads. Rose credits the systemwith helping Hastings keep its staffing level despite an increasein business and reduce its need for independent adjusters.

The carrier also has used the new system as the basis forimproving workflows with external business partners. One of itsfirst initiatives after deploying the ClaimCenter system was aproject to improve its bill review process. Previously, its billreview vendor, ReviewWorks, would adjust and return anywhere from2,000 to 3,000 bills per month to the carrier, each of which neededto be entered manually into Hastings claims system before paymentscould be made. That process could take one clerk several weeks tocomplete.

Today, the vendor sends Hastings a data file ClaimCenter uses toadjust claim amounts automatically. Checks are cut, matched withexplanation of benefits forms, and maileda process that now takes aclerk as little as one day. Its not that we couldnt have done thattype of integration with bill review or other vendors with themainframe system, but it would have been much clunkier,Eshelbrenner says.

Tighter integration of disparate workflow tools is the goal ofdirect-to-consumer personal auto insurer Esurance. Currently,losses reported to the carriers central loss reporting unit inSioux Falls, Iowa, either by phone, fax, or Web, are entered byloss assigners into Esurances FileHandler claims management system,built by JW Software. Loss assigners also use the Web-basedClaimsPort system from ProcessClaims to make physical damageappraisal assignments to independent adjusters, repair shops, andother business partners.

Having a Web-based workflow tool for appraisal assignment isimportant to Esurance because, unlike with staff adjusters, thecarrier cannot control the technology platform independentadjusters use. ProcessClaims, which hosts the system on an ASPbasis for Esurance, also is able to integrate directly with popularestimating systems from the vendors repair shops use such as CCCInformation Services, Mitchell 1, and ADP Claims ServicesGroup.

Mark Hofmann, claims technology manager at Esurance, reportsProcessClaims system, which was deployed in 2004 to replace anearlier fax-based workflow, was responsible for a 25 percentreduction in time between report of loss and completion of vehicleinspection. Going forward, Esurance wants to integrate the systemfully with FileHandler to present a more unified workflow forstaff.

Right now, we are working on sending [claims] data to[ClaimsPort] to reduce the amount of manual entry. Thats phase oneof a two-phased approach, Hofmann says, with the second phase beingthe automatic upload of inspections, appraisals, photos, and otherinformation from ClaimsPort to the FileHandler system. The carrieralso is working on enabling remote wireless access to the systemfor staff appraisers.

Rules-based workflow can help insurers correct problems withclaims before they are paid, anywhere from detecting fraud toconfirming estimates are in line with expectations. At Horace Mann,the rules engine in Claims Workstation scores claims in real timeagainst a number of predetermined fraud flags and makes referralsto special investigative unit (SIU) staff.
Although the company would not quantify the impact of automatedfraud referrals in terms of claim declinations or successfulprosecutions, it has led to what Kambe calls a modernization of theSIU process, where referrals are more consistent than the previousmethod that relied solely on adjuster intuition. It also led to adoubling in the size of Horace Manns SIU department.

Esurance uses a rules-based intelligence component ofProcessClaims system to apply point thresholds to estimates basedon such factors as damage estimate, labor rates, and type ofdamage. We determined about 30 percent of our estimates didnt needto be reviewed by our desk auditors, Hofmann says, whereaspreviously 100 percent of estimates were reviewed. As a result,Esurance has been able to reduce the staff needed to auditestimates and eliminate bottlenecks in the auditing process thatheld up approval and payment of estimates, thereby improvingturnaround and customer service.
Yet despite the impact of workflow tools on carriers strategicobjective of reduced cost and improved customer service, automationoften has been a tough nut to crack in insurance, mainly because ofthe perpetuation of paper files in the claims process. There issimply a strong historical attachment to paper, InsuranceTechnology Groups Jakubik points out.
Hastings, for example, has deployed an OnBase document managementsystem from Hyland Software in its underwriting area but has notyet extended that system to claims. Currently, any images ordocuments received or generated electronically, such as digitalfaxes of loss notices and photographs, are stored in a repositoryof the ClaimCenter system, and paper claim files still areestablished. The company is working on extending the OnBase systementerprisewide, and once that project is completed, images will bemoved from ClaimCenter to the central OnBase system and paper fileswill be eliminated.

Measure for Measure

Not only do carriers share a common challenge to workflowautomation in claims, but they also make a common mistake. Itamazes me companies will begin with automating existing processes,says Harris-Ferrante. You can make your existing process go faster,but why would you want to if youre going in the wrongdirection?

Before AutoOne Insurance began deploying an imaging and workflowsystem in 2005, it considered the way various claims processes wereundertaken. In one instance, claims associates were sending clerksinstruction sheets saying, Make this payment, explains Adam Karol,the insurers assistant vice president of claims. We identified ittook just as long to make the payment as it did to send theinstruction, so now, all our associates make their ownpayments.

Another impediment to success regardless of the type of projectis carriers often lack the ability to assess a new systems impact.A lot of them are just guessing, claims Tim Gillespie, principalconsultant at Doculabs.

AutoOne decided to deploy performance management software fromthe Opus Group, which allows the carrier to design, model, and thenmonitor process changes. You really need to have true, accuratedata to benchmark your project, see if it works, and determinewhether you need to go down a different road, Karol says. AutoOnesfirst step was to track all activities undertaken by claims staffand record baseline measures for those activities in the Opussystem. It then uses Opus to pull transactional data from itsclaims administration system and continuously track claimsactivity.

The company uses the system to assess the before-and-afterimpact of workflow changes and new technology deployments. Modelingtools permit AutoOne to run what-if scenarios that model the impactof workflow changes and to staff proactively. We are growingrapidly by both product line and state, so we need to make sure wehave the data to support our claims staffing that allows us to dothat, Karol says.

On a tactical level, AutoOne supervisory staff also usesdashboards in the Opus system for day-to-day workload monitoring.Historically, [supervisors] would wait for end-of-week reportsrelated to incoming, closed, and open claims. The dashboard tools[in Opus] allow managers to lead their staff proactively, Karolcomments.

Having the Opus system in place will be important to the successof the imaging and workflow systems pending deployment, Karolmaintains, and making process changes modeled with the tool isdelivering AutoOne a greater than two-to-one ROI on the Opusproject. Our cost savings come from being able to reallocate andrealign resources into other projects within the organization muchmore solidly than if it were done on a gut feeling basis, saysKarol.

Even if carriers create more sophisticated systems ofmeasurement within the claims department itself, Harris-Ferranteargues insurers still lack the ability to assess the true strategicimpact of claims projects to their overall business. They can tellyou performance datait took X days to handle a claim before and Ydays now, she says, but when it comes to assessing how claimsservice impacts customer retention and satisfaction, they cantmeasure the effect accurately and objectively, an effort that wouldfall under the umbrella of enterprise analytics.

Therefore, at least for the near future, insurers will continueto operate with the anecdotal understanding improvements in claimsservice (which they can measure) do positively impact customersatisfaction and retention, and their strategic claims projectswill reflect that.

Cost and service should both matter to carriers, Smallwoodcontends. Its a different industry today.