Insurers Seek Hi-Tech Solutions To Help Claims Managers Better Control Expenses

In the workers' compensation arena, Dr. David Deitz, vice president and national medical director at Liberty Mutual Insurance Group, said in an interview with National Underwriter that escalating medical costs were a major factor in getting his carrier to turn to technology to assist in claims management.

In particular, he cited high-cost claims for what appear to be commonplace injuries, but that end up costing considerable amounts, as especially problematic.

These facts of doing business for insurers highlight the increasing need for efficient infrastructure in claims departments, according to Mr. Lattal, who said an insurer can create a competitive advantage in claims–and as a company–if costs are less for the same function all carriers perform.

He said equity analysts have indicated that, by far, they thought the area in which companies would put the greatest information technology investment would be in claims management.

However, he noted that in reality, underwriting and finance tend to get a much higher percentage of IT dollars than claims.

"In fact, we've worked really hard to convince our IT steering committees to spend more money in claims management and dedicate more money to claims IT," according to Mr. Lattal.

One reason for this is fear, he explained, noting that insurance executives all have a "war story" whenever the idea of revamping claims is broached. Such tales of woe usually include a recounting of a heavy investment many years ago at another company and a failure of the new system to work effectively.

But for ACE and Liberty Mutual, the business realities were such that investing in ways to increase the efficiency of claims-handling made too much sense to ignore.

For ACE, Mr. Lattal said the need to bring consistent claims quality to all lines, as well as reduce the large amounts of time spent on "non-core activities"–such as manual tasks, re-entering data and locating information–helped fuel the company's desire to revamp its claims-handling.

He noted that in the company's Latin American operations, ACE "basically re-engineered our processes from intake to adjudication and payment."

While supporting processes with technology was important, Mr. Lattal said analyzing the processes themselves was crucial, noting the company did not just want to automate bad operations. "You don't necessarily have to make a significant investment in technology," he said, but rather make targeted investments in areas where tech can make the biggest impact.

Mr. Lattal cited a solution that ACE has employed in the United States as an example of a tool that has helped increase claims-handling efficiency. It began with the concept of mastering the "Total Cost of Claim"–or TCC, he said. Essentially, the people in charge of managing claims at ACE had to have knowledge of every component of the claims process, he noted.

From this concept, ACE created a proprietary application called the "TCC Tool," which was rolled out in 2007. The tool allows managers to look at existing portfolios of claims and understand the components and costs at the business line level–property, casualty, auto, etc.–and also at the individual claim level.

This tool, according to Mr. Lattal, helps claims managers more easily understand the impact of a significant change on the portfolio–such as moving the operation, or hiring less expensive or more expensive personnel–while also allowing them to identify where dollars are being spent on a claim. The TCC Tool, he said, allows a claims manager to study exactly what was paid for through the course of a claim.

While speaking to the benefits experienced in using this tool, Mr. Lattal also noted that it is new, and he said the company is in a "walk before we run" phase as far as how the tool is applied.

For Liberty Mutual, Dr. Deitz said the company needed help in managing workers' comp claims more effectively in the face of rising medical costs. Specifically, he noted that Liberty wanted to create a high-cost-claims unit that could identify factors in a claim that would alert adjusters that it may turn out to be more expensive than average.

He noted that most high-cost claims are not recognized as such early on. Only claims such as those for catastrophic injuries are known to be high-cost from the outset. Most claims begin with "commonplace injuries" that the claimant is expected to recover from normally, Dr. Deitz noted.

The company came up with three technology solutions to address its problems. One is a predictive model designed to identify factors in a claim that flag it as potentially high-cost.

The predictive model resulted from a collaborative effort between Liberty Mutual and a vendor that had previously worked with the Centers for Medicare & Medicaid Services analyzing medical costs, he noted.

The model, which will be deployed this year, picks out a subset of claims that adjusters should look at more closely at the 180-day mark, according to Dr. Deitz, who said it specifically looks for medical factors in claims early on to identify which ones could become high-cost down the road.

The development of this model, Dr. Deitz noted, has taken time because most of this type of modeling work has been done in group health, and this was the first time anyone has really tried to do it in a workers' comp environment.

Another solution Liberty Mutual uses is a cost-driver tool that lists medical cost activity in claims so adjusters can see if expenses are creeping up incrementally.

Dr. Deitz said that sometimes claims become expensive not because of big medical expenditures, but due to a cumulative effect of smaller expenditures.

This tool looks at medical activity and other expenditures over a three-month period for claims, and then ranks them by medical costs. This, according to Dr. Deitz, allows the company to say to an adjuster, "Over the last three months, here are some claims that have been very costly in your office, and you're probably aware of most of these. But if not, here's a list."

The third tool is a chronic-pain model that helps identify claims that appear to have patients with such problems.

Patients with chronic pain, according to Dr. Deitz, often end up with claims of longer duration and higher cost. He noted that such claims can be difficult to recognize, because there is no specific diagnosis that identifies "chronic pain."

The model looks through available data for a combination of diagnoses and treatments performed that may point to a patient experiencing chronic pain. Dr. Deitz explained that the reason for identifying these patients is there are specific treatments that can be used to help them recover more quickly.

Dr. Deitz said the company has made great progress employing these solutions. He noted that there was a period of unfamiliarity early on, and education and training was necessary, but he said results as far as claims management goes have helped the company meet the challenge of a changing claims environment.