Newsletter Sign-up

Perceptions have shifted markedly in the past 12 months concerning the risks and rewards of replacing core claims administration legacy systems, with the major variables in the claims systems replacement equation having changed.

The new generation of claims administration software has proven to be viable, because it provides processing efficiencies and better service, and supports better decision-making.

Further, carriers are more aware of the risks of remaining in a legacy claims environment. Carriers that decide to carry on with a legacy environment are going to face the challenges of retiring legacy technology staff and the realities of trying to respond to market and regulatory change with rigid COBOL-based systems.

"The risk of staying with the status quo now outweighs the perceived risk of replacing the legacy claims system," says Brian Desmond, vice president of marketing at Guidewire Software.

Anecdotal and statistical indications are that the trend toward upgrading claims systems will continue into 2007 as more claims-handling organizations come to realize that there is no better time than the present to replace their older systems.

Another trend to look for in 2007 is the deployment of technologies which support the supply chain of claims fulfillment.

The supply chain model recognizes that in many instances the first report of loss, the assignment of appraisal and adjustor services, and the provision of repairs and replacements is achieved by vendors tied together by an advanced communications network.

Not only does this type of capability deliver fast, high-quality claims service, it also has the benefit of freeing claims experts and resources to concentrate on more important work. The ability to develop such communications networks and to add services to it depending on needs is being helped by the use of XML formats and service oriented architectures.

"A carrier or third-party administrator can now access a single communications hub which allows them to launch a complete set of real-time products and services including body and glass shop assignment, fraud and subrogation analysis, police report ordering and car rental services at the first notice of loss," says Alex Tsetsenekos, director of business development at First Notice Systems.

A specific extension of this model is the real-time communication of mobile field adjustors with corporate systems, allowing for immediate updates of individual claim files rather than the traditional batching of downloaded files.

"This real-time, technology-enabled communication supports better governance, an improved audit trail, and more control over data transfer which includes claim history and medical records," says Tsetsenekos.

DATA ANALYTICS

One of the most promising areas of development in property/casualty insurance technology is data analytics.

Data analytics, according to Donald Light, senior analyst with Celent Communications' insurance practice, are specialized applications which allow users to improve processes and decisions. These have now found their way into areas of the claims domain.

The pursuit of fraudsters, which the trade group Insurance Information Institute estimates costs the industry $30 billion annually, is a perennial challenge for carriers, especially in the automobile and workers' compensation lines of business.

Increasingly, rules-based systems are analyzing claims for carrier-defined fraud triggers and, where appropriate, searching third-party claims databases looking for suspect claims by name, Social Security number and VIN.

Carriers are also defining and executing searches of internal databases, looking for fraud patterns such as multiple checks paid to the same claimant at different addresses, or multiple individuals receiving checks at the same address.

Recognizing that it can take several weeks for a suspect paper claim file to arrive on the desk of investigators, some leading carriers are now implementing fraud checks at the point of first notice of loss. This obviates the issuance of fraudulent initial medical and loss-of-income payments. These claims are directed electronically in real time to investigators as well as the adjustor.

Data analytics are also being applied to the technologically underserved area of subrogation, where rules and triggers can assist in the identification of claims which, due to disputes or shared liability, may be overlooked for recovery.

ON THE HARDWARE SIDE

For some years now auto manufacturers have been installing Event Data Recorders, or EDRs, in sedans, SUVs and light trucks. The device captures data immediately before and after a collision.

Look for this hardware to become ubiquitous, particularly in light of the National Highway Traffic Safety Administration's recent requirement that auto makers ensure the commercial availability of the tools. It is estimated that about 85 percent of all new sedans and light trucks will be equipped with an EDR by 2010, up from about 66 percent now.

In other words, the majority of new sedans, SUVs, pickup trucks and vans contain the technology to provide a great deal of data about the nature and at-fault characteristics of such a collision accident.

Data elements include the rate and direction of acceleration or deceleration during the collision, engine revolutions per minute, vehicle roll angle, anti-braking system activity, steering angle, right front passenger seat belt usage, seat track position for the driver and right front passenger, and the size and positions of the occupants.

Pinning down these variables determines which injuries are likely, and allows crash investigators to reliably and accurately answer many questions concerning the cause and nature of a collision.

The data can help investigators determine whether a soft-tissue injury claim is genuine, and it can help determine whether a driver failed to stop or yield. It can also provide clues to determine the sequence in multicar accidents.

Clearly, auto and property insurers need to plan for enhancements to their existing systems and processes to take advantage of this vital new data source. They need to be able to identify when EDR data could exist for a claim, acquire and integrate the tools or services available for EDR data extraction and create a repository for such data.

Additionally, they need to perfect the analysis of such data, information which will likely be presented in court. EDR data has already been upheld in court as being the equivalent of an "impartial witness." This data should change the nature of many disputed claims in the high-severity bodily-injury arena.

Early adopters in the carrier space report that the costs of starting such a specialty group within the company are minimal.

One interesting footnote is that the advent of EDR data will not only have an impact on auto claims handling, but will likely have an impact on underwriting and possibly even rating arenas. For example, early studies show that driver awareness of an EDR reduces the frequency of accidents.

In 2007, claims technology will consist of "linear improvements based on exploitation of known technologies," writes Light. His observation is consistent with the property/casualty industry's tradition of using time-tested and proven solutions offering high reward with low risk.

These trends in the claims industry are at different stages of market acceptance. Still, they bear the mark of mature technologies with major value, making them trends which claims technologists should look for in the coming year.

GEORGE GRIEVE is CEO and founder of CastleBay Consulting.

January 1, 2007

Copyright 2007© LRP Publications