By BRIAN DESMOND, vice president of marketing at Guidewire Software, a global provider of core systems to the P/C and workers' compensation industry
Insurers have made significant investments in their data processing systems, and they want to get the most out of those investments. Legacy applications, some of which may date back 30 years or more, don't offer the agility of modern technologies, but they do perform the limited tasks for which they were designed. Especially in these rough economic times, the temptation is for carriers to say, "If it ain't broke, don't fix it" (or replace it in this case).
Modern technology comes at a cost and must often be customized for the individual carrier. Then there is the cost--in time and money--of removing legacy applications and implementing the newer systems. Disruptions in service are a possibility as insurers seek to replace core functionality, including claims and other critical administrative functions. Further, personnel must be trained and acclimated to the new systems while simultaneously providing an acceptable level of service to the insurer's customers.
THE CASE FOR MODERNIZATION
Still, the case for modernization is compelling. Legacy systems were never designed to be end-to-end solutions for the insurance process chain, but competitive pressures and customer demands have forced insurers to cobble together solutions that will allow their various legacy applications to play nicely together. These inefficient amalgams of applications written in older programming languages such as COBOL are becoming increasingly difficult and expensive to maintain, much less enhance.
In addition, many of the programmers who were familiar with older languages have retired or are only available at a high premium, and computer-science training and education programs still offering COBOL training are virtually nonexistent. As a result, if changes to legacy programs are required, they may be difficult, if not impossible, to make.
Today's technologies better address key insurer needs. With customers increasingly preferring to do business online, an expectation has been created that service will be instantaneous, or at least very fast, in crucial areas like underwriting, claims and billing.
Legacy systems simply don't offer the flexibility to deliver this kind of service--so staying with those systems becomes a detriment to the insurer's competitive position.
Modern systems deliver more processes more efficiently in less time. This means that business gets done at the rapid pace customers and consumers are demanding, while at the same time costs are reduced thanks to automation of repetitive functions that were previously performed manually.
When should systems be modernized? The answer begins with a technology plan that takes a longer range view of the insurer's business and its anticipated needs. It also means discerning how well the insurer's present technology is performing and how well it will support future demands.
A CASE IN POINT
Missouri Employers Mutual Insurance (MEM) did such a self-examination in 2006 and found that, while its existing claims systems were adequate, they would not work for its forecasted business needs. The Columbia, Mo.-based workers' compensation insurer determined that its software and technology were nearing the end of their useful lives, and that too much time and money were already being spent on maintenance.
MEM needed to find a better way to control medical costs, particularly utilization services for policyholders and their employees. This involved making sure that, while individuals got the appropriate care they needed, they didn't incur the cost of unnecessary care. The company also sought to ensure better claims-handling and service consistency.
In addition, MEM wanted the ability for its subsidiary to do business in other states and to offer different types of products. The company also hoped to improve efficiency at desktop level and to reduce product development time. Assigning claims was yet another area in which the carrier wanted to automate. The task had been previously been done manually.
These priorities led them to search for a new claims system that could provide such future-looking capabilities. They eventually settled on a claims solution that offered out-of-the-box functionality and a flexible architecture to meet the insurer's present and future needs. The new claims solution also gives MEM the ability to make changes and write business rules without having to call on its IT vendor.
AGILE METHODS ENABLE IMPLEMENTATION
With the new claims system selected, the next hurdle was implementation. With the software vendor's guidance and coaching, MEM utilized an agile methodology, which breaks a project into smaller task sets to be completed in a four- to six-week time frame.
The MEM team identified specific tasks that were to be completed in each smaller project, or "sprint." If problems arose, some tasks could be rolled over to the following sprint, but team members found that sprints were completed 95 percent of the time.
Part of the agile implementation methodology was the daily "scrum" meeting, where the project team would assemble early to check on status and impediments. MEM found that the agile process created a pride of ownership and accountability that contributed to the overall project success. The meetings enabled the team to stay focused on their three primary requirements for the solution--that it helps investigate claims, pay benefits and pay bills.
Before the new claims system could go live, test cases were processed to ensure that all would work as planned. People at all levels in the MEM claims process were involved to make sure all the appropriate business units were empowered and committed to project success.
Key objectives of the project included: increase subrogation referrals, reduce medical costs, increased caseload productivity, reduce cost of indemnity, decrease mail-handling and bill-keying time, reduce litigation rates, and increase high-probable fraud- and abuse-recovery opportunities.
While not all objectives were immediately achieved, the company is pleased with the initial results and on track to fulfill all goals. Results are expected to play out over the next five years, with specific expectations targeted for each year. Early this year, the initial phase of the project was completed on time and on budget. The agile methodology was so successful that MEM is now employing an agile approach to non-IT operations.
MEM has already seen benefits from the new claims system in terms of streamlined processes and automatic assignment of claims within the organization. Automatic assignment has substantially reduced the time required by MEM staff to perform this once time-consuming task. MEM estimates this single example represents a savings of more than 1,400 management hours per year.
This and other new claims system efficiencies have allowed MEM to reduce claims management staff by two positions--resulting in an additional annual savings of more than $200,000. MEM also reports enhanced productivity and more efficient management of claims throughout the process, enabling MEM to increase caseloads by 13 percent by 2012 while maintaining or improving its already high service levels.
Significantly, the insurer was able to implement the new system without having the vendor change code, a first for MEM and a rarity in the industry. Early indications are that the carrier's claims personnel are embracing the new way of doing business to deliver enhanced services in less time and at less cost.
May 1, 2009
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