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No property and casualty core process is as complex, or as critical, as claims. When you consider that much of a carrier's cost dollar goes to pay the claims' piper, getting the process right could be considered imperative.

Yet, until relatively recently, carriers historically relegated claims to the back seat technology-wise, according to Donald Light, a senior analyst with Celent, a Boston-based technology consulting and research firm.

Light says that the major decision property/casualty insurers face today on the claims technology front is whether or not to replace their aging claims legacy systems with newer, emerging platforms, mainly systems that are run on J2EE (Java) or .NET (Microsoft) architecture. Both J2EE and .NET are Web native platforms that can work across an enterprise. Most carriers today have implemented a patchwork of upgrades and add-ons to creaky legacy systems, but the move to Web-native technologies is one they will all eventually make.

"The reason to choose those kinds of technologies is they are more modern, and they integrate much more easily with other applications in today's Internet and IT environments," says Light.

Canal Insurance, a Greenville, S.C.-based carrier that specializes in providing coverage to the trucking industry, has used the latest technology both to upgrade its systems environment and to enhance its existing business processes, according to Dan Walker, Canal's vice president of claims operations.

Walker explains that like most other claims organizations, Canal's adjusters had to grapple with unfriendly legacy systems and highly manual processes. To address those issues, Canal chose to deploy a new claims system, a J2EE-based platform from vendor Guidewire Software, San Mateo, Calif., to support the end-to-end claim process and improve efficiency.

"At the time we selected Guidewire as our partner, it had the only fully integrated Web-based system available," says Walker, noting that Canal went live with the Guidewire system in October 2004. "We do business countrywide, so we needed something that gave us the functionality of Web-based access with 250-plus vendors and partners across the country."

Additionally, Canal had some very specific claims functionality requirements, as it fills a unique niche in property/casualty by serving the medium-to-long-haul trucking industry. As a result, existing off-the-shelf solutions weren't a good fit for Canal. "The Web-native platform is much easier to manage and is very and flexible," Walker says.

Another critical variable, Walker adds, is the system's significant workflow functionality, driven by business rules that Canal writes and implements itself.

"We can make it teachable and easily understandable," Walker says. "We now have some 200-plus business rules in the system that allow us to meet business requirements. They may be centralized here in Greenville, but we are managing unique situations in states relative to specific regulation and compliance issues."

All in all, he says the move to the Java-based platform resulted in a sense of a tremendous increase in Canal's capacity to do more, both in terms of productivity, shortening the claim lifecycle, and meeting the technology needs of the business overall--especially for Canal's underwriting partners, distribution force and vendor partners.

For example, through the use of Canal's business rules, there are automatic alerts, so there is no need to rely on claims handlers to remember issues, because it happens automatically.

Another good example of how the new technology boosts effectiveness is the built-in auto-assignment process. Using this process, Canals receives first notice of claims from its loss reporting service, the claims are validated against a set of rules, and depending upon claim type and complexity of the claim, the system assigns a piece of work to the claim handler's desktop.

"For us, that can mean significant increases in productivity, efficiency and loss costs," Walker says.

Walker says the benefits of the new claims technology include the use of business rules to tailor the claims process to the requirements of the individual claim; a reduction of the paper filed through electronic document management; easy integration with external partners, such as independent adjusters and law firms; automated integration with Internet-based services such as ISO, ClaimSearch and Metropolitan Reporting; and real-time managerial visibility into the claims operation.

"One of the huge benefits for any claims organization is the fact that when you allow business rules to drive processes, you not only reduce error rate, but that increased accuracy drives the rest of your processes," says Alex Naddaff, vice president, Implementation Services, at Guidewire. "You end up with much greater data integrity than if you manually key the data and generate the expected errors."

THE COMING MIGRATION

Naddaff says with legacy technology still predominant, most claims organizations have not made the transition to a Web-native architecture yet, but it's coming.

"You can't do it all in one day," he explains. "You need a strong way to hook the older technology with new technology, and let them work together. With Web technology, the real advantage is the ability to collect best practices and substantiation of the business case."

Mark Charron, the partner in charge of Deloitte Consulting's insurance industry practice, says he sees continuing interest in the effectiveness of claim outcomes via technology, with the prime focus on paying the right amount for every claim, what he calls "the goldilocks claim."

"Business rules drive adjustor performance and activity, so the intent of carriers is to have better software tools to help adjustors with estimation, contract management," he says.

In the hardware area, Charron says the landscape continues to evolve, as companies decide whether or not to dump the mainframe.

"We don't see that on regular basis yet," he says. Charron explains that up until a few years ago, the claims area was not getting the investment dollars technology-wise, mainly because the property/casualty industry was struggling financially. But today's hard market has created better financial positions for many carriers, so they are spending more in claims technology space.

In terms of actual technology hardware tools, Charron says there is a reluctance to "put a stake in the ground," where everyone will have the latest gadget. Carriers and other claims organizations are taking a measured view of the functionality of what a specific gadget is intended to do.

"Any technology tool that can speed up first loss notice is in the forefront, the time lag and metric is so critical," he says.

It's mostly about how do carriers use technology to speed up claims handling, with fewer errors and less touches on the claim.

There is a refinement of some of the rules and roles, figuring out how we get that claim into the right adjustor's hands right at the beginning, he says. And some vendors are offering workflow tools that can be customized, giving claims organizations the power to define roles via rules. For example, technology can determine who has the most experience on complex claims, and can funnel a similar claim to the right person--rather than claims just being assigned willy-nilly.

In the end, technology can help create a new breed of adjustor, the "super adjustor," where unlike in the past, younger adjustors don't have to sit in their chairs and earn their stripes through time because the emerging technology tools give the younger adjustor help.

"We've seen historically that claims adjustors are reluctant to change," he says. "They say, 'Based on experience, this is how this claim should be handled.' But a database can point to a different way of handling that claim, so with new technology, people are trying to figure out what that optimal claim situation might be."

Finally, Charron says technology is forging stronger linkages between claims and underwriting--for example, technology gives the underwriter the ability to see what's going on with claims, and vice versa.

"These new technologies are closing the loop between those two groups," he says.

According to Celent's Light, claims organizations can always add incremental improvements to their mainframe-based legacy systems, such as adding a portal or a Web interface. But while those changes provide benefits, they don't get at the core of the process.

"The challenge is that it's a big and scary undertaking," Light says. "A company has to convince itself that it is time to do it. But once they make the move, it will mean significant improvement in the claims process.

"Operationally, with these new architectures, you have an ability to build in a lot of workflow and decision controls over every step in the claims process, from initial notice of claims to claims payment," Light adds. "You get a 'whole earth' view of the capabilities to design better workflow, controls and financial decisions, and that's a valuable benefit."

TOM STARNER, a Philadelphia-based writer, writes frequently about technology issues.

December 1, 2005

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