See the 'Big Picture' With Global Claim Management

An Overwhelming Legacy

In practice, however, claim-management systems, especially for multi-national insurers, have not meshed together as easily as other business operations. The single greatest impediment to improved claim handling continues to be existing computer systems or legacy systems. Claim management was one of the first insurance processes to be computerized and, unfortunately, many early claim-handling systems are still in operation. Insurers that have merged with or acquired new units around the world are dealing with a sometimes overwhelming number of legacy systems. Compounding the difficulty are efforts to implement off-the-shelf software solutions, which may have addressed specific claim problems but now make it harder to improve efficiency.

XL Insurance is one company that has sought to implement a new, centralized global claim-management system to support operations everywhere it conducts business. Most of XL Insurance's claim operations in North America — and everything in its Bermuda headquarters location — now runs on a single platform. This encompasses the entire claim process, from first notification of loss (FNOL) through final payment, for all of the insurer's P&C business lines, including workers' compensation, general liability and automotive, along with professional liability, aviation, environmental, and other specialty insurance coverage. For a P&C carrier such as XL Insurance, claim losses and claim-handling expenses represent the largest share of expenditures. In fact, 70 percent of expenses stem from actual claim payments and the cost of processing claims.

In addition to the barriers posed by legacy systems and capital budgets, there are other obstacles to implementing more effective global claim processes. Insurers often need to contend with their own "borders." Insurers' claim management functions — organized by product lines and often further defined by geography — often form separate silos supporting each individual product line. This organizational tendency presents numerous problems, as each product line provides its own input on claim management issues. The "big picture" of customer satisfaction and overall profitability gets lost in a thicket of different and often competing requirements dictated by individual business units.

As a result, system implementation can fall victim to what we call "scope creep," impeding process improvements and running up costs. Insurers with flatter management structures and/or more centralized claim teams often have an advantage in this regard and are able to implement system changes more effectively.

There are other aspects of global claim processing that insurers must address. Insurers' drive to expand into new markets mirrors their customers' desire to compete in global markets. To support their customers, claim managers must deal with local language and jurisdictional issues while managing customer claims in a uniform manner, regardless of where they occur. Read some key elements that support a successful implementation in "Set the Stage for Successful Implementation" above.

Weighing Costs, Benefits

Given the obstacles facing implementation of a global claim system, it is not surprising that many insurers hesitate to invest the time and resources needed for developing a more effective, unified system. The current weak economy and prolonged soft insurance market, in which all insurers monitor expenses closely, contributes to this hesitancy. However, inefficiencies and customer service issues associated with operating multiple legacy systems cannot be addressed with a series of short-term fixes. Insurers' mandates to manage expenses wisely and operate more efficiently, as well as the potential competitive advantage to be gained from effective claim service, have combined to create a compelling case for investment in more robust global claim systems.

In an increasingly complex and interrelated global business environment, regulatory and reporting requirements provide additional impetus for unified systems. Legacy systems built on now-obsolete programming cannot readily meet current reporting and data needs. New regulatory requirements, such as those imposed by The Sarbanes-Oxley Act, or requirements specific to insurers such as those imposed by Europe's Solvency II, call for tighter and more readily verifiable financial controls. The more timely (and accurate) information provided by a global claim platform helps companies comply with these regulatory requirements while allowing insurers to track and adjust their own cost containment efforts.

One final benefit of a global claim platform is better risk management. A global platform yields real-time information to help insurers track the actual claim experience, allowing carriers to evaluate the aggregate risk facing any one company, geographic region, or product line.

Insurers that survived the recent downturn are now looking for ways to grow profitably. In such an environment, selecting and implementing a global claim system may not seem like a top priority, especially given the considerable financial investment and hard work involved. Replacing aging, incompatible claim administration systems, however, allows insurers to adapt rapidly to market cycle changes or new business needs. Most importantly, an effective global claim system allows insurers to improve customer service by delivering on their promise to pay legitimate claims, and to do so quickly, accurately, and cost-effectively.

Paul Tuhy is head of Global Claims for XL Insurance. Tuhy may be reached at paul.tuhy@xlgroup.com.

Nicole Michaels is a senior executive in charge of Accenture's insurance technology initiatives in North America. Michaels may be reached at accentureclaims@accenture.com.