I read an article a few years back about technology in business. Several company executives were lamenting the small productivity increases realized despite massive (and expensive) technological developments. We have fax machines, networked computers, laptops, cellular telephones, pagers, instant messaging, and on and on. But the executives were frustrated by their inability to translate all this into productivity gains.

Small wonder. Yes, technology allows the rapid transformation of business. But management must be willing to change the way companies do business in order to realize productivity gains from technology. But management has been unwilling to do so in many cases, and for many insurance companies this is very effectively illustrated by their claim-handling functions.

Claim Handling Today

Large insurance companies typically implement one of two claim-handling models. In one, the claim office comprises rows of cubicles populated by adjusters who spend all day on the computer or telephone. Claim offices are located across the country in most localities — even those with the most expensive real estate. Few venture out of their cubicles.

In the other model, the insurers implement the same inside claim-adjusting concept, but collect the claim force in a few “hub” centers in various large regional or district offices throughout the country. This configuration shows that technology allows centralization of many functions, but handling claims this way presents several problems or limitations.

First, it is not efficient to pay for expensive real estate to house a function that largely involves interacting with technology — a computer, telephone, or fax machine. Second, the cubicle claim adjustment world does not create the appearance or feel of a professional work environment. It reminds me of classic factory work, with supervisors walking up and down the line between stations. Third, it is not organized to reflect the varying complexity of different claims. Insurers that handle claims in this one-size-fits-all approach encourage over-working routine matters, and under-working complex ones (this one being the most problematic).

Claim Handling Tomorrow

Insurers need to abandon these models, truly embrace technology, and manage differently. There are substantial gains to be made from technology — if we will allow ourselves to realize them. Here are some ideas.

Offshore as much routine work as possible. There is a great deal of simple claim work. A rock breaks a policyholder's windshield. A tree limb causes minor roof damage. Insurers should identify all of their routine claim work and send it offshore to lower-cost call centers, with appropriately trained customer service personnel. Work will have to be done to make sure the offshore centers are appropriately run and their personnel appropriately trained, but this is not difficult. Other service providers do this — we have all been on the phone to Bangalore, India, and probably weren't even aware of it. Insurers need to implement this fast and get these cost savings to their policyholders.

Eliminate the local claim offices. Technology has passed them by — relegate them to the past. For example, I live in greater Los Angeles, Calif., one of the most expensive real estate areas in the country. Why any company pays rent for local claim offices here is completely beyond me. Why pay high costs to house cubicles where people are on the computer or telephone all day? This function can be located anywhere.

Either eliminate, or at least centralize the hubs. I do not like the hub/cubicle concept. It has Dilbert, if not circa 1901 factory, written all over it, and employees feel the same way. I hate to sound old (and I'm not!), but I remember the days when claim adjusting was considered a great job — even a profession. This is lost, however, in the cubicle-slave environment. And Mr. or Ms. Insurance Executive, take note: You are going to have permanent employee morale and job problems such as absenteeism, low motivation, employment litigation, and unionization that arise from the simple fact that this work environment is not professional.

But if you insist on keeping some claim handling in-house, at least centralize it in a lower-cost area and try to reduce the claim volume handled in this environment. In any case, work hard to make the environment more professional.

Go virtual — now. Give your employees the appropriate technology and let them do their jobs in a lower cost, more efficient, and employee-friendly way. There are many mid-level claims that are neither routine nor complex. They generally can be handled at one's desk, either by telephone or computer. So why acquire expensive real estate for this function when employees can do this work from their homes? Set up employee home offices. You gain the efficiency of not having expensive and unnecessary brick-and-mortar offices, and employees are spared the commuting time and factory-type supervision. Everyone is a lot happier.

Companies outside the insurance industry have done this successfully (Jet Blue, for example). Maybe you give up some direct control and have to manage a bit differently. But if you are going to achieve gains, you have to take a little risk.

For complex claims, truly leverage technology and return claim adjusting to what it was — a great profession. Identify your difficult or complex claims, which includes most lawsuits, large liability losses (especially with significant excess exposure), large property losses (especially those with significant estimating issues), large business interruption losses, and duty-to-defend cases. Hire or simply retain highly qualified, appropriately equipped independent claim adjusters who work on their own. These adjusters handle your toughest stuff. You assign them a territory. They handle your claims, reporting to your management (located virtually itself). They set their schedules. They control their workflow. They largely manage themselves (see sidebar at end of article, “The Road Less Traveled”).

“But hey, we in the insurance industry can't do this — we can't give up this much control.” Yes you can, and you must! You can give it up to highly trained, skilled, and motivated professionals. Thoroughly train your people. Pay them well for what they do. Insist on top performance. Do all this and create an environment that fosters it — not one that impedes it!

As a side note, major insurers and other businesses have faced high-exposure wages and hours litigation recently. Claim adjusters have sued, arguing that insurers have made them de facto hourly employees who should be — but are not currently — eligible for overtime. Several companies have responded to this litigation by surrendering, placing their employees on time card, paying them for overtime, and even more tightly controlling their work environments. No. No, no, no — a thousand times, no! Go the other way and solve your wage and hour problems not by creating greater rigidity, but by less. Treat your professionals as such and you will get the collateral benefit of dealing with the wage and hour exposure along with the significant cost savings.

New management. “You mean that our claim force will largely be outside the direct gaze of our claim management? We can't manage this way.” No — you mean you don't manage this way. You can. It's just different. You will need to devise ways for people to get together and exchange ideas. And you can do this. There are plenty of places that will gladly rent out meeting space on a regular basis. It just takes advance planning. And managers can certainly schedule regular face-to-face file review sessions with virtual employees — it just has to be scheduled. In the end, you might get rid of wasteful and non-productive meetings as a side benefit!

A Call to Action

Technology is out there, ready to work great efficiencies and save a lot of money. But we must let it by changing the culture of our companies and our own manner of thinking. There has been productivity improvement in the services sector overall, when business actively leverages technology.

Consider that in the late 1990s, consulting firm McKinsey & Company found that six of the economy's 59 sectors accounted for virtually all productivity growth. Among the biggest contributors were new-economy industries like telecommunications, computer manufacturing, and semiconductors. But from 2000 to 2003, the top seven sectors accounted for only 75 percent of the productivity increase. And five of the top contributors were service industries, including retail trade, wholesale trade, and financial services. That is surprising, since economists have generally believed that it is much harder for service industries to reap sharp productivity gains than it is for manufacturers.

As documented in a New York Times article entitled, “What Makes a Nation More Productive?”, service industries have become more productive in recent years by continuing to invest in information technology. Yet there are also other factors at work. “IT is a particularly effective enabling tool,” said Ms. Farrell. “But without the competitive intensity that drives people to adopt innovation, we wouldn't see these kinds of gains.”

So there it is. There aren't just technology-fueled dollars laying on the ground, waiting to be picked up by creative insurance companies. There's gold in the hills, waiting for us. Time to mine it, don't you think? K

John Cross is an Insurance/Management Consultant who is on the faculty at California State University, Fullerton's Center for Insurance Studies and the University of Phoenix Southern California and Online Campuses.

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