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Over the years, technology has delivered a long list of benefits to claims processing, but with the good, there also have been the "bad" and the "ugly" in the form of inhibitors and technology limitations.

As insurers are stepping up their pace in scouring the market for a new generation of claims systems to replace their legacy environments, they should go prepared with their "wish list" to ensure they take multiple steps forward, and none backward, in their refinement and streamlining efforts.

Because different types of claims require different claims-handler activities, the ideal claims system should provide the flexibility to mimic the way a claims-handler works, rather than requiring the claims-handler to accommodate technology's limitations.

For example, more information is required to process a multivehicle accident involving complex injuries than is needed to process a windshield replacement. Gathering data that is not relevant to a particular claim type and having to navigate through multiple unrelated screens reduces a claims-handler's productivity.

In an attempt to accommodate the process variation, claims systems need to be flexible. In response, some software vendors have developed rules-based systems allowing for customization of basic processing rules.

Unfortunately, a common issue with these solutions is that the business rules are often deeply embedded in the software code. This requires insurers to engage highly skilled technicians to do the initial setup and continually incorporate subsequent updates. Flexibility and agility are usually compromised in this situation.

What insurers really desire is a claims system that is able to resemble the workflow of the claims professional, regardless of process nuances found within differing lines of business. This sounds like a tall order, but today's modern claims systems are capable of delivering this high level of flexibility.

THE NUANCES

In addition to the obvious negative productivity impacts, an inflexible claims system also hinders an insurer's ability to expand into new lines of business. Because most legacy claims systems were designed to handle a single line of business, incorporating new functionality required to support additional lines is a costly and time-consuming venture.

Enhancing some systems is too expensive or impossible, often forcing insurers to invest in and maintain multiple systems to support the company's portfolio of insurance products. Additionally, claims-handlers frequently need to develop manual processes and work-arounds to overcome the system gaps and inadequacies characteristic of old technologies.

Aging legacy systems, unable to integrate, combined with gap-filling manual systems, continue to limit insurers' ability to grow market share and effectively compete with the more technically advanced insurers.

While insurers should look to streamline the end-to-end claims process through automation, software vendors should design and deliver claims systems that offer insurance companies the ability to customize the claims-processing steps required for a broad range of insurance products.

With an eye toward the future, carriers need to respond to the growing shortage of experienced claims professionals. Studies by the Bureau of Labor Statistics have shown that, by 2010, insurance companies will face a crisis in being able to hire the numbers of qualified claims professionals they will need.

One report by the Chartered Property Casualty Underwriters Society indicated that, on one end, there is a growing shortage of people entering the profession and that, on the other end, the current work force is aging into retirement, which will cause an experience gap that will be reach a critical state in five years.

To respond to this growing challenge, claims organizations can try to step up recruiting and training efforts, but they should also look to technology to replicate the company's best practices. With the system enforcing best practices, new claims professionals can come up to speed much more quickly, and less experienced claims personnel will have access to the knowledge and good habits of the company's most seasoned and highly skilled claims resources.

Claims software should offer a workflow component that allows insurers to define the process rules consistent with best practices and provide automatic triggers and reports when best practices are being compromised. This early notification will afford the management team time to react and correct the process before a policyholder becomes dissatisfied and the company loses a valued customer and the associated premium dollars.

To reduce the cost of claims administration and focus a carrier's best claims professionals on those claims that require their high-level expertise, a system's workflow component should help automate the routing process. The automation should be able to route a claim based on a claims-handler's current workload, skills, availability and location. Utilization of the available technology enables a carrier to be more streamlined and ensure that their claims-handler's expertise is utilized to the fullest potential.

By developing tightly integrated components, insurers can shorten the life cycle of a claim from first notice of loss to payment and reporting. When claims systems are integrated with policy administration systems, claims professionals should not have to switch back and forth between systems to verify coverage, assign first notice of loss and view policy forms, nor should they need to manually enter basic information multiple times, which is not only inefficient but also increases the risk of human error.

The ideal claims system should have standard interfaces to allow insurers to electronically send and receive information to and from preferred vendors, such as body shops, medical providers and supply companies. In turn, documentation from the vendor would then automatically be routed back to the assigned handler for processing. The end result would be an easier and more efficient claims experience for the customer, increasing customer satisfaction and retention.

Recent laws, including the Sarbanes-Oxley Act, are bringing more scrutiny to financial reports and calculations, making it more important than ever to tie the process of setting reserves to the insurer's financial and actuarial systems. Interfaces to predictive modeling tools are another way the new claims systems are using technology to assist insurers in improving the accuracy of their reserving processes.

As insurers continue to better understand their needs and evaluate available claims solutions, they will undoubtedly develop a long list of criteria to use in their search for the ideal system. But, a short list of requirements remains constant in virtually every insurer's quest when looking to replace aging claims legacy systems:

* Flexibility to respond to the company's strategic directions and changes to the product mix and growth

* Capability to easily integrate to internal and external systems

* Ability to provide automated workflow and a rules-based arena to define best practices

While a system-replacement project requires a significant investment of capital and manpower, in the long run the cost of maintaining an older system is more expensive. Lost productivity should be measured, and then weighed, with the missed business opportunities and future revenues that could be realized with advanced technology.

No system will ever replace the need for highly skilled claims professionals, but a well-designed system will facilitate the claims-handling process and free up the claims professional to focus on the investigation, evaluation and payment of the claims.

SANDRA HARRINGTON is a claims product manager within Duck Creek Technologies, in Columbia, S.C.

April 15, 2007

Copyright 2007© LRP Publications