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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurance: Improving claims management

Underwriting and claims settlement are the two most important aspects in the functioning of an insurance company. In the present highly competitive and economically challenging environment, claims settlement can serve as a market differentiator that puts insurance companies at the forefront of industry leadership and innovation.

To be successful, insurers need to improve the operational efficiency of their claim organisations and build an operating model that can minimise claim costs as well as eliminate the unnecessary expenses associated with claims handling.

Many insurers have distinct claim operations, personnel and units that focus on the products (non-life and life) they offer to individuals or on different business sectors. This model often results in massive and siloed claim organisations with unique unit configurations, systems infrastructures and processes for each market segment or line of business. Moreover, in high-volume or highly complex operations, inefficient or sub-optimal process steps can be replicated, often with costly implications to insurers. Consequently, insurers struggle to maintain control over these organisations and implement consistent models for managing claim operations.

So, what options should be considered to best drive claim transformation?

Implementing effective supporting technology to improve claims management across the organisation is an important step in this direction. However, supporting technology is only one part of a total claim improvement initiative. Often overlooked are the people and process components of a more holistic improvement initiative, something that packaged solutions aren’t necessarily positioned to address.

Business process management (BPM) is an effective option for insurers looking to advance transformational or improvement initiatives. BPM technology goes deeper than a package solution by delivering improved claim-processing technology that automatically aligns adjusters and resources under an optimised end-to-end claim process. It also provides a strategic platform that enables more efficient claim operations and an enhanced claimant service experience.

Focus on best practices
There is a common misconception that all claim processes are unique. While final execution of the process may be highly customised, most process elements - first notice of loss (FNOL), segmentation and assignment, adjudication, investigation, subrogation and so on - are actually very similar when you break them down to their core processes.

With a BPM platform, insurers can reuse this commonality to quickly transform claim operations for competitive advantage.

BPM technology provides insurers with the ability to leverage a core best practice claim process by storing those elements in a common repository of policy and procedures, which can be applied across products and/ or lines of business. Applying the best core business practices across the organisation ensures the optimal claim process is available and can be invoked by any adjuster within any area of an organisation. This model can be readily specialised and extended based on which markets or segments insurers serve.

Moreover, insurers can use BPM to add ’specialised’ layers of instruction to baseline processes and rules by specifying just what will be different in specific situations.

Rather than having to build the process from scratch every time, insurers can focus on those specialised layers alone, thereby reducing expenses and dramatically improving time to market. This approach greatly enhances agility.

By focusing on opportunities to optimise and reuse best practice business processes, insurers can break the manual or exception claim processing that they have grown accustomed to supporting. Insurers that do this successfully create competitive advantages. They benefit from increased customer satisfaction and higher market share by enforcing best practice processes that help insurers reduce loss adjustment expense and claim leakage.

Automated case management
Claim best practices look fantastic when they’re mapped on whiteboards, but often fall short when insurers don’t have the ability to execute them. Moreover, each claim settlement process requires a customised approach that takes into consideration the specific characteristics of the claim.

A strong case management platform helps insurers integrate legacy improvement assets into claim improvement strategies. Insurers can use BPM technology to unlock these static tools and achieve functionality that previously was not possible.

In addition, an efficient case management platform allows insurers to begin automating subsets or entire portions of end-to-end claim processes. To contain costs insurers need to automate work that is of little value to the organisation, and let an intelligent system manage the claim process steps that require little or no human intervention. Insurers can realise efficiency, expense and productivity gains by using work automation to manage simple claims.

To do that, insurers should eliminate paper-intensive, inefficient and error-prone file processes. Adjusters need intuitive business tools that can automatically take action based on claim information. A BPM-enabled case management approach supports an optimised claim process by providing a work engine that can organise and manage complex pieces of work across operational silos. It also provides end-to-end visibility into a claim event or a claim operation - something all claim managers love, but are often forced to do without.

The right case management solution can break down claim processes into an infinite number of sub-claim units, each of which is able to be routed, managed and monitored individually, while still providing insight and control. Adjusters and managers can leverage real-time analytics to get comprehensive views of claim operations any time. They have the ability to view and re-route work as needed, enabling a dynamic response to complex claims or shifts in work volume. Insurers can use this insight to drill down into specific tasks to understand which processes are working well, and which are not.

Insurers can apply these concepts to track, measure, and report on an infinite number of sub-units under the primary claim event. This further drives best practice processes and can be extended to other lines of business; it also gives insurers the flexibility to systematically integrate claim processes that are historically segregated or require manual intervention - a must for insurers trying to contain overall claim costs or bundle new product offerings.

Grow through the customer experience
General insurers rely heavily on claim organisations to maintain high customer satisfaction, minimise risk and loss exposure, as well as delivering strong operating results. These are no small tasks, especially when one considers the unique challenge that a claim organisation faces: when customers need its services the organisation has only one chance to deliver. One negative experience reaches well beyond a complaint to a neighbour nowadays.

An insurer can now face scrutiny from an entire social network. Increasingly, insurers are striving to achieve better operational efficiencies while simultaneously maintaining or improving claimants’ experience. While this tenet holds true for most insurers, back-office claim units are not necessarily equipped with systems they need to ensure satisfaction. Claim management functions have a direct impact on an insurer’s expense and combined ratio; they must balance costs against service carefully and still deliver every time. More and more, the strategy to attract and retain customers includes tactical plans for tailoring the claimant’s experience.

An effective BPM platform allows claim operations to control and manage customer interactions and better align customer service with business objectives. This is where the application of the best practices transitions from theory to a catalyst that insurers can use to differentiate themselves from the competition.

Insurers can eliminate misinterpretation and manual workarounds by using intent-driven service experience that dynamically applies best practices at each interaction. This approach can be leveraged to anticipate a policyholder’s needs, while addressing concerns raised via web, phone or email. Imagine the power of being able to anticipate and respond to a claimant’s needs before they ask the question (or to dynamically assign work to a glazier when the customer provides notice of loss).

By automating low-value work activities, adjusters can focus on claim activities that they know will help deliver a better service experience. Insurers are then able to take a more holistic approach and focus on high-touch items to differentiate themselves.

By combining best practices and efficient case management, insurers will be able to minimise claims costs, improve efficiency and enhance customer satisfaction. Adopting a BPM-led approach to claim management will provide insurers with the flexibility to offer tailored solutions to their customers and better align customer needs with business objectives. These improvements will ultimately boost key performance indicators, which will undoubtedly impact operating results in a positive way.

Bart Patrick is a director of European Insurance at Pegasystems