Property and casualty insurers are faced with difficult choices when dealing with aging claims systems, which can't provide the high level of service that customers expect from their carriers today, one leading consultant warns.

Keeping an older system in operation is a serious problem for insurers because many legacy systems have proven to be expensive to maintain, according to Karlyn Carnahan, principal in the insurance practice at the research and consulting firm Novarica.

“You have old code and fewer people who know how to manage that code,” explained Ms. Carnahan, one of several speakers taking part in a recent webinar on the outlook for claims technology in 2010 sponsored by Tech Decisions and Claims magazines–which, along with National Underwriter, are part of Summit Business Media's P&C Magazine Group.

Ms. Carnahan believes older claims systems are not coupled with a carrier's policy administration system, which makes it difficult to take claims data and run it against the policy data.

Claims systems “tend to be rooted in finance and not service,” she said during the webinar, which was moderated by Eric Gilkey, editor in chief of Claims. “Today's consumers demand a much higher level of service than before.”

Ms. Carnahan pointed out that the technology offered in newer systems provides serious upgrade for carriers in areas such as analytics, global information systems, estimating, mobile applications, texting, telematics, fraud and Web 2.0 capabilities.

Narragansett Bay Insurance Company is in the midst of a claims system upgrade that will be completed in 2010, according to Bob Khosropur, chief claims officer for the Pawtucket, R.I.-based carrier. He said NBIC looked for a Web-based architecture that can help and service both customers and agents.

Security, availability, agility and straight-through processing are all key issues for NBIC, he noted.

“We have an extensive network of independent agents, but we do a lot of the work internally,” said Mike Anselmo, chief information officer of NBIC. “We are looking to have very few touch points and focus on growing the business.”

Mr. Anselmo explained that the carrier's implementation strategy includes:

o Use of specialized technical resources in implementation.

o Outsourcing where needed.

o Hiring of in-house generalists for operations.

o Breaking all projects into smaller measurable milestones to get early wins and reduce risk, and to manage expectations.

Mr. Khosropur describes NBIC as an “an old company with a completely new face, and a big part of that is the claims system.”

Finding the money to pay for a new claims system is not easy in the current financial environment, which Ms. Carnahan called the worst in 70 years for insurers.

But with business shrinking, keeping current customers in place becomes even more of a focus. “The reality is retention becomes absolutely critical,” she added. “Competition is really fierce, so finding ways of differentiating becomes a key strategic imperative for insurance carriers.”

That provides an opportunity for insurance software vendors–particularly those offering core systems, according to Ms. Carnahan. She noted a recent Novarica survey that found p&c carriers will likely increase information technology spending in 2010–some significantly so.

“What is impacting the IT budget is a desire to increase revenue-growth strategies as well as operational effectiveness,” she said. “The number-one reason insurers are increasing [IT] budgets is in order to grow.”

Robert Regis Hyle is associate editor at Tech Decisions for Insurance, a member of Summit Business Media's P&C Magazine Group, which includes National Underwriter. He may be reached at rhyle@sbmedia.com.

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