Internet Powers Claim Processing

By Ron Lang

In the last few years, insurers have kept themselves busy sending out a steady flow of press releases announcing their new and innovative strategies for keeping policyholders and agents in touch through the Internet. Until recently, these online services had been primarily informational, offering simple options such as reviews of claim status or retrieval of archived data. Now, however, the paper-intensive and highly interactive claim process is moving to the Internet center stage. The more complex and cumbersome the claim transactions, the greater the opportunity for the Internet to provide efficient ways of handling those transactions.

The competitive insurance market continues to make progress to meet the elevated claim management expectations of consumers. The widespread adoption of the Internet leaves insureds and agents expecting all claim-related processes to be available online, with quick, cost-effective, and consistently good service. Unfortunately, these expectations fail to consider the complexity of the claim-handling process, including contractual and regulatory requirements, leaving a perception that the insurance industry is dragging its Internet feet

A Call for Claim Action

Using the Internet to open up the claim administration process to insureds, agents, and service providers allows carriers to provide better service, while affecting results and overall claim costs. Even a minuscule efficiency improvement can translate into a significant impact on profitability, with the dual benefits of administrative cost savings and reduced loss costs.

Industry factors, such as increasing competitive service pressures, the need for reduced combined ratios, and the anticipated surplus crunch resulting from rising interest rates, have left carriers with a newfound sense of urgency to improve claim handling. As a result, carriers are being forced to identify areas of opportunity for claim-processing improvements and search for more flexible and adaptable claim systems and technologies.

In recent years, there has been a stampede to the Internet, with promises of improved efficiency being used to justify almost any Internet-related proposal. Unfortunately, efficiency has become synonymous with doing the same process faster for less cost. Efficiency needs to be redefined before carriers can make effective decisions that will make or break their claim efficiency equations. When it comes to claim processing, more than cost and speed need to be taken into consideration. The quality of the process (ease, speed, accuracy, and effectiveness) contributes to or detracts from customers' satisfaction.

The ideal claim efficiency equation is Efficiency = Cost + Speed + Quality, with quality as the non-negotiable. Due to the complexity of the claim process, adding new programs or technologies often requires additional dollar and resource investments. The speed and quality benefits, therefore, need to carry the load for a balanced equation.

The Internet offers the advantage of accuracy. Carriers can obtain all the claim details firsthand from the sources (insured, agent, broker, or vendor), interacting directly with the insurance companies' systems. Just as easily, however, this interaction can turn into a disadvantage when outsiders lack the knowledge or skill to effectively use in-house systems. When insurance professionals are left to identify, analyze, and correct incomplete or inaccurate transactions initiated by external users, the service, time, and cost advantages quickly evaporate.

Traditional claim management systems tended to focus on adjuster activities and were designed without consideration for customer and agent participation, especially in the earliest steps of the process, such as first notice of loss or claim reporting. Yet, study after study cites the avoidable claim-related costs that result from delays in initial claim reporting. Given the importance of this first step, an investment in Internet claim-reporting capabilities has the potential to improve almost every claim-related cost.

Among the benefits associated with earlier claim reporting are:

Earlier intervention by claim experts to oversee the process,

Quicker settlement,

Less frequent and shorter litigation,

Better care of the injured worker and faster return to work, in the case of workers' compensation and disability claims,

Use of preferred and contracted vendors and providers,

Customer access to insurance company experts and service providers.

Obstacles and Enablers

If the Internet offers so much potential for improved claim-handling efficiency and customer service, wouldn't fully utilizing this powerful communication tool be at the top of every carrier's To Do list?

At one time, those in the insurance industry were viewed as technology enthusiasts, on the forefront of all the latest trends, leading the way with innovative business systems. However, when it comes to the Internet, insurers still are considered laggards when compared to their financial services counterparts in banks and brokerage firms. This apple-to-orange comparison, however, fails to take into account the complexity of typical insurance transactions, especially those involving claims.

It was fairly clear sailing to the Internet for other financial services entities, once the security issues were resolved. Common banking or brokerage Internet transactions are simple, with defined beginnings and ends. Transactions, such as checking account balances or requesting transfers of funds, do not compare in complexity to the multi-step, multi-user, multi-directional processes involved in filing, adjudicating, and paying insurance claims.

Despite the challenges that this complexity presents, the insurance industry is stepping up the pace in Internet adoption for claim management. All claim transactions are not created equally, however. Although inquiring on the status of a claim in progress via the Internet is a fairly simple transaction, the process of claim reporting is much more intricate: paper intensive, involving multiple parties, requiring extensive claim details, involving the updating of multiple systems, burdened with regulatory procedures, and requiring hard-copy supporting documents.

Another early stumbling block to offering online claim services was the need for experts well trained and familiar with insurance vocabulary, who would be able to enter, codify, and process transactions properly. Infrequent users, such as claimants or agents, may be unfamiliar with the specialized knowledge and vernacular of the claim professional. This expertise now can be captured and replicated with rule-based programming.

This new rule-based effort requires new technologies, however, along with new applications and new costs. Therefore, a carrier needs to bend the rules of the efficiency equation and incur additional costs in order achieve the required process speed and quality.

The insurance industry and software vendors already are making headway by offering interfaces specifically designed for occasional users, with a combination of support services.

Legislation and Standards

Daily progress is being made to eliminate the laundry list of additional regulatory and cultural obstacles. Ongoing discussion at the state and federal levels seeks to resolve issues such as electronic signatures and electronic documents. Standard boards also are at work at ACORD and federal government agencies in attempts to make electronic claim submission and processing more efficient and secure. These efforts are bringing us closer to being able to implement a completely interactive and paperless claim process.

Internet technologies, such as J2EE (Java 2 Enterprise Edition) and .NET, support a modular transformation of legacy systems. The modular approach allows carriers to introduce smaller, manageable pieces of a claim-processing program to the online environment, while avoiding the high-risk, high-cost approach of replacing the entire claim management system at one time. Carriers can prioritize their Internet claim-processing requirements and introduce them incrementally, without any major disruption to the claim operation.

With development and deployment already well underway, some of the first Internet claim functions already are in use, with additional capabilities to come in the near future. A variety of software vendors are offering, or are planning to offer, first reports of injury in workers' compensation, including all supporting transactions and processes required to fully establish claims; electronic submission of all claim documents, from claim service providers or insureds; electronic formats for payments and claim documents, such as Explanations of Benefits; and access to, and management of, claim data for actuarial, reinsurance, underwriting, and financial use.

Although the insurance industry may have been considered a bit pragmatic and slow-footed in its adoption of the Internet for business transactions, we are seeing a more aggressive trend among carriers. Market service pressures are part of the impetus, but the long term objective to reduce overall claim costs is the overriding incentive. The earliest Internet adopters in our industry already are enjoying the benefits and may have gained an early competitive advantage. However, the mainstream insurance market is gaining speed in the Internet race, as its exploitation has become a business necessity.

As the use of Internet technologies and services become more pervasive in the insurance industry, we expect to see an increase in the availability of online, self-service offerings. These will allow agents and brokers, and the policyholders themselves, to originate and process transactions, yielding speed, accuracy, and resource gains for all insurance process participants — in other words, claim efficiency.