Carriers, Do Yourselves a Service

Old, inefficient claims administration systems are putting a burden on property/casualty insurers, leading to poor customer service and higher claims expenses at a time when industry growth has been stagnant.

By Patricia Vowinkel

Not only is the insurance industry experiencing its slowest growth rate since the 1930s, investment income has been low and claims costs are rising. This is driving insurers to look for ways to improve growth and cut costs.

To maintain market share, insurers have been offering customers sweetheart deals to keep them from walking out the door.

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But one of the top reasons that customers choose not to renew their policies with insurers is a bad claims experience, according to information technology strategy and research firm Novarica. The quality of a carrier's claim service is critical because claims are typically the only contact a customer has with a carrier, said Karlyn Carnahan, a principal at Novarica and the lead author of the firm's report "Novarica Market Navigator: US P/C Claims Systems 2010."

In addition to putting customer retention at risk, however, an old claims system can also lead to higher expenses due to claims leakage; that is paying out more on claims than is really necessary as a result of mishandling claims or a failure to catch fraud, said Dave Tweedy, practice leader for risk information at Albert Risk Management.

On top of that, old systems are costly to maintain and force businesses to stick with outdated business rules and processes because making a change means rewriting code, something that can't be done quickly or easily.

All of this combines to make a compelling case for insurers to take a close look at their claims administration systems.

Systems more than 15 years old are more than likely missing some important features that could revolutionize carriers' claims-handling processes. Systems that are less than 10 years old are more likely to have some of the more recent technology, but depending on the system, may still be without some of the latest features. And there are still insurers out there with some pretty old systems, said Carnahan, some even with the old "green screens" from the 1980s and earlier.

The newer Web-based systems not only offer the ability to easily update business rules, but they make it easier to add new software solutions as they come out. A new system also can make a big difference by identifying high-risk claims and red flagging them to bring them to management attention, Tweedy said.

Claims systems can vary quite a bit in cost, from several hundred thousand to several million dollars, depending on the size of the insurer and the scope of its businesses.

Of course, with the economy in the tank the last few years, it's not always possible for companies to get the latest, most advanced systems.

Even so, claims has been identified as one of the key areas for investment in 2011. Claims administration systems are being replaced at an increasing pace in the insurance industry, Carnahan said. About 30 percent of carriers surveyed by Novarica said they have a claims administration project for 2011.

Although the cost of a large system can be significant, the return on investment can be huge, especially if it's replacing seriously outdated equipment. Given the impact an old system can have on customer retention and claims leakage, the benefits may quickly outweigh the costs.

PATRICIA VOWINKEL has worked for national media outlets for more than 20 years.

December 1, 2010

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