Newsletter Sign-up

Inconsistent claims handling costs insurance companies--and ultimately policyholders--enormous amounts of money. Insurance company CEOs tell us they believe inconsistency shaves 2 percent to 5 percent off their combined ratio. Risk managers know inconsistency is a big problem, but are often unable to quantify its impact.

The occasional whopper bad-faith judgment makes news, but under-the-radar inconsistency is just as expensive. Thousands of small inconsistencies and errors add up to a stealth problem of huge proportions, driving up both loss costs and loss-adjustment costs. Inconsistency breeds inefficiency, and inefficiency costs money.

Executives accept inconsistency as part of the cost of doing business. People make mistakes, and a certain percentage of claims won't be handled correctly. "You may get all of your employees to follow some of your procedures all of the time and even some of your employees to follow all of your procedures all of the time, but you cannot get all of your employees to follow all your procedures all of the time," might be how they'd paraphrase Abraham Lincoln's famous quote.

Insurers, risk managers, and third-party administrators have focused on cutting costs by rationalizing their claims organizations by using technology and outsourcing. They've done such a good job at trimming fat there's nothing left to cut. And, while they've trimmed the fat, claims costs and loss-adjustment expenses have continued to rise, leaving risk managers and insurance company executives in a quandary of what to do next. Enforcing consistency in claims is now the only place left to cut costs--and truly improve performance.

How can claims organizations make sure that every claim is handled and paid correctly? How can they make sure claims handlers do the right thing every time?

Combating inconsistency starts with a change of attitude. An attitude that refuses to accept the status quo.

Here's the attack plan.

First, automate all of the routine tasks that can be automated. Claims handlers typically waste about 50 percent of their time on clerical tasks. They search for policy records, verify coverages and review claimant statements. Data gathering is mind-numbing work, and bored workers become sloppy and inconsistent. Gathering data, making photocopies and other clerical tasks can and should be automated. This takes capable technology but it's fairly straightforward and easy to grasp.

But not all tasks can be automated. The second step is to use technology to guide people through claims processes so that everyone always does the same thing the same way.

The second step requires looking at the problem from a different perspective. Success here requires going far beyond business-process management or workflow solutions that boost efficiency, but won't reduce inconsistency. They may in fact just help employees do inconsistent things faster.

A CAR NAVIGATION SYSTEM FOR CLAIMS

Suppose you have to drive in an unfamiliar city. There's a good chance that you'll take a wrong turn somewhere. You may realize your mistake quickly, or you may go miles before you catch on. Maybe the detour will cost you only 10 minutes. Maybe you'll get lost and before you're back on track you've wasted 45 minutes. Since you're distracted, there's a greater chance you'll get into an accident.

To avoid this problem you decide to install a navigation system in your car. Now you just plug in your destination and the system will tell you when and where to turn. No sweat, no problems. Complete consistency.

Claims handlers today are like drivers without a navigation system. Effectively and efficiently getting to the best claim outcome depends on the judgment and experience of the claim handler. Many don't always take the best route: they often miss turns, drive around lost, running stoplights and some even "crash."

Unfortunately, traditional claims systems weren't designed to reduce inconsistency. They depend on individuals to know the best route through the claims process. Newer claims systems may offer better tools and faster access to data, but doing the wrong things faster is of little value. The claims handler still has to know the best route to take every time.

The answer is technology that instead tells the claims handler where to go next, similar to a car navigation system. Instead of relying entirely on human judgment, such a system will take claims handlers by the hand and guide them through every step.

Let's go back to the driving analogy. Drivers go through a mental decision process when navigating. They see the street sign and remember to turn. Their brain tells their foot to step on the brake and their hands to turn the steering wheel.

Advanced software can capture the same thought process in claims handling. It's based on systematically studying the best, most efficient claims handlers and capturing the essence of their decision-making processes. It requires getting inside their heads. For example, if a claims handler receives a letter from an injured employee's lawyer in a workers' compensation dispute, what variables does he or she consider before making a decision and taking the appropriate steps? What thought process occurred?

In contrast, an inexperienced or overworked claims handler may not go through the same thought process and may make the wrong move or skip a key step. The inconsistency may cause a minor mistake, but frequent minor mistakes can add up to big dollars. Or the mistake may not be minor. It may be the equivalent of ignoring a stop sign and plunging over a cliff.

People-focused technology captures the skilled employee's internal decision-making process and embeds it in the system, telling the user what to do next. The analogy would be a driving system that not only gives directions but also tells the driver to apply his foot to the brake 100 feet from the stop sign every time. Similarly, in claims, the system consistently guides the claims handler to the correct decision, instead of requiring a person to make the correct subjective call.

With a claims navigation system, whether the claims handler is a rookie or a veteran, he or she will take the same steps--every time. You won't need claims handlers with 20 years' experience to handle the vast majority of claims correctly and consistently. You'll just need committed individuals who know how to use a computer and follow instructions. In some complex cases, the automated guidance won't be sufficient. But the system will know that and will flag claims that fall outside normal parameters for special handling by a senior claims professional.

There are other key benefits. Even the best claims representatives can act inconsistently because humans are--well--human. They are busy juggling 50 to 300 cases at any one time. This creates confusion, distractions and, ultimately, errors. It's difficult if not impossible for anyone to keep track of everything in each case.

For example, a new witness statement may change the entire status of a case. An advanced system will detect this and alert the claims handler to take whatever steps are required. Or, there may be a new state regulation. A veteran who has done things a certain way for years may miss it, exposing the company to possible fines or complaints. A proactive system will flag the files affected by the new regulation to ensure consistent handling.

Inconsistency plagues every organization, but in claims handling the negative consequences can be far-reaching. Inconsistency is the stubborn devil in the details. A new approach and new technology that focus on what people do and guides them through effective and efficient case handling can exorcise the demon of claims inconsistency.

BRIAN S. COHEN, a former senior executive at one of the world's largest insurance companies, is president and chief executive officer of Clear Technology Inc., a software company based in Denver, Colorado.

December 1, 2007

Copyright 2007© LRP Publications