July 31, 2010 by Paul Tuhy and Nicole Michaels
As insurance companies and their clients conduct more business globally, it is essential that claims operations be ready to perform on a global basis, as well.
Claims managers must be able to deal with language and jurisdictional issues. This is in addition to having the tools available to manage international claims quickly and uniformly, no matter when or where they occur. For many insurers, that may be easier said than done. Given today’s market realities, demanding business reporting requirements and high customer expectations for quality data immediately, there is more impetus than ever to invest time, money and energy to tackle the global claims management system challenge.
Effective global claims management systems are much more of a necessity than a novelty. Especially in a prolonged ‘soft’ market, an insurer’s effective and efficient management of claims has a tremendous effect on its own profitability and expense management efforts. After all, claims losses and claims handling expenses form the largest share of P&C company expenditures, with some 70 per cent of an insurance company’s expense base in the form of claims payments and the cost of processing claims.
Using state-of-the-art technology would seem to be a “no brainer” to help insurers contain costs, make the most of their staff resources, track claims on a global basis and improve internal efficiencies to improve customer service. Yet, putting a truly global claims system into place is admittedly a daunting task.
For one, developing a global platform is a substantial investment. Especially in a weak economy, such expenditures would be tougher to swallow. But, realizing the benefits may significantly justify the cost. Ironically, with insurers’ mandates to manage expenses wisely and operate more efficiently, there is even more reason to replace legacy systems with newer more effective systems that may enable greater end-to-end claims management.
Obviously, legacy systems are the single greatest impediment to improved claims handling. Claims management was one of the first insurance processes to be computerized, yet many early claims handling systems are still in operation. As insurers grew organically or through mergers and acquisitions, the tally of legacy claims management systems grew in tandem. One insurer can easily have six or more different claims systems operating at once.
Knowing what challenges lie ahead will make it possible to move to a new system with minimal difficulty and disruption. Among the other hurdles that hinder an insurer’s moves to one global platform are:
• Company structure: While there may be less visible borders in a global marketplace, insurers must contend with their own borders. Organized by product lines and further defined by geography, insurers’ claims management functions often fall into silos supporting each individual product line that may provide individual input on claims management issues. As a result, with a lot of input and thoughts from various parts of the organization, implementation of new systems may often fall victim to significant scope creep, where progress is impeded and costs climb.
In dealing with these obstacles, insurers with flatter management structures or more centralized claims team often have a stronger advantage and are able to implement system changes more effectively and manage scope creep.
• Changing behavior: Implementing a new way to do things always requires not only staff support but also an understanding that change takes time and hard work to achieve. To achieve this, a commitment to recognize even small achievements in the process and continue to build enthusiasm throughout the implementation process is helpful and effective in keeping morale up and project momentum moving forward. Most employees and even managers may be reluctant to leave a familiar business process even if the new way is deemed more efficient. Therefore, gaining and sustaining support requires pinpointing clearly communicating realized savings throughout the organization, the benefits of a new system, such as anticipated cost savings in storage expenses and reduced travel costs. Leadership buy-in and support is important here as well.
• Inter-departmental cooperation: Many departments within an insurance company are affected by claims management changes. For one, the IT department plays an integral role in streamlining many legacy claims systems into one seamless system. The claims department and IT must coordinate claims management changes together. Likewise, accounting must adapt to new payment processing or other changes affecting the claims payments or the exchange of funds. Keeping other departments that often do businesses with claims make it necessary to change some of their behavior and processes in various departments. Additionally, implementing a global claims system lends itself to changes in what data is captured. Therefore, it is important that actuarial and underwriting understand the value of this additional data because it may impact they way they view and evaluate risk.
The investment of time, money and energy into implementing one global claims platform as opposed to multiple systems does have its benefits.
What are we striving for?
Clearly, insurers are looking to achieve more robust claims systems that can offer them better control over claims costs, handling expenses and improve customer service. New systems also allow claims management to re-evaluate existing workflows to ensure they are maximizing efficiencies and service level expectations.
Another result of achieving one global claims platform is more timely and accurate information. Today, business information is at everyone’s fingertips. The ability to obtain accurate information immediately is expected from customers who want to know exactly where they stand. Consider the benefits to a global manufacture who has a master policy, in addition to local policies in various countries. A global system allows for better coordination of loss information between the technical staff, as well as more timely loss information to the insured.
Improved claims technologies allow claims managers, as well as their clients, to access real-time information which helps insurers track indemnity and expense trends to aid in decision-making and cost containment efforts. Additionally, businesses today must be prepared to meet more complex and critical reporting and data requirements and regulations. Changes and new regulatory requirements, such as those imposed by Sarbanes Oxley or requirements specific to insurers like Europe’s Solvency II, necessitate tighter and verifiable financial controls.
Access to this information aids insurer’s own risk management efforts, allowing insurers to evaluate its aggregate risk on any one company or in any given geographic region. These capabilities can put insurers on strong ground to rapidly adapt to cyclical market cycles changes or changing business needs or risk appetite. For instance, when claims data is received from third party administrators and included in one single, global system, it allows monitoring of all losses, which have the potential to penetrate client retentions.
Thriving in today’s business environment requires organizations to change and make best use of new technologies, even if making the switch requires investment and heavy work. That is very much the case for insurance companies, especially for their claims departments, which heavily rely on technology to manage clients’ claims. All insurers are looking to manage expenses wisely and operate more efficiently. Therefore, there is even more reason to replace legacy systems with newer more effective systems that may enable greater end-to-end claims management. These can offer them better control over claims costs and expenses and improve customer service.
Paul Tuhy is head of global claims for XL Insurance. N
icole Michaels is a senior executive in charge of Accenture’s claims technology initiatives in North America.