Analysts are projecting a tough economic environment for the property and casualty (P&C) insurance industry for 2009 — and possibly beyond. With carriers struggling to remain profitable even with a hardening market, there is an increased focus on performance improvement across all operational areas. This is especially true in claims, typically an insurer's largest expense area.
Unfortunately, claims is a particularly difficult area within which to realize rapid and cost-effective performance improvements. This stems from the tremendous dependence on — and staggering complexity of — existing claim technology. Adding in the human factor, claim management's limited understanding of IT requirements further complicates this environment. The typical P&C carrier maintains approximately 60 different claim applications. This technological complexity and dependency increases both the expense and time to market for any strategic claim initiative.
Bridging the gap between human activities and computer interactions across a diverse set of claim systems is the first step in addressing this complexity. Business process management (BPM) software provides users with a "dashboard" — a high-level view of the operation that crosses application boundaries. The dashboard integrates with all of the applications that perform processes as well as related databases. It can be used to trigger the start of a unit of work, and it provides a single interface for the end user. This integration across applications enables a level of oversight typically not available when claim processes are spread across applications. A BPM system can monitor and analyze claim activities in real time and set off alerts when specified limits are exceeded or a response is not received within a specified time. It can also automate the typically ad hoc, manual processes associated with responding to these alerts.
Operations such as claims require a mix of people and system processes. Employing BPM as a higher-level management system can keep track of them both. Over time, BPM can provide historical data of human/machine interactions that can be extremely difficult to obtain from information systems, especially disparate systems running on different platforms. BPM enables expert process execution and oversight driven by technology, as opposed to thousands of claim professionals trying to do the same things, but in slightly different ways.
BPM provides a powerful solution that puts the control of claim process improvements back squarely in the hands of the business. If implemented properly as part of an overall claim business performance improvement program, BPM is a powerful, proven tool that reduces dependence on the IT team, thereby helping provide substantial enhancements in claim processes without excessive cost or delays.
A Closer Look at BPM
BPM is essentially a convergence of a number of existing technologies and approaches, with roots in the process management capabilities of workflow tools. However, it also includes capabilities derived from process modeling, application integration, process analytics, rules management, and collaboration tools. BPM creates value through integration of these parts. It brings together all of these technology elements into a single platform that manages the lifecycle of a process starting from definition and going through design, execution, measurement, change, and deployment.
The following are key components of a BPM software suite:
1. Process Definition Tool: A process definition tool is a graphical drag-and-drop tool that allows business process analysts to define a process in terms of activity flow, business rules, and information flow.
2. Analytics and Simulation Tool: The simulation tool allows process analysts to simulate real-life conditions and identify process bottlenecks or resource requirements. Process analysts can predict and overcome business issues at design-time, while claim business managers can monitor performance of the various processes and take corrective actions proactively.
3. Application Development Toolkit: Business process applications built using BPM systems require system development for building user interfaces (UIs) such as forms, and bringing about integration of BPM engines (workflow and rule servers) with business applications deployed within and beyond the organization boundaries. Application development toolkits provide developers with a set of tools, thereby minimizing initial system implementation efforts.
4. Integration Component: System administrators can configure servers, monitor server performance, perform user and access rights management, etc. This is sometimes referred to as orchestration.
5. Business Process Engine: The process engine, along with an integrated UI, provides a run-time environment that allows users to initiate process instances; view tasks and associated priorities; and carry out tasks assigned to them.
Advantages of Being BPM-Enabled
Traditionally, there have been two sets of challenges faced by IT when trying to respond to business demands in a timely manner. First, claim organizations with their own packaged applications actually own a hardwired set of cookie-cutter process elements whose implementation is generally slow and expensive, not to mention difficult to change after implementation.
Second, a complete process for a key claim business function (for example, first notice of loss), is rarely captured within a single application. Typically, many people and groups of applications that require integration are involved. These tend to further embed processes into the infrastructure, increasing the complexity of the overall IT environment.
BPM, by contrast, involves the creation of an independent business process layer that can be managed by claim business analysts trained in BPM tools. This layer contains a complete view of all the activities necessary to execute a particular business process. Using a standards-based interface, BPM can manage the flow of these activities, whether they involve different applications, people, or a combination of both. BPM promotes a process-centric view of IT where the management of end-to-end processes is separated from the underlying applications and data. The result is a fundamental change in the way business and IT think about the structure and maintenance of claim systems.
Separating the management of processes into an independent business process layer provides a number of advantages:
? Improved Value of Current Infrastructure: It allows an organization to quickly improve the degree to which claim processes are automated by linking existing systems together and filling the gaps between systems that have previously been difficult to automate and manage.
? Disciplined Process Management: It enables a more disciplined approach to process management, critical to managing LAE and severity. Claim processes can be clearly defined, actively controlled, and executed by the independent business process layer, and they can be measured at every step.
? Continuous Improvement: It provides an effective environment for continuously improving claim processes. Using BPM analytics and simulation tools enables process adjustments in a simulated production environment prior to production.
? Business Ownership: Most importantly, BPM enables a business to take ownership of their processes and allows IT to support the business far more effectively and efficiently.
In short, a well deployed BPM suite enables faster and more cost-effective process improvement for a claim organization.
A Case Study
A claim business unit wants to introduce a new resource type — specialty adjuster — that they deem critical for reducing LAE and controlling severity. The new role will specialize on a single claim type: auto, property, or bodily injury. As part of the project initiation and development process, IT staff would typically be required to complete a significant number of activities at a substantial cost. In our experience, this normally requires a turnaround time of four-to-six months and could cost between $350,000-$500,000. We have seen the same project, when undertaken by a claim business analyst trained with a BPM tool, take two-to-four weeks and cost anywhere from $55,000-$85,000, while requiring little or no IT involvement.
The costs for implementing process changes within the BPM-enabled claim organization can be about five times less and the project typically takes one-fifth of the time. Multiples like these are typical in organizations that have successfully implemented BPM. In addition to the costs, the financial benefits for implementing new strategies and processes can be realized in a much shorter timeframe. While a BPM investment for claims typically costs $750,000-$1.25 million, the return on investment can be rapid and substantial as the above simple case study shows.
Many claim legacy applications were built to service a particular strategy at a point in time. However, claim management may want to change the strategy based on business conditions or regulatory events in order to achieve a competitive advantage. To support the strategy, process modifications may require extensive changes to existing systems that might make the project cost prohibitive. Effective BPM technology enables claim organizations to adopt a more flexible and agile stance, adapting business processes and strategies far more effectively and efficiently as they develop winning capabilities. Properly implemented and managed, BPM allows a claim organization to truly close the gap between strategy and operational innovation.
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