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Our society is rapidly automating, and traditional paper-based, labor-intensive processes have disappeared from our daily lives. Many insurers, however, have been slow to adapt to available technology and are still relying on heavily manual processes to serve customer claims. Traditional methods are costly and time-consuming, and are eating into profits and customer goodwill. The time is past due for a major insurance claims technology upgrade. Insurers who can provide a user-friendly, automated claims model will have the advantage in the open market.
Some insurers are moving ahead, to be sure, offering auto claims processes via mobile device at the accident site, for example, but most are not yet in this game. Caution is to be expected for such a major undertaking — for an automated approach to be done right, there can be new challenges, like the large-scale data integration that is involved and the selection and oversight of third-party administrators.
Stuck in the past
The traditional claims process has been in place since long before the computer age. Now that automation capabilities have catapulted the possibilities forward, insurers find they are stuck in the last century as a result of:
- Outdated claims policies and procedures
- Manual processes
- Lack of integration along claims process owners
- Lack of applying business intelligence information from claims to improve the underwriting process
- Multiple points of customer contact
- Unclear customer communication points
- Failure to resolve claims at first contact
- Cost of claims
For all these reasons, many insurers are falling behind in customer satisfaction, and policy renewals run the risk of suffering as a result.
Insurers are beginning to take a hard look at the expenditures involved in such a big project. Companies serious about achieving market-leading cost structures that deliver on new customer expectations are moving toward fundamentally rethinking the claims function. Taking a carefully considered approach to this type of investment means looking at key metrics that can determine project success or failure:
- Improving claims outcomes and settlement costs
- Achieving reductions in unit cost per claim
- Increasing claims-processing efficiency and timing
- Lowering IT costs
- Improving customer service
- Improving policyholder-retention rates
- Increasing reserves accuracy
- Ensuring regulatory compliance
- Raising employee productivity
Technology's role in re-engineering claims
Upgrading the claims process means taking a hard look at internal IT systems, which for many insurers have been more or less left behind. Many are outdated, cobbled together over long periods of time. These systems don’t have the strength or capabilities of modern, integrated technology, and often struggle to “speak” to each other in a way that saves time and frustration, both internally and when it comes to customers.
This lack of overall integration can cause major trouble: When you have one system for accounting and another for claims, it’s unlikely that the two will interface quickly and seamlessly. If the system involves manual transfers, then there is a high probability of extra time, frustration and error potential that is not acceptable to today’s customer. For instance, if the transfer of data between the claims system and the accounting system is incomplete or inaccurate, then this could lead to missed or incorrect claim payments. The ideal situation would be for claims to be handled throughout the process by one integrated system.
The simple truth is that technology advancements in general have shifted customer expectations. Things like 24/7 accessibility, smartphones, social media saturation and generational communication changes (e.g., an emphasis on texting rather than calling) have changed the insurance customer’s mindset on technology. For insurers, better systems are now available that can enable faster claims-adjuster assignments and loss estimates. Cutting-edge innovations like these make it possible to develop highly customized service offerings and policy riders, allowing insurers to tailor each customer's experience - driving sales and overall satisfaction.Using new technology, customers can have immediate access to claims progress and up-to-date claims information. Advancements even include the use of satellite imagery to monitor and assess accident sites and damage.
Cutting-edge innovations like these make it possible to develop highly customized service offerings and policy riders, allowing insurers to tailor each customer’s experience — driving sales and overall satisfaction. Many insurers are looking to third parties to benchmark their existing systems and processes against the various forms of modern technology and programs, and to provide best practices on how insurers are integrating these technological advancements into their claims function.
Some insurers have been holding back from making technology investments because of the potential scope and cost of “doing it right.” This may be the time to end the debate — to compete in the market, insurers must have a strategy that includes claims-process technology upgrades. In addition to performing benchmark studies by third parties, as noted above, insurers are looking to outside providers for solutions that can be implemented over time to meet short-term and long-term goals that are in line with an organization’s budget.
Once an insurer decides to move forward with a claims process re-engineering project, it is important to understand the key success factors.
A third party is any business partner that is not under direct control of the organization that engages them. These entities may include (but are not limited to) vendors, service providers (e.g., document services, processors, attorneys, information processing service providers and safekeeping agents), brokers, joint ventures, franchisees and alliance partners. Best practices include:
- Selection — Insurers must conduct risk-based due diligence process for third-party vendors, by collecting data, verifying and validating that data, and evaluating the results.
- Oversight — Instituting controls and audits commensurate with risk to ensure that the insurer is receiving what was negotiated from the supplier base (e.g., invoices are matched to negotiated contract rates with preferred suppliers, compliance to key risk measures, etc.).
- Reviews — Performing independent reviews that allow management to determine that the vendor’s process aligns with its strategy and that it effectively manages risks.
- Compliance — Review third parties for compliance with regulatory requirements such as the Health Insurance Portability and Accountability Act (HIPAA) of 1996, protected health information (PHI), and IT risk and security assessments.
Making big data work for you
Basic analytics are used to drive standard reports and outputs, and are already commonly used. A best practice would be to use advanced analytics, which are more sophisticated forms of basic analytics that provide insights that were not previously possible. Advanced analytics are now possible because of the exponentially increasing amounts of available data that can be used with the strength and computing power of various tools and capabilities. Evolving uses for advanced analytics for insurers include analyzing and predicting claims and customer behavior, including the following:
- Descriptive analytics summarize historical data so you can understand what happened in the past and why. These metrics can help insurers analyze various areas of the claims cycle, including the variables surrounding losses and fraud.
- Predictive analytics build on descriptive analytics by combining historical data with various algorithms and rules to predict what might happen in the future. Performing these types of analytics helps insurers to make more informed decisions regarding claims handling, targeting, pricing and underwriting, and fraud prevention.
- Prescriptive analytics build upon descriptive analytics and predictive analytics; these analytics predict what will happen, when it will happen, why it will happen, and what the best course of action is to optimize outcomes and reduce risk.
Developing analytics can help companies determine whether they are achieving their strategic goals. However, companies will not fully benefit from analytics unless they apply the results to key business decisions at the time of underwriting, claim intake and customer contact. In addition, analytics must be seen as an iterative process in which management drills down into the issues that are identified through analysis, as a way to uncover the root causes of problems.
Operational reviews of claims processing
To ensure higher information accuracy, more timely information and clear reporting, insurers should consider an operational review of their claims- processing system. This can be done through the insurer’s internal audit department or a third party. Key components and objectives of such a review would include:
- Compliance confirmation — confirmation of compliance with documentation and regulatory guidelines
- Process tracking — tracking the process to confirm that the insurance being delivered is what the customer actually purchased
- Loss analysis — tracking and analyzing loss ratios and related root causes
Applying a business intelligence approach will help insurers turn raw data into actionable information to achieve the objectives of their operational reviews and drive real business value.
IT data integration systems review
As insurers upgrade systems and create closer ties to third-party systems, regular systems reviews can ensure that efficiency is maximized. Another key benefit: creating reliable data streams that enhance your analytics capabilities.
Due diligence reviews are essential in validatingthat third-party administrators can meet the data requirements of the carrier. Insurers should spell out their expectations in regard to maximum response times to fulfill standard data requests, specify what processes the vendor will perform, document the minimum requirements necessary for completion, and ensure the third party complies with the insurer’s internal policies concerning privacy and security. Communicating these expectations upfront will help ensure the completeness of data transmissions going forward — and build a strong foundation.
Billing process transformation
Customers expect insurers to be accurate and timely in the way they handle claims. Increasingly, prompt and fair payment of a claim is critical to affirming client trust. At the same time, improving billing and payment systems, along with the communication process, will provide carriers with the tools they need to deliver more targeted marketing and sales information to their customers. Insurers will see the operational cost savings and will notice increased customer confidence and satisfaction.
Best practices include:
- Building a centralized claims-payment system
- Designing a seamless claims communications process
- Instituting and optimizing electronic billing and payments systems
- Instituting self=service options for customers
Although most customers and third-party administrators are looking for increased efficiencies, some are reluctant to make a change due to privacy concerns. Insurers can address this issue by making sure they have established controls regarding personally identifiable information, and are communicating this to their customers and third-party administrators (who must comply with the insurer’s policies). It is also important to make sure customers understand that the risk of identity theft is greater with manual billing and payments versus electronic systems.
Technology is an entire topic in itself for those companies that are serious about transforming their claims process, but the most critical issues for insurers considering upgrading their systems are:
- A single point of customer contact
- Integrated claims processes throughout the life of the claim
- On-the-spot claims assessment
- Up-to-date claims settlement systems using devices such as smartphones, integrated telematics like GPS, sensors and data-logging, advanced image analytics, and augmented reality
One often overlooked opportunity: leveraging business intelligence and analytics surrounding the claims cycle to enhance the underwriting process. This approach can significantly boost underwriting competitiveness and insurer profitability — even without putting additional technological advancements in place.
Right now only a handful of insurers are maximizing the claims process and aligning it to customer needs, but the competitive advantage that comes from a world-class claims process can’t be denied. Better systems will make advanced analytics possible, while streamlined claims processes and new IT systems open the doors to cost savings — all contributing to a more customer-centric model that will drive value for the carrier.