No doubt, there are many things that keep insurance carrier technology executives up at night. But, based on a recent survey of those professionals, it appears claims technology isn't one of them--at least not for 2008.
According to a recent survey by Celent Communications LLC, the New York City-based research and advisory firm, only 20 percent of CIOs/CTOs from 28 insurance carriers in the property/casualty and life/health sectors ranked claims technology as one of their top three IT initiatives for 2008. And no tech executive from the four large P/C carriers surveyed ranked claims among their top three 2008 initiatives.
What does keep CIOs/CTOs up at night right now? The Celent survey, titled "Insurance CIOs/CTO Pressures, Priorities and Plans in 2008" reports that for large P/C insurers, "pricing/product development," "data mastery" and "automation/business process management" rank at the top, with each approaching 80 percent in top-three rankings.
With all the chatter about the importance of claims technology within the insurance industry, do these results mean that claims is for now getting short shrift in the P/C world? Not necessarily.
According to San Francisco-based Donald Light, senior analyst at Celent and coauthor of the report along with Craig Weber, while the survey does show claims may not be top of mind for large P/C carriers (20 percent of midsize P/C carriers rated it among their top three tech initiatives for 2008), it doesn't mean claims is falling by the wayside. Light says it's more a result of the underwriting cycle, as P/C insurers experience a soft market, which means a stronger focus on the top line business areas such as pricing and underwriting.
"One of the themes that came out is that coloring the priorities are concerns about the soft market," says Light. "The first ways of dealing with it are a focus on areas such as generating new business, ease of doing business, new products and product development, underwriting."
Next, he adds, there is a tendency, for better or worse, to focus on internal efficiencies, which means possible layoffs in the least critical areas, which could mean claims during a soft market.
"Personally, I don't necessarily think that's the best way to look at it, but at the moment I am not a president of an insurance company," he says.
Another possible reason for claims technology's not being on the CIO/CTO radar screen for 2008 may be that the companies surveyed could have recently completed major claims technology upgrades/improvements, so those companies are moving on to new areas that directly impact the softening market.
"If you have made major investments in claims technology over the past two to three years, it's very unlikely it will be among your top initiatives the next year," he says. Light is quick to explain that Celent's U.S. report surveyed 28 total insurers, so it's not a scientific study per se. But Light adds, he's fairly confident that the survey reflects the overall P/C and health/life industry tech concerns and strategies for 2008. "It's really just a snapshot of the overall trends and emerging issues," he says. "It's not statistically valid. We are very careful to point that out.
"But we do believe that the survey is a pretty good indication of overall industry trends and emerging issues," Light says, adding that in a broader, more statistically valid survey, claims could be somewhat higher on the totem pole. But how much higher, he can't really say.
To bolster that, Light says that when it comes to the IT spending category in 2008, claims does fare somewhat better. For example, when asked about average allocation of project spending for 2008, CIO/CTOs from midsized P/C carriers report that claims is the second-highest rated area (16 percent). Tech executives from the large P/C carriers rated it sixth (under 5 percent), while rating policy administration (25 percent) and underwriting (25 percent) as its top two IT spending categories.
"When it comes to spending, you can see claims does better, at least among midsize P/C companies," he says. "My gut feeling is this is probably a more representative indication of the importance of claims. It may look like everybody is going on to other areas, apart from claims, but it's not really that black and white."
Mark Charron, a consulting principal and U.S. practice leader for insurance solutions at the consulting firm Deloitte, says he doesn't see claims technology being ignored. It's just that top management and IT are trying to react to the softening insurance market. "The midsize companies in particular are the ones especially impacted by a softening market, because they have less ability to weather a sustained drop in pricing," he says. "Naturally, P/C carriers are focused on policy and distribution side of the house. For midsize companies, the distribution channel is critical. Frankly, agents and brokers have a choice, and they can go with path of least resistance, the companies that are easiest to do business with."
Charron says he recently talked to the CFO at a leading insurer, and the technology spending emphasis was to focus dollars on things that will bolster the company's "top line" right now.
"He said they know they needed to fix some stuff in the back office, but they just don't want to go out and invest in a new claims system right now," Charron says. "They are more focused on the things that are touching their potential new clients and distribution channel, as well as doing a better job using technology around pricing and market segmentation."
Charron also adds that many organizations may have made a commitment to claims technology last year or the year before, as claims systems lagged behind the carrier's other major systems. So the claims technology issue isn't as pressing right now in the face of the softening market.
He also says strategies such as processing claims in offshore locales or hiring another company to process claims on a carrier's behalf are reducing claims technology concerns. New technology platforms and approaches, such as Service Oriented Architecture, Software as a Service and predictive analytics are less expensive ways to engage claims technology.
"For example, with predictive analytics, you have the ability to buy additional data sources, implement into claims segmentation, and you can drive down costs 3 percent to 5 percent," he says. "So there are some savings out there, and it's an easy decision to make."
Stephen Holcomb, CEO of Full Capture Solutions Inc., of East Harford, Conn., a predictive analytics provider, says one implication of the Celent findings may be that technology as a rule is becoming less expensive, so it's less of a concern.
For example, Software as a service is becoming a new best practice in software delivery. This delivery method removes the cost of investing in licensing, installation and upgrading software. Also, predictive analytics brings intelligence to claims software--like the ability to read unstructured data--that finds information in previously unreadable data, creating virtual data warehouses.
Consequently, insurance companies have actionable information from their claims at considerably less cost.
"I wouldn't be surprised if a larger sample would not turn up the same results," Holcomb says of the Celent report. "We're going into a soft cycle, and during soft pricing cycles, all companies' priorities tend to flip back to the underwriting side, devoting much of their attention and resources to it. It's really a focus on risk selection and pricing."
Holcomb, a former executive at The Hartford and Trumbull Services, says that especially at larger carriers, the trend to sending claims offshore means claims IT has been one of the hardest hit departments in terms of efficiency. Plus, the move to newer, less labor intensive technologies also has reduced costs.
"Traditionally, any time you installed new software, you had an enormous integration project, one that required resources to install, modify and implement," he says. "But the claim IT resources are not there any more, so companies are moving more to Web services and software as a service, some of these less intrusive models that are really quick to implement. Larger companies are realizing they don't need hundreds of IT resources, like it was in the old days."
Bill Hartnett, Microsoft Corp.'s industry solutions director for insurance, says that claims technology has been near the top of everyone's list for 4 to 5 years, so CIO/CTOs may be less concerned about claims technology because they already have a plan in place. Harnett also says that technologies like SOA are altering the claims technology landscape.
"The whole philosophy has changed for claims technology," he says. "SOA and Web services are the foundational aspects. Then, carriers are taking a hard look at business process, trying to decide if they really about do have an optimum process?"
Jerome Reynolds, director, claim portfolio architecture, at CNA in Chicago, says that the leading carriers always are going to be focused on what's coming in the door from a pricing perspective, the so-called "top line" business issues. But, that doesn't mean claims is a second-class citizen, even with the survey results.
"The leading carriers don't take their eyes off the claims perspective and process," Reynolds says. "True market leaders continue to look at the bottom line as well as the top line. Of course, we need to be concerned about rates and new business in this market cycle, but we also have to stay focused on potential real dollar savings claims technology can bring to the table."
He adds that Web services, software as a service and other technologies mentioned are emerging as more user friendly. In fact, he says, are actually delivered in plain English. "We're seeing systems that are easier to maintain from an IT perspective, and much more adaptable to changes form a business perspective, and enable processes and complete transactions in the value chain," he says.
TOM STARNER lives in Philadelphia.
April 15, 2008
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