Canadian Underwriter

Claims to Lead Technology Surge

January 1, 2002   by Dale Hardy, president of Correlation Technologies Inc.

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Coming from the tech “go-go” environment to the world of insurance claims a mere two years ago was an awakening. I found almost half of the number of claims adjusters I met did not have an Internet connection. I even discovered an office-floor of claims adjusters who did not have word processing, but were confined to the glare of green-glow mainframe terminals. Certainly, there were stellar exceptions, but in general the implementation of modern IT methodology was abysmal.

Despite all that, I now believe that the insurance industry, and in particular the North American property and casualty insurance claims industry, will be the vanguard of change as a new generation of technologies takes hold and leads the acceleration of the Internet B2B (business-to-business) world. Yet again, new information technologies will yield the type of startling benefits that were delivered in previous technology waves. A vibrant insurance claims industry will be the toast of the popular business press. This time, it will be the insurance industry’s turn to crow.

Does insurance claims seem an unlikely choice? Certainly the industry will utilize the Internet in areas other than claims. For example the broker-to-carrier transaction interface will go to portals (see “Portal Power, People Power” of CU’s October 2001 issue). A bookseller and public auction market seemed just as unlikely ten years ago. Before you brand me a hopeless idealist, consider the following.

Pent up demand

With hundreds of billions of dollars of claims per year, the market has the mass to drive technological advances. To date, the industry has not invested in new systems to the degree that other businesses have. Less than 1% of premiums are invested annually into claims related technologies, which is much less than other financial service businesses such as banking. While the amount of claims-per-adjuster grows, the adoption of technologies that can streamline their work has lagged.

Compelling need

The insurance industry is, of course, still under pressure with a combined ratio exceeding 108%, and loss adjustment expenses amounting to more than 13% of premiums. The pain is overwhelming. It is difficult for insurers to deal with these numbers at the front-end of their operations. There is simply too much competition to easily increase revenues by raising rates or taking business from others. Companies must look at the back-end of their operations, and by far the biggest expenditure is claims and the administration of those claims.

Insurance company executives are formulating their business strategies for loss cost reduction and the technologies that will improve claims performance. The adoption of a variety of modern information technologies offers the best hope to revitalize an industry under siege.

Technology matures

Claims costs are heavily weighted by the direct and indirect cost of the vendors that supply goods and services to fulfill the claim. Other industries like the manufacturing, chemical and automotive industries have consolidated many of their activities through e-procurement, e-marketplace, and supply chain hubs that have dramatically reduced the cost of doing business. These hubs are industry specific Internet portals that provide software applications to facilitate transactions between the users. The hubs are public hubs with many buyers and many vendors participating; or private hubs, with a single buyer and preferred vendors. Creating a private hub is an expensive endeavor, best reserved for the largest players.

The claim hub is a solution that is much more advanced than the manufacturing hubs described above. Embodying the transaction capabilities of manufacturing hubs, claim hubs have become the focus of online collaboration with the insurance companies, brokers and vendors, forming teams around each claim. This collaborative commerce hub provides each participant with secure communication, centralized information, advanced tracking, reporting features and automated workflow required to expedite the claim.

Using a web browser and password, users will have an individual point of contact for all their claims, according to their role in the fulfillment of the claim. Of course, the hubs will offer the security and privacy required by legislation and conform to industry standards, like the portal available through the Centre for Study of Insurance Operations (CSIO) in Canada and that of ACORD in the U.S. This paperless environment will speed file closure and reduce costs for every participant and increase customer satisfaction.

Hub savings

Notice that claim hubs offer value in a variety of areas of savings like improved communication, information organization, reporting and workflow. Furthermore, claim hubs address or consolidate efficiently all of the technologies that insurers plan to invest in. A reduction of just a couple of points on that 13% LAE will save the industry billions of dollars.

How many claim hubs will there be? If we utilize the formulas devised for e-marketplaces, the claims industry will shake down to three North American public hubs, plus a small number of private hubs. And, there are about a dozen software companies in North America able to service those hubs. It is significant to note in this regard that claim Hubs have already begun in Europe.

How will the wholesale adoption of claim hubs over the next five years be acknowledged as the technology showpiece of the decade? Because everyone has insurance and millions will experience the newly transformed claims process as one of unparalleled convenience and speed. From the customer’s point of view, the claims process is the ultimate test of insurance company (and often broker) value. And you did not think that you were part of the next, did you?

Here is the relationship of manual claims of vendor management compared to claims hubs.

Claims Hub
Reporting to Insurer
Information status throughout Vendor Chain
Software Applications
Vendor Choice
Vendor tracking, monitoring and report
Agent Reporting Service
Telephone Fax
Snail Mail Courier
Paper Emails
Phone messages (Multipoint)
Stand Alone Proprietary
Ad hoc to individual adjuster
Free flow – Separate workflow for everyone in vendor chain
Customer Agent Reporting Service
Secured internal Email and Notes
Wireless devices
Structured (Flexible)
High (Real-time)
Paperless (Single point)
Open systems (XML)
Insurer Determined Standards
Driven network of workflows


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