The Holy Grail of Claims Processing

Mike Mahoney, Senior Director, Product Marketing, Auto Casualty Solutions, Mitchell International
Tom Zito, Senior Director, Medical Service Center, Mitchell International

Insurers are on a constant quest to improve their business processes via technologies that will enable a fully automated, “no-touch” claims-handling environment. The goals are worthy: speed, efficiency, consistency, cost effectiveness and outstanding service. The quest also comes with potential risks: too much – or a lack of – claim control, inappropriate claims decisions and potentially less-than-appropriate loss adjustment or indemnity payment decisions.

Straight-Through Processing

Straight-through processing (STP) defines the fully automated, end-to-end execution of a defined process from initiation to resolution – without any need for re-keying or manual intervention.

In the property and casualty claims handling world, this definition of STP is sometimes interpreted to imply the fully automated end-to-end handling of the claim with no human touch – a difficult task for even the simplest of claims. Think of the various steps and number of potential parties to a claim involving a simple windshield loss. Such a claim requires reporting, coverage verification, qualification for repair or replacement, scheduling, deductible assessment, payment and recovery evaluation and any pursuit.

This does not mean STP has no home in the property and casualty claims world. However, care should be taken in defining how and where STP is engaged in the handling of property casualty claims to ensure maximum cost- effective, efficient, timely and service-sensitive benefit.

Define the Journey, Choose the Right Vehicles

A highly efficient and seamless journey does not need to be accomplished in a single step, or even with a single vehicle, and STP does not require this. The key is to define the journey as a series of logical segments and sub-segments that are STP-executable. This involves creating an environment that seamlessly aligns the appropriate hand-offs at the correct times, and with the information the next task requires to execute its actions.

Using our windshield example, the process starts with our insured contacting a customer service call center. The insured’s loss report is documented. Coverage is confirmed through a simple policy system interface. The answer to the question “repair or replace?” is determined by means of a question or two about location and size of the damage. This last step can also include a short series of questions to inquire about recovery opportunities. A hand-off is then made to the repair vendor, who schedules and completes the work and collects the insured’s deductible as appropriate.

The claim is then handed to the insurer for payment of the vendor and recovery pursuit if indicated. Depending upon the insurer’s loss-reporting structure, this may be the first and only claim-related process the insurer’s claim team actually undertakes. And it’s not incomprehensible that, assuming appropriate service level agreements and audit criteria are in place, the entire process could be undertaken without any insurer claims professionals involved. A simple policy interface to confirm coverage and a simple financial interface to enable vendor payment may be all that’s required.

Thus, efficient and highly effective STP in no way implies the entire process needs to be under the tight, real-time control of the insurer. Nor does it require insurer employees to be involved in each step of the process. Rather, the viability of STP of a particular process is determined by how the process is defined in terms of cost and service effectiveness. This takes into account the timeliness, efficiency and accuracy of the hand-offs.

Hand-offs Require Hand Shakes, Not Hands

STP implies no touch. In reality, this means no human touch. Thus, for STP to be effective in the claims handling world, all technology systems involved in the STP process must be able to communicate with each other.

Unfortunately, not all systems used in the claims chain are of the same age, written in the same language or have the same capacity for ease of integration. Within a single insurer’s claims operation, several systems may be written in non-standard proprietary formats, making their integration in to an STP workflow more difficult.

In analyzing existing processes that seem ripe for STP, examine the architecture of the involved systems with an eye for ease and flexibility of integration. Trying to jam together highly disparate system architectures and codes may not be worth the time, effort and money when compared to claims processes supported by more modern systems. For future STP system selections, look for applications that offer the combination of ease of system inter-operability and extensibility within your required parameters of speed, accuracy, standardization, stability and security.

This issue of non-standard formats is highlighted when you are seeking to include external claims business partners in STP workflows. In this instance, your examinations must include the systems in use by your selected claims business partners. This is a rapidly advancing area, given insurers’ stated intentions of moving towards more business process outsourced (BPO)-supported workflows and environments. In fact, analyst firm Celent’s report “Approaching the Boiling Point: BPO, SaaS in Insurance,” published on Nov. 24, 2010, indicates core systems BPO is heating up. The report notes 36% of insurers surveyed expecting their use of BPO to increase in 2011.

Remember: Claims Evolve

Many insurers’ claims STP efforts have their roots in the results of their underwriting STP initiatives. In the underwriting area, dramatic improvements have been achieved in “hands-free” policy processing: lowering costs, increasing and accelerating through-put and reaching a reported 100% STP for certain types of simple policies. In some instances, the need for certain types of policy processing support roles has been completely eliminated.

These are certainly strong results. But it is important to remember claims are different. They evolve in ways that the rate, quote, bind, issue and bill processes surrounding policy issuance or renewal do not. Therefore, in claims STP, it is critical to have methods for determining whether or not an STP supported workflow is appropriate to handle an evolved claim. In certain situations, an STP supported workflow might actually create a negative claims situation.

For example, if an automobile medical payments claim is underway, and the medical report attached with the first submitted bills reads “hurt on the job,” this claim needs to be removed from any STP flow and placed in to a “needs further investigation” flow. The medical payments coverage may not apply, and payment under the terms and conditions of that coverage would likely be in error. Similarly, if the medical-only workers’ compensation claim is reported as “strained back,” but the medical coding of the diagnosis and treatment are more fitting for a burn, this claim should be flagged for further review.

Fortunately, robust, data-driven business rules can augment the STP claims environment, by analyzing thousands of claim-handling-related transactions and plucking out claims that don’t fit the pattern.

Additionally, rapid advancements in predictive analytic technologies can enable more and better claims pattern recognition, further aiding the insurer in determining which claims belong in and might benefit from STP- enabled processes. These advancements can also help design STP processes, as well as identify claims that belong in the hands of their experienced claims professionals. Over time, this enables maximum value of both STP and adjuster-handled claims: each is handling claims appropriate to their maximum areas of strength and effectiveness. And, of course, STP-supported cl
aims workflows should be routinely audited for consistency and accuracy and modified as needed.

Conclusion

Marvelous opportunities exist for insurers’ claims organizations to deliver real and sustainable benefit to their enterprise and their policyholders via STP-enabled claims handling workflows. Due diligence, out-of-the-box thinking, modern standards and modern tools are all required to make the journey successful.