Insurers stake their reputations and financial stability on thequality and efficiency of their claim operations. An outstandingclaim experience can yield a lifelong customer and a cheerleader,while a process gone awry can lead to a policy termination and theill will that goes with it.

The 2009 J.D. Power and Associates Auto Claims SatisfactionStudy helps to quantify this impact. The study reported that, amongcustomers whose insurers achieve high levels of satisfaction, 65percent say they "definitely will" renew with their insurer, whileonly 43 percent of customers whose insurers have low satisfactionlevels say the same. In addition, 57 percent of customers whoseinsurers achieve high levels of satisfaction say they "definitelywill" recommend their insurer to others (the most powerful andcost-effective form of advertising), compared with only 35 percentof customers whose insurers have low satisfaction levels.

From an insurer's perspective, efficient and effective claimmanagement is as fundamental to customer retention as it isessential to profitability. For every dollar collected in premiums,insurers, on average, spend 61 cents on claims paid out and 13cents on claim expenses. There are many factors that contribute toefficient and effective claim management, including productiveadjusters and processors as well as the ability to optimizereserves and prevent fraud. Each of these factors has a definitiveimpact on an insurer's bottom line.

Increasingly, insurers are focused on transforming their claimoperations to achieve the seemingly diametrically opposed goals ofelevating customer service while driving down the claims. While theprocess may seem overwhelming at the onset, a set of core "best"practices can lead the way to a new, more efficient and profitablebusiness paradigm.

Building a Foundation for Transformation

Transforming claim operations is not a one-dimensional exercise.Rather, it is a holistic journey that must encompass people,process, and technology. Introducing a series of new processes mayyield small gains, but in the absence of training or a robust ITinfrastructure that facilitates the new workflow, it will notsignificantly advance the claim operation toward excellence.Similarly, adding team members, reassigning their duties, orproviding new training may help in accelerating response orprocessing time; however this may not support the need to improveproductivity or efficiency. A highly motivated claim team can belimited by a rigid and outdated IT infrastructure that hindersproductivity and fails to provide the insight needed to deliveroutstanding service. Finally, a new technology infrastructure inthe absence of clearly defined and efficient processes and amotivated claims team is analogous to a foundation upon which abuilding is never built.

The first step in achieving claim management transformation isthe creation of a strategy that identifies the company's vision forclaims operations and clearly defines the role of people, processesand technology in realizing that vision.

The people (employees) behind the processes need to feelempowered so they can perform their jobs effectively. To deliverhighly responsive and personalized customer service, insurers alsoneed to define processes that promote efficiency and maintain aconsistent claims experience. At the same time, these processesmust be agile to meet ever-changing regulatory requirements, aswell as evolving market conditions and customer preferences.Technology, in turn, supports the execution of "best" practices inservice and process -- driving new levels of responsiveness,efficiency and productivity through automation, integration, and acentral repository for critical data.

Leveraging Best Practices

While each insurer and the markets it serves are unique, we haveidentified a set of "best" practices that can lead the way toclaims operation transformation in nearly any organization.

Develop a healthy organization. People powerthe claim process, from agents to adjusters to carrier customerservices representatives. Insurers must work to cultivate adedicated claim team that feels empowered, supported, andappreciated. In this environment, the team is prepared and willingto deliver outstanding service when it is "business as usual," aswell as during an unforeseen crisis.

The Motorists Insurance Group (Motorists), which includes tenproperty and casualty, life and brokerage companies that operate in30 states, cultivates this sense of empowerment and ownership.Motorists' corporate culture is built on the philosophy ofproviding outstanding customer service. "MAX Service" is thecorporate philosophy with employees being recognized and awardedfor providing outstanding service to policyholders, agents, andother employees.

Motorists' investment in its employees paid off in September 2008,when Hurricane Ike blew through the Midwest, hitting 75 percent ofthe company's policy base. Many adjusters could not make it towork, and the Cleveland branch was closed for a day because ofpower outages. In addition, many of Motorists' independent agentswere shut down because of a loss of power and phone service, whichlasted up to nine days in some areas. This adversity did not stopMotorists from responding rapidly to more than 12,000 claimsreceived over a two-week period. Motorists' committed claimemployees worked long hours of overtime in the wake of thestorm.

Equally important, numerous employees who worked outside theclaims area volunteered to help out wherever needed, includingmembers of the executive team. Backing them up was an easy-to-learnWeb-based claim system that enabled Motorists to transfer claimsfrom one branch to another. All of the non-claim employees weretrained on basic claim system functions in just a day. As a resultof the team's commitment and agility, the majority of Motorists'customers received a phone call from a Motorists employee oradjuster within a few hours of filing a first notice of loss. Inaddition, Motorists paid and closed many of these claims within 45days--with most of them closing within 65 days.

Enable agility in claim processes. Theenvironment can change rapidly in the insurance industry due to newregulations, catastrophic events or even shifting marketconditions. As such, insurers must build agility into their claimsprocesses. Motorists, for example, had performed catastropheplanning prior to Hurricane Ike. A component of that plan includedimplementing a robust claim solution to automate claim handling andimprove response time during catastrophes. One major advantage ofthe system during the storm was that its Web-based interfaceenabled claim adjusters to log in from any location with Internetaccess. As a result of its agility in the wake of the storm,Motorists' customer satisfaction rating actually increased afterthe hurricane.

Enable straight-through processing. Inadequatesystem integration, paper files, a lack of data capturecapabilities and multiple claim systems can significantly increasemanual processing time for clerks and adjusters. This, in turn,slows down the claim process, raises costs, and increases thelikelihood of mistakes. Straight-through processing (STP) isfundamental to claim operations transformation, as it addressesboth customer service and operational efficiency considerations.STP enables an insurer to automate management and workflow of theentire claim process from initial submission through payment,without having to re-enter data into various non-integratedsystems. In short, STP eliminates redundant work, automatesworkflows, and eliminates non-value-added tasks in favor ofvalue-added tasks. In addition, it can enable multiple claimadjusters on complex cases to work in parallel instead of serially,enabling them to share information across the enterprise and havevisibility into the other adjusters involved with the case.

Ensure appropriate visibility to customer information tofacilitate service while protecting privacy. Acomprehensive view of the customer is essential to deliveringworld-class customer service. It is equally important in the claimprocess. Customers expect their insurance representative to knowthe exact status of the claim when they call. Having thatinformation at the fingertips of an agent or customer servicerepresentative can mean the difference between an irate and asatisfied customer. To ensure privacy, however, access control isalso important. Clearly, the information a claim adjuster needs tosee in order to do his or her job differs from that of anunderwriter. Insurers require the flexibility to enable role-basedaccess to customer information that facilitates service butprotects a policyholder's privacy.

Identify fraud proactively, reactively, anditeratively. Fraud -- whether soft or hard -- can have atremendous negative impact on an insurer's bottom line, especiallyin personal lines. By combining advanced procedures, investigationtools, and analytics, today's insurers have the power to identifyfraud proactively, reactively and iteratively. The adjuster remainson the front line of fraud detection, but increased workload makesthe process more challenging. Also, the human touch can yield asignificant number of false positives, which are costly andtime-consuming to investigate. Increasingly, insurers are turningto rules and claim scoring solutions that enable them to developunique fraud profiles that they can incorporate into the claimsworkflow, enabling adjusters to detect fraud more consistently andproactively during the early stages of the claim process.Additionally, advanced analytics solutions provide insurers withexpanded reactive capabilities that spot known schemes and identifynew ones. Insurers can then build information on new schemes intotheir claim system, using business rules to enable iterativeimprovement to their proactive fraud detection capabilities.

Optimize the reserving process. The claimreserve process has traditionally been a precarious balancing act.Insurers that over-reserve fail to maximize investment returns.Those that under-reserve are at risk of not being able to coverclaims effectively, which could impact overall financial results.Modern claim solutions enable insurers to leverage multiplereserving techniques, monitor reserves in near-real time andautomatically reduce reserves when claims are paid and closed.These capabilities support an insurer's need to adequately fundreserves without putting the company at greater risk ofunder-funding. They also help to eliminate duplicate reserves orthe chance that reserves will be left open after a claim has beenclosed.

Leverage information to improve the underwritingprocess. Insurers that do not leverage claim informationas an integral part of their underwriting process are placingthemselves at greater financial risk. Claim information, whencaptured and analyzed, can yield critical insight into risk trends.For high-volume lines of business, like automobile insurance, theclaim system should automatically update policy administration andrating information. This information, once captured, can beleveraged during the renewal process for both pricing andunderwriting acceptability. In commercial lines, where the renewalprocess can take up to six months, notification should be sentdirectly to underwriting to avoid overlooking potential claims madeduring the lengthy renewal process.

The Technology Connection

Technology is the common thread that supports the people andprocesses that comprise the claim management chain. In building anIT infrastructure that supports a transformed claim operation,insurers are wise to keep in mind the principles of adaptability,openness, scalability, and ease of use.

Adaptability. Systems should be adaptable andeasily configured to meet changing requirements, as opposed torigid customizations that are expensive to build and maintain asenvironments evolve. Rules-based systems enable insurers, includingline of business owners, to make changes quickly and efficientlywithout the need for recoding and IT involvement.

Openness. The claim system does not sit inisolation. It must integrate with a universe of other systemswithin, and increasingly, external to the insurer's environment.Open systems, built on a service-oriented architecture, enable theflexibility and agility that an IT environment requires to evolvein tandem with an organization.

Scalability. A claim system, which represents asignificant capital investment, must be able to grow with aninsurer. It must rise to the challenge in times of extreme crisis,when it is needed most.

Ease of Use. A claim system is intended as atool to help employees and agents who are on the front line of theclaim process. Any system, therefore, should be easy to navigateand provide access when and where a claim professional needs it. Asystem that does not deliver these capabilities complicates analready difficult job and can decrease, as opposed to increase,employee productivity.

Finally, claim data has the potential to jumpstarttransformation across the insurance enterprise. A claim systemcaptures tremendous amounts of information that, when analyzed, candrive improvements not only in claim operations but in other areasof the business, such as risk management, underwriting, and rating.As such, analytics are a key component in the businesstransformation equation.

Insurers that invest wisely in claim operations optimizationstand to gain a powerful competitive advantage. A holistic approachleveraging "best" practices that embrace people, processes, andadaptable technology will position insurers to significantlyimprove customer service. Insurers will also be able to drive downclaim-related costs and spark innovation across the enterprise -- awinning proposition for carriers and their customers.

Randy Oaklief is the technology manager at The MotoristsInsurance Group. Tom King is director at Oracle Insurance.