Throughout their operations, insurers have focused on designing processes and leveraging technology to increase speed and efficiency. Even in claims—the “money out” side of the business—insurers understand expediting the end-to-end process is in their best financial interest because it targets leakage.

“When there is a delay in managing claims, the result is claims resources are reacting to claim developments, which drives up expenses and the cost to manage claims,” says Steve Laudermilch, senior manager and a member of the claims consulting practice at Deloitte. “So, instead of managing the claim, the claim manages them.”

Insurers also have come to understand the competitive advantage gained by an efficient claims process. “Speed is attractive to customers, and insurers know improving customer service can help them in terms of customer loyalty,” says Susan Cournoyer, managing vice president at Gartner.

“The message that it’s important to make certain your customers are happy with the claims process is sinking in. If you let claims linger, you get complaints, and insurance departments publish those complaints,” says Karen Pauli, senior analyst at TowerGroup.

“Producers also get jacked up about claims problems—they eat up an agents’ time,” Pauli adds. “If they have to spend a lot of time with one carrier’s claims problems, they will stop giving that carrier business. And with the consolidation in the agency ranks, agents have greater economic clout with insurers.”

ADMIN INITIATIVES

Given that insurers understand the need for speed in claims, slowdowns in the claims process today arise not from an unwillingness to be faster but from an inability to move claims along because of inefficient processes and systems. Targeting these two problems has been a motivator behind implementing new claims systems in recent years, as claims departments finally saw IT budgets freed for major system implementations, upgrades, and replacements.

“Carriers have spent the last three to four years getting new claims admin systems,” Pauli reports. “We saw carriers putting in new systems because they had paper-based processes before, and we saw carriers target replacement of older legacy systems that had not been getting the attention of IT.”

Cincinnati Insurance is a textbook example of this development. Gary Givler, the insurer’s vice president of claims, stresses recruiting and retaining quality claims staff always has been the foundation of the carrier’s claims service. However, Cincinnati needed to reevaluate and automate its claims processes to enable its staff to perform most effectively.

“We wanted to address problems before they occurred, and if you are going to manage processes efficiently, you need to be ruthless. If it wasn’t efficient, it needed to be modified or it had to go,” he explains. “Then, we needed to find a system that would automate as many of those processes as we could and enable the business to perform most effectively.”

Cincinnati ’s previous claims process incorporated disparate systems, resulting in duplicate data entry and the potential for process slowdowns. “Our goal was to have our adjusters not need to work with three of four different systems,” says John L. Crow, manager of claims technology.

“A lot of activities adjusters had to do were just to get financial data into back-end systems. We wanted to get rid of that administrative activity and let them truly work on claims,” Givler adds. Additionally, paper-based claims files made it difficult for staff to collaborate on claims due to the existence of multiple files on individual claims and numerous file locations.

Cincinnati deployed SAP’s Claims Management system in 2004. The initial implementation was “out of the box,” encompassing core claims processes such as capturing notes, assigning tasks, making workflow approvals, setting reserves, and processing payments.

The SAP system replaced Cincinnati’s manual, paper-based file management processes with a single, unified platform. The system integrates with the carrier’s imaging and content management system from EMC Documentum, allowing claims documents to be routed electronically and virtual claims files to be created, eliminating manual processing and routing required to assign and distribute claims information. It also interfaces with Cincinnati’s financial systems, automating the reporting process.

The insurer has continued to build on those core capabilities and upgraded to the latest version of the SAP platform in late 2007. The major system project also served as a launching point for other initiatives.

“Shortly after we went live, we instituted our ‘digital media interface’ project,” Crow explains. As a result, “we purchased digital cameras and recorders for our field staff and created an application to load those pictures and recordings remotely [into Documentum] and attach those to the [particular] claims file.”

Although Cincinnati Insurance would not reveal specific figures, Givler asserts the impact of its claims administration overhaul and related projects has been significant. “I can tell you an investment such as this pays for itself numerous times over,” he affirms. “Actually, it is a cost-cutting exercise. When we think of what we used to pay for things such as voice recording tapes, film, film processing, mailing, and downtime to handle those physical items, our current process is much cheaper.”

PLAYING BY THE RULES

One speed-enabling benefit sought by insurers in modern claims administration systems is the incorporation of rules engines that enable the business side to make process changes quickly in response to new claims procedures and insurance products without requiring IT to write code.

But if a core system replacement isn’t planned, carriers have added rules-based systems to the existing environment to connect systems and orchestrate the workflow. “We have seen pronounced investments in BPM and workflow technology by insurers over the past three to four years in addition to those types of capabilities being built into claims management solutions as that market matures,” says Cournoyer.

AEGON wanted to shorten the three-week cycle time on property claims. The Netherlands-based insurer looked to Corticon’s business rules management system (BRMS). The SOA-ready BRMS integrates with AEGON’s middleware layer that exposes functionality of its back-end claims administration environment. It also incorporates a spreadsheet-like environment that enables business users to manage business rules, a capability that was important to the insurer.

“We didn’t want IT to have to make changes because it would take a lot of time,” indicates Jan Veldhuizen, manager of vehicle claims and expertise at AEGON. “If a storm is coming over Holland, we need to make changes fast. If we create a new product or need to make other changes, we now can do it almost overnight.”

However, AEGON realized early in the project it needed a better way to capture information at the outset of a claim that would enable it to optimize the new rules-based workflow. “The two major obstacles for STP [straight-through processing] in claims are to get the information right and to get the information in time,” Veldhuizen says.

Therefore, the insurer implemented a new portal for its agent intermediaries to use when reporting new claims. “That gives us structured information we can use in the rules engine,” Veldhuizen explains. The portal was deployed to a test group of agents in December 2007 and rolled out to all intermediaries in April.

Currently, the carrier achieves a 10 percent pass-through