As the property/casualty industry closes its books on 2006, exciting advances in the area of claims-technology trends come to light. The year saw shifts in thinking toward the realization that technology can be a tool for profitability and better customer service, in addition to efficient claims processing.
The year saw a shift in thinking, as well, in how property/casualty carriers widely acknowledged the need to retire their legacy claims systems, and more carriers moved into implementation and production through service-oriented architecture and Web-services-based technologies.
Until recently, homegrown systems, outdated mainframes and client/server-era legacy systems managed to continue to get the basic claims-processing job done, resulting in carriers having little incentive to change the status quo.
While premiums may have increased from 2000 to 2004, they have been on the decline in the past couple of years, putting more pressure on carriers to improve cost ratios and reduce operational expenses. This has resulted in a greater sense of urgency for carriers to find new claims-technology alternatives.
Enter modern technology. Web-based claims applications are becoming a proven option, and more carriers are taking notice. In 2006, these systems weren't merely being selected; more companies were moving into production. With each successful implementation, the industry's confidence in the new technologies has made it easier and less risky for the next carrier.
The past year also saw the shift from "early adoption" to general "market acceptance" of new claims-technology systems. Carriers in production with these new technologies, built on J2EE, XML and .NET architectures, realized important returns on their investments, workflow enhancements and productivity benefits, along with greater flexibility in their claims processing.
Equate this to the impact on a carrier's bottom line. Celent Communications Inc., in a September report, estimated that the application of modern technologies means "a 4 percent to 6 percent reduction in pure losses and a 10 percent to 12 percent reduction in loss adjustment expense" is feasible.
Achieving these goals yields an improvement in the combined ratio of four to five points, Celent also estimated. Such benefits are key contributing factors in the widespread acceptance of this latest generation of claims-processing systems.
In 2006, the "build-versus-buy" debate of previous years was resolved. Insurers have come to the realization that their core expertise is the business of insurance--underwriting against loss and paying claims--and performing these tasks in the most cost-effective and accurate way.
Their expertise does not lie in multiyear software development projects, particularly with proven solutions on the market. In the past, claims-system options were limited or tethered to inflexible code-based systems. As a result, many insurers opted to build their own in order to meet their unique claims needs and processes.
But the latest generation of claims systems typically provide a rules engine, offering a carrier the best of both worlds with a combination of build and buy--that is, the ability to configure a vendor system to meet each carrier's specific needs.
Carriers are now finding it advantageous to buy a system containing a set of common core claims functionality, while using the tools and rules engines to build their custom claims environment through configuration rather than code development.
SHRINKING TALENT POOL AT ISSUE
According to a Celent survey of chief technology officers and chief information officers, 50 percent of large carriers and 70 percent of midsize carriers are seeking "new technology skills," while only 30 percent of large carriers and 10 percent of midsize carriers are looking for "older technology skills."
It's now clear that the property/casualty industry continues to experience a rapidly retiring work force. While not a new trend in 2006, it continues to feature prominently, with little resolution. The retiring work force represents valuable industry talent in both the claims and information-technology disciplines. This is talent that is not readily replaceable. As such, carriers are realizing the need to leverage experienced staff, both for the system knowledge they possess and for their claims-handling best practices.
The younger work force does not have the knowledge needed to work with a carrier's legacy applications and the myriad of manual alternatives put in place to overcome the system deficiencies of old technology.
Attracting a competent claims work force willing and able to work with the outdated legacy technology is challenging at best, if not impossible or just too expensive. The same challenge holds true on the IT side of the organization, where finding and retaining a skilled work force capable of maintaining a COBOL-based system, with little or no documentation and years of exception programming, is quickly becoming an insurmountable problem.
New technologies not only help carriers attract the much-sought-after IT talent, but also enable the functionality and flexibility to support the complex claims process and varying levels of experience and skill found within the claims staff.
The modern claims system is highly intuitive and supports rules-based claims-adjusting workflows that adapt both to the needs of the claim and to the adjuster's experience level. Newer adjusters receive more prompting throughout the claims process, guiding them through the carrier's best practices to ensure a consistent and favorable outcome. Experienced adjusters would receive the more complex claims and would move through the claims file quicker and with less prompting, better maximizing their value.
THE FIGHT AGAINST FRAUD
The past year brought a greater realization that modern claims systems can be a valuable, cost-effective ally in the fight against fraud, which is estimated to cost an average of $300 in additional premium per household, according to the National Insurance Crime Bureau.
Automated business rules are gaining acceptance as an effective way for carriers to configure their own fraud triggers and best practices into its processes for consistent handling.
Electronic claims files, viewable by multiple in-house and external parties simultaneously, provide an excellent vehicle to help detect duplicate claims, track payouts against coverage to avoid leakage losses and better spot fraud possibilities. A carrier can now immediately and seamlessly deploy maximum resources to help detect and investigate fraud without delay.
The year 2006 also saw an increase in the acceptance and use of predictive analysis and other types of pattern recognition analytics as tools in the fight against fraud. Combining these technologies with the more data-centric new claims system gives carriers greater access to higher-quality claims data--valuable ammunition that gives carriers a chance to stay one step ahead.
The return of soft-market conditions has fueled the industry's search for opportunities to reduce operational costs. With claims costs accounting for the major share of insurers' cash outflows, carriers are insisting their claims departments increase efficiencies and lower leakage while providing even better and faster service to support customer-retention goals.
These 2006 trends highlight the role technology, modern claims technology in particular, can play in meeting these challenges. It has been a year of optimism on the technology front as modern claims systems and mobile technologies have come into their own and are being deployed at an accelerated rate by carriers of all types and sizes.
The role these technologies already play in helping carriers respond to their policyholders, offer better products and improve combined ratios bodes well for the industry's future.
is vice president, marketing, at Guidewire Software, a provider of technology systems to the property/casualty and workers' compensation industries.
December 1, 2006
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