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

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

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

Increasingly, insurers are focused on transforming their claim operations to achieve the seemingly diametrically opposed goals of elevating customer service while driving down the claims. While the process may seem overwhelming at the onset, a set of core "best" practices can lead the way to a new, more efficient and profitable business 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 may yield small gains, but in the absence of training or a robust IT infrastructure that facilitates the new workflow, it will not significantly advance the claim operation toward excellence. Similarly, adding team members, reassigning their duties, or providing new training may help in accelerating response or processing time; however this may not support the need to improve productivity or efficiency. A highly motivated claim team can be limited by a rigid and outdated IT infrastructure that hinders productivity and fails to provide the insight needed to deliver outstanding service. Finally, a new technology infrastructure in the absence of clearly defined and efficient processes and a motivated claims team is analogous to a foundation upon which a building is never built.

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

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

Leveraging Best Practices

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

Develop a healthy organization. People power the claim process, from agents to adjusters to carrier customer services representatives. Insurers must work to cultivate a dedicated claim team that feels empowered, supported, and appreciated. In this environment, the team is prepared and willing to deliver outstanding service when it is "business as usual," as well as during an unforeseen crisis.

The Motorists Insurance Group (Motorists), which includes ten property and casualty, life and brokerage companies that operate in 30 states, cultivates this sense of empowerment and ownership. Motorists' corporate culture is built on the philosophy of providing outstanding customer service. "MAX Service" is the corporate philosophy with employees being recognized and awarded for providing outstanding service to policyholders, agents, and other employees.

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

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

Enable agility in claim processes. The environment can change rapidly in the insurance industry due to new regulations, catastrophic events or even shifting market conditions. As such, insurers must build agility into their claims processes. Motorists, for example, had performed catastrophe planning prior to Hurricane Ike. A component of that plan included implementing a robust claim solution to automate claim handling and improve response time during catastrophes. One major advantage of the system during the storm was that its Web-based interface enabled claim adjusters to log in from any location with Internet access. As a result of its agility in the wake of the storm, Motorists' customer satisfaction rating actually increased after the hurricane.

Enable straight-through processing. Inadequate system integration, paper files, a lack of data capture capabilities and multiple claim systems can significantly increase manual processing time for clerks and adjusters. This, in turn, slows down the claim process, raises costs, and increases the likelihood of mistakes. Straight-through processing (STP) is fundamental to claim operations transformation, as it addresses both customer service and operational efficiency considerations. STP enables an insurer to automate management and workflow of the entire claim process from initial submission through payment, without having to re-enter data into various non-integrated systems. In short, STP eliminates redundant work, automates workflows, and eliminates non-value-added tasks in favor of value-added tasks. In addition, it can enable multiple claim adjusters on complex cases to work in parallel instead of serially, enabling them to share information across the enterprise and have visibility into the other adjusters involved with the case.

Ensure appropriate visibility to customer information to facilitate service while protecting privacy. A comprehensive view of the customer is essential to delivering world-class customer service. It is equally important in the claim process. Customers expect their insurance representative to know the exact status of the claim when they call. Having that information at the fingertips of an agent or customer service representative can mean the difference between an irate and a satisfied customer. To ensure privacy, however, access control is also important. Clearly, the information a claim adjuster needs to see in order to do his or her job differs from that of an underwriter. Insurers require the flexibility to enable role-based access to customer information that facilitates service but protects a policyholder's privacy.

Identify fraud proactively, reactively, and iteratively. Fraud -- whether soft or hard -- can have a tremendous negative impact on an insurer's bottom line, especially in personal lines. By combining advanced procedures, investigation tools, and analytics, today's insurers have the power to identify fraud proactively, reactively and iteratively. The adjuster remains on the front line of fraud detection, but increased workload makes the process more challenging. Also, the human touch can yield a significant number of false positives, which are costly and time-consuming to investigate. Increasingly, insurers are turning to rules and claim scoring solutions that enable them to develop unique fraud profiles that they can incorporate into the claims workflow, enabling adjusters to detect fraud more consistently and proactively during the early stages of the claim process. Additionally, advanced analytics solutions provide insurers with expanded reactive capabilities that spot known schemes and identify new ones. Insurers can then build information on new schemes into their claim system, using business rules to enable iterative improvement to their proactive fraud detection capabilities.

Optimize the reserving process. The claim reserve 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 cover claims effectively, which could impact overall financial results. Modern claim solutions enable insurers to leverage multiple reserving techniques, monitor reserves in near-real time and automatically reduce reserves when claims are paid and closed. These capabilities support an insurer's need to adequately fund reserves without putting the company at greater risk of under-funding. They also help to eliminate duplicate reserves or the chance that reserves will be left open after a claim has been closed.

Leverage information to improve the underwriting process. Insurers that do not leverage claim information as an integral part of their underwriting process are placing themselves at greater financial risk. Claim information, when captured and analyzed, can yield critical insight into risk trends. For high-volume lines of business, like automobile insurance, the claim system should automatically update policy administration and rating information. This information, once captured, can be leveraged during the renewal process for both pricing and underwriting acceptability. In commercial lines, where the renewal process can take up to six months, notification should be sent directly to underwriting to avoid overlooking potential claims made during the lengthy renewal process.

The Technology Connection

Technology is the common thread that supports the people and processes that comprise the claim management chain. In building an IT 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 and easily configured to meet changing requirements, as opposed to rigid customizations that are expensive to build and maintain as environments evolve. Rules-based systems enable insurers, including line of business owners, to make changes quickly and efficiently without the need for recoding and IT involvement.

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

Scalability. A claim system, which represents a significant capital investment, must be able to grow with an insurer. 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 a tool to help employees and agents who are on the front line of the claim process. Any system, therefore, should be easy to navigate and provide access when and where a claim professional needs it. A system that does not deliver these capabilities complicates an already difficult job and can decrease, as opposed to increase, employee productivity.

Finally, claim data has the potential to jumpstart transformation across the insurance enterprise. A claim system captures tremendous amounts of information that, when analyzed, can drive improvements not only in claim operations but in other areas of the business, such as risk management, underwriting, and rating. As such, analytics are a key component in the business transformation equation.

Insurers that invest wisely in claim operations optimization stand to gain a powerful competitive advantage. A holistic approach leveraging "best" practices that embrace people, processes, and adaptable technology will position insurers to significantly improve customer service. Insurers will also be able to drive down claim-related costs and spark innovation across the enterprise -- a winning proposition for carriers and their customers.

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

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Leverage Best Practices for Claim Operation Transformation

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