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Claims Process Altered By New Technologies

Bill Kenealy December 2007

Viewed from afar, the claims process has not changed markedly in many decades. Despite new technologies being leveraged in many aspects of claims, for too many insurers, the claims process as a whole remains a manually intensive, inefficient business process-one in which even experienced adjusters find themselves mired in paperwork.

A recent whitepaper from London-based consultancy Datamonitor estimates that claims processing takes up between 70% and 80% of the running costs of a typical general insurance company, with a full 20% of that coming from administration costs.

"Part of the reason that claims has been very difficult to tackle from a technology standpoint is because you have so many ancillary people involved in the process," says Ed Blomquist, lead analyst, financial services technology for Datamonitor.

Now, the emergence of new technologies is forcing carriers to reassess the tools and practices they employ to perform this vital process from the front office to the back office. Yet, much like the process itself, the array of technologies aimed at claims can seem bewildering. Carriers can invest in location intelligence to improve adjustor routing. They can invest in data mining and predictive modeling to help staunch claims fraud. They can employ workflow and business process management (BPM) solutions to address systemic issues. And they can use global positioning systems and geo-coding to help assign adjusters in the field.

Carriers must stay abreast of these changes because today's new technology may well become tomorrow's best practice.

Is this money well spent? A new survey indicates that the investments insurers make to update their claims systems do pay dividends. The second annual joint information technology spending survey by Stamford, Conn.-based Gartner Inc. and the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill., reveals that IT investments, such as the replacement of legacy claims systems, will travel directly to a company's bottom line.

The study, consisting of insurers culled from PCI's membership, looked at the relationship between IT spending on management of claims and the overall expense of processing a claim. The average total cost to process a claim was $584 for the study's participants. Of this total, 12% was attributed to IT costs such as hardware, software and applications development, while the rest was dedicated to non-IT functions such as salaries for claims management personnel. The study found that an average 1% increase in the portion of claims processing dedicated to IT correlated with a decrease of $180 in total cost per claim.

THE FRONT END

To get a sense of how technology is altering claims practices, one can start at the beginning—the first notice of loss. Historically, the first notice of loss arrived at a claims office via a phone line, a fax line or, worse yet, a mailroom. These methods of transmission are now the exception rather than the norm at Boston-based Liberty Mutual Group, says George Neale, senior VP of claims for Liberty's Business Market.

The company links directly to its workers' compensation customers through a Web portal called Liberty Mutual business direct (LMBD). Neale says that customers have been quick to embrace the link, and that the company has seen an impressive number of claims come through the portal. "About 65% of our first reports come in through LMBD," he says. "It's facilitated the interaction and made it a lot more seamless and effective across the board."

The most readily apparent benefit of this Web-enabled linkage to the customer is speed. Getting accurate information to the claims office immediately helps shorten cycle times for clients. A secondary attribute of Web-based applications is that they do not require the carrier, or their customers and partners, to make a substantial investment in new hardware. Another advantage of a Web-based interface is that by eliminating some instances of human touch-it tends to reduce the amount of errors, Neale says.

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