For many carriers, the task of processing claims consistently and in accordance with new programs has become complex and daunting for both adjusters and the IT organizations that support them. The rules governing critical claim-handling processes are often cumbersome and managed manually by professional staff. In those instances where rules are automated, usually they are implicit within custom code scattered across multiple applications. Implicit business rules and policies prevent organizations from becoming agile, since even simple claim processing rule changes to such a system can take weeks or even months. The lack of a centralized, explicit, and auditable rule repository will eventually result in inconsistent claim handling and outcomes across the company. Faced with regulatory compliance issues, this can lead to fines and, worse, the loss of an unhappy customer to the competition.
Insurers are increasingly turning to Business Rules Management Systems (BRMS), or business-rules engines to address these challenges. Simply put, a BRMS is a software system that explicitly represents the business logic and policies in a format that can be understood by an actuary or business analyst. Business rules and policies are then managed externally and in parallel with other application software assets. Managing rules outside of the application, a BRMS increases agility and drives the automated decision-making capabilities of applications, such as claim processing, so that they can be changed more quickly and easily by the actuary instead of a programmer. As a result, a BRMS enables actuaries or business analysts to customize claim policies, programs, and other business decision criteria associated with the claim processing function almost in real time. Since the claim process is inherently rule-driven, doesn’t it make sense to automate the rules so that highly skilled adjusters do not waste precious time repeating manual processes?
In claim processing, a BRMS provides a repository for the business policies and the business logic that governs the claim-handling processes. Its decision-support capabilities enable the automation of such tasks as approving claims, assigning claims, instantiating best practices, accommodating regulations that often vary by state, scoring claims on a number of criteria including fraud detection, and specifying payment and settlement methods. In fact, the business rules approach supports an earlier and more aggressive form of fraud detection, since predetermined triggers can be easily integrated into the system and more quickly and easily modified as methods used to attempt fraud are changed.
With the most advanced BRMSs, business analysts can create and maintain the business logic through a natural language interface. Equally important is the ability of the system to support the concept of inheritance, exclusion, and overwrites so that multi-jurisdictional rules can easily be represented in a straightforward manner. After verifying and simulating the business logic, it can then be deployed to a business-rules server. The business-rules server can be integrated with .Net, Java, or may be implemented as a web service so that it can be accessed easily by many SOA-enabled applications, including legacy systems. Enabling the actuary or business analyst to capture the policies and rules that govern claim handling in English without requiring a lot of costly, time-consuming transformation to programmer requirements and subsequently implementation increases business agility dramatically. A BRMS thus enables application logic to be changed with flexibility and quickness, without requiring IT intervention.
Reducing Claim Leakage
BRMSs can help insurers shorten claim cycles and reduce claim-related costs by efficiently automating all or part of the processing of those claims within acceptable limits and thresholds. Providing an easier way to create, change, and standardize claim rules quickly across the insurance value chain is a key driver for successfully reducing claim leakage – the common term for “preventable” claim settlement expenses caused by such factors as inefficient processing, improper payment, bad decision making, human error, or process breakdowns. Avoiding these traps is the best way for carriers to drive down the delta between what it should cost to settle a claim and what it actually costs.
Improving the claim process can bring significant bottom-line value to carriers. In the property/casualty business alone, for example, U.S. carriers face claim leakage-related costs of some $30 billion annually, according to TowerGroup, mostly due to fraud. The ability to automate and shorten the claim-processing cycle and allow the various people who are involved in the claim process to be more efficient in their roles is critical to reducing both the cost of claims and the associated cost of managing the claim-settlement process. Making claim adjusters both more efficient and effective helps reduce loss payout and loss adjustment expenses, while freeing up time better spent on detecting and preventing fraud and managing the most difficult or complex cases.
Other Business-Rule Benefits
One of the key advantages of implementing business rules for claim processing is that it enables actuaries or business analysts to author and maintain the rules. Rule-management tools can provide the ability to organize claim-processing rules in understandable and manageable modules, create versions of rules changes, and allow the use of effective dates for rule applications. After a claim rule is in production and business needs change, policy administrators can easily modify the parameters of a rule or add new logic without custom development work. The result is an easy-to-use, comprehensive, and flexible system.
Another key benefit of adopting business rules is its support for insurance-specific industry standards. Standardizing the flow of information across the claim lifecycle through the ACORD XML standard can help insurers increase claim-processing efficiency. A BRMS can extend the payback from deploying the ACORD XML standard for carriers by supporting pre-loaded ACORD vocabulary, enabling the rules engine supporting the claim system to understand insurance terms and relationships out-of-the-box. This allows business users to more easily author decision-making rules and policies that can be standardized across all entities involved with claims, including the carrier, its agents, suppliers, and third-party business partners.
Tapping the power of a business-rules management system for claim processing enables insurers to achieve greater speed and flexibility in meeting some of the toughest challenges of handling claims. As with underwriting, deploying business rules for claim processing helps support straight-through processing and can allow those claims meeting prescribed thresholds to be handled with more automated decision-making and less manual scrutiny from senior adjusters. In addition, the agility brought by a BRMS means that each carrier can afford to fine tune its deployment for claim processing until all the thresholds and rule triggers are customized precisely for its unique requirements at both the enterprise and business unit levels.
Business-rule solutions help carriers to walk the fine line between the often conflicting objectives of internal operating efficiency and cost reduction versus customer service and policyholder retention. Insurance industry data has shown that how well carriers handle a claim in the eyes of the policyholder has a dramatic impact on the customer’s satisfaction. In the property/casualty field, for example, studies have revealed that customers who had a positive claim experience had a 95 percent retention rate, while those that had a negative claim experience had only a 25 percent retention rate.
By externalizing the business logic from the claim-processing application, rule maintenance is simplified and the speed of rule modification is greatly enhanced. This allows for more consistent claim processing with fewer costly errors across all of the carrier’s lines of business. This tends to reduce claim leakage and improve customer satisfaction and loyalty over the long run.
By deploying a business-rules solution for claim processing, carriers can achieve optimal claim results and improved customer service, despite a continuously changing business and regulatory environment.
Hans Witt is CEO and president of Haley Systems, and has 30 years of product leadership and executive management experience with some of the world’s most successful software brands, including IBM, NCR, Datapoint Corporation, Microsoft, and Intel.