Claim Reporting vs. Claim Management

Generally, when looking for cost reductions, carriers have concentrated on one or more of the following: systems, leakage, or adjuster productivity. Regardless of their approaches, carriers have tended to lump claim reporting under the umbrella of claim management. Traditionally viewed as the seemingly straightforward function of getting the claim in the door, claim reporting has evolved significantly. Recent studies now cite the cost benefits of a thorough first notice of loss report, raising the industry's awareness of the advantages of getting the claim started on the right foot.

While claim-reporting and claim-management operations need to work in concert, carriers are realizing that different users, such as customer service representatives or adjusters, with separate functions and priorities, require separate tools to do their jobs most effectively. Because claim reporting often is the insurer's first opportunity to deliver on service promises to policyholders, handling this interaction efficiently and to the customer's satisfaction makes this initial encounter arguably the most critical step in the claim process.

Looking back, it is easy to see why the claim-reporting and the claim-management processes were viewed as one. Insurance carriers that relied on intermediaries, such as independent agents, had no established procedures allowing insureds to contact them directly. Claims were received indirectly as policyholders reported losses to their selling agents, who then passed the claims to carriers by mail and, as technology evolved, by fax.

Control over this first notice of loss process with the existing claim management system was rudimentary at best. The reports did not provide all of the detail and data required to deal with the claim effectively. Their shortcomings reflected the original scope of the claim-reporting function, which was limited to simply getting claims into the hands of adjusters.

To react to these limitations and to get closer to policyholders, carriers let their customers report claims directly to them. Today, direct loss reporting is commonplace in the insurance market and, with it, claim reporting is being examined as never before. While spending additional loss dollars at first notice in order to better control claims is highly effective, it is fraught with a number of challenges. Namely, carriers' existing contact centers, processes, and claim management systems do not effectively support direct loss reporting.

Task Involved in Settling a ClaimOptimal Point to Perform Task

When Claim is Reported During Claim Management Process

Collision repair assignment3

Homeowner repair assignment3

Rental car assignment3

Medical provider referral3

Ordering police reports3

Referral to SIU (via fraud scoring)3

First report of injury filing to state3

Identifying the adjuster to the insured3

Reporting to state (including SROI)3

Setting reserve levels3

Documenting day-to-day correspondence3

Monitoring tasks required for settlement3

Managing appraisal and estimate data3

Reporting to industry databases3

Issuing checks for payment3

Payment audits3

Contact Centers

Contact center operations were the first to come under increased scrutiny. Insurers using direct loss reporting quickly realized that contact centers were expensive to operate. They learned that certain operational goals need to be at the forefront of any contact center plan, regardless of the reporting method (phone, fax, Internet, etc.). These include the fact that reporting claims must be easy and consistent, 24 hours a day; data from other sources, such as policy administration and human resources, should be tapped automatically; and only information relevant to the loss being reported should be requested.

The more intuitive the process, the easier it is to train employees and the higher the potential to employ a universal customer service model, wherein each phone representative can handle multiple types of calls. Customer service representatives should be guided by a work-flow plan that adapts to the unique requirements of each loss report. For example, noting the shoe type worn during a restaurant slip that led to a workers' compensation claim.

Manual after-call activities must be minimized. Employees should be able to hang up the phone after one call and take another quickly. The process should ensure that all needed claim information is obtained during the first report to avoid unnecessary call-backs and longer than necessary settlements.

It is imperative that the system that supports these processes in the call center is focused solely on customer service. Call scripts should guide representatives through all the questions required for complete loss reports. Although this guidance is unnecessary for adjusters, who manage claims in their own way, it is fundamental for contact centers, where crisp, streamlined reporting saves the caller time and the carrier money.

In addition to contact center efficiency, a successful claim-reporting process has countless claim-handling benefits throughout the life of the claim. If done properly from the onset, the claim settlement process becomes much simpler. Insurers have learned that complete data collection accelerates the settlement process by allowing the automation of repetitive, administrative tasks that do not require adjusters' expertise or involvement.

More than 40 percent of the time spent in the claim-handling process is associated with routine tasks, a study by Tata Consultancy Services found. Many of these, such as ordering police reports, can be streamlined by automatically placing orders the moment the claim is submitted. This simple automation not only eliminates administrative tasks, but helps ensure that police reports are available as soon as possible. Similar tasks that lend themselves to automation include flagging potentially suspicious claims for referral to special investigative units, identifying claims with high subrogation likelihood, and automatically requesting claimant backgrounds from industry-standard databases.

The Earlier, the Better

Insurers have come to understand that improved results can be achieved by performing select claim tasks earlier in the process. A good example is direct repair network use for auto claims. Most carriers customarily offer their direct repair network to claimants once the adjuster has reviewed the file. As time elapses between the first report and the adjuster review, however, many claimants find repair shops on their own, which usually is more costly for the insurer. In fact, one mid-sized personal auto insurance carrier projects its annual loss/expense savings at $3 million as a result of recently moving its direct repair referral process nearer to the first notice of loss.

Likewise, loss costs from homeowners' water damage claims can be reduced significantly when immediate action is taken. ServiceMaster Clean, working with the Boston Consulting Group, found that 85 percent of damaged flooring is saved when homeowners' claims are referred to them within two days of the loss date. In order to achieve these savings, insurers need a process that consistently evaluates losses when they are reported, and directs them automatically to approved third parties. Most claim management systems were not designed to handle this complexity during the first-reporting process.

If insurers want to expedite claim processing and settle basic losses quickly, collecting the details during the initial claim-reporting process makes it possible. For example, if a carrier's claim-reporting procedure prompts the customer service representative to ask for the make, model, and SKU of a stolen television set, the insurer can start the replacement process immediately.

Despite the demonstrable contact-center and claim-handling benefits from a well designed reporting process, no program is complete without evaluating the compatibility of the supporting technologies with the existing infrastructure.

One of the first decisions facing carriers or claim administrators is whether to build or buy, a non-trivial choice that needs to factor cost, time, and resources into the equation. One leading insurer, for example, estimated that the effort of internally developing a fully functional claim reporting application would be 12 to 18 months with a dedicated team of claim, information technology, and project management personnel, at an approximate cost of $4.6 million.

For those insurers that pursue the 'buy' route, one option is to extend the scope of a new claim management installation to include the first-report process. Aside from the limitations mentioned earlier, insurers should keep in mind that the vendor may not have direct experience developing programs for call centers. In addition, the availability of the system may be delayed due to the typical multi-year nature of a company-wide claim management system implementation.

Yet another alternative is to consider software vendors who are dedicated to the claim-reporting process. When evaluating these options, the carrier will need to choose one that is easy to install, allowing users to reap the benefits quickly. The system also should integrate with existing technology, which can result in substantial cost savings and expedite installation. If a new claim management system is deployed later, updating the claim reporting links should be a relatively small effort.

Hosted applications, or application service providers, offer the potential to further shorten the technology implementation time line. This is an attractive and increasingly common choice for carriers who prefer having the systems' infrastructure, maintenance, and support be the responsibilities of the vendors. When opting to use a service provider, the key is to select claim-reporting programs that allow for flexibility, provide adequate control and security, and are consistent with the carrier's corporate licensing philosophy.

Property and casualty insurance carriers have numerous factors to consider when determining the best approach to claim reporting. First and foremost, they need to separate claim reporting from the all-encompassing claim management process. This transition will help insurers realize the benefits and efficiencies of a finely tuned claim-handling operation from the first report of loss to the final claim settlement.

Will Fulton is president of First Notice Systems. He can be reached at will_fulton@firstnotice.com.