Many insurance carriers have made the bold decision--and in some cases have completed the journey--to replace their legacy claims administration system. There has been plenty of hype and many interviews touting successful conversions, while others continue to live day-to-day with the rigid, ugly legacy systems they have been suffering under for years.

Doesn't the grass sound so much greener on the other side of the fence? Of course it does. But just how green is that grass? How much green will it cost to get that new turf for a claim department? Is there risk of injury trying to get over the fence? And is it all worth it?

The new claim system grass should be much greener, since the new breed of claim administration system employs modern technologies and offers features and opportunities unavailable in legacy systems. New systems are functionally richer than legacy systems, particularly in areas that interest managers and supervisors.

Legacy systems tend to concentrate on the financial and accounting aspects of claims-handling (setting reserves, making payments and the like). Modern systems address these same needs but also pay much needed attention to the distribution, tracking and balancing of work.

Value-added features available with new systems typically include automated assignment, load balancing, supervisory oversight and best practices workflows.

These modern systems are also highly configurable, using rules-based technologies to modify system behavior rather than requiring computer code to be written.

With the ability to change the system configuration quickly and easily, the constant stream of change requests that created the dreaded maintenance backlog in a legacy environment should be significantly reduced.

New technology claim systems also have far better capabilities for capturing "fielded" rather than free-form data, creating greater opportunity for data analysis in support of such critical activities as fraud detection, large-loss analysis and tracking, and predictive modeling.

So, why the qualified "should be"?

There is risk in selecting a new system without fully understanding what it does and how closely it fits your requirements. Without the best fit, a company may find the anticipated benefits can only be achieved after a long and expensive implementation process, during which the business users experience a loss of capability.

For example, the first workers' compensation insurer to implement a new claims administration system may see a lot of brown patches in the lawn before the healthy green grass appears, and those brown patches translate into more time and money spent.

The cost of the "best fit" new claims system depends on a number of variables about a specific environment.

Obviously, if a company writes one line of business in one state and has relatively simple functional requirements, it will cost a lot less to purchase, configure, integrate and implement a new claim system than for a multistate, multiline carrier.

However, excepting the smallest and simplest of carriers, this project will be a seven-figure undertaking. If the company is a big, complex carrier, the cost could easily reach eight figures. (See accompanying infographic to see what kinds of costs are involved.)

Climbing the new claim-system fence is not without its risks, and is a costly and lengthy endeavor. A significant portion of legacy replacement projects fails either partially or completely. Common reasons for failure include:

o Choosing an inappropriate vendor solution.

o Failing to control the business requirements.

o Changes in senior management during the project.

o Lack of senior management commitment.

Not only are these types of projects expensive, they typically require a two-to-four-year span of time to complete. Just think of the things that can happen to a business in that period of time that could put enormous stress on the company's ability to stay focused on completing such a large and complex project.

Is it all really worth it? Yes, but only if a company chooses the vendor solution carefully and funds and controls the implementation project appropriately.

Anecdotal evidence so far indicates that the implementation of a new claims administration system supports lower expenses, better claim outcomes, higher customer service and greater management insight into claims.

These results in combination provide a compelling outcome. However, the benefits are backend-loaded, while the risks and costs are all up front.

Special Reports /

Grass Not Automatically Greener When Modernizing Insurer Claims Tech Systems

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