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The Ups and Downs of Claims Processing
March 1, 2008Carriers are taking steps to modernize their claims processing systems and better integrate technologies with existing systems.
Claims processing systems come in many different flavors, each catering to a different segment of the insurance industry. But they all have one thing in common: they represent huge opportunities for cost savings, customer satisfaction and business process efficiency. The challenge is that many of these systems still reside on legacy systems, and still rely on paper-based processes requiring human intervention—a source of often-costly errors and inefficiencies in day-to-day processing.
Celent LLC, Boston, estimates that legacy systems—defined as computers or software more than five to 10 years old—are still being used to process claims at about half of property/casualty insurers. In healthcare, Celent estimates that approximately 65% of the 1.1 billion remittances made in 2006 were still paper-based, a proportion that will gradually decline over the next five years.
Carriers have begun to take a harder look at their claims processing systems, and are taking steps not only to modernize these systems, but also better integrate these technologies with other systems within their organizations, says Donald Light, senior analyst with Celent. “We see claims as one of the more active areas in terms of software acquisition or replacement,” he says. Celent studies in recent years confirm that comprehensive claims solutions and focused claims solutions rank as the second and third leading type of software purchase made by carriers. Up to 43% CIOs at large P&C companies cited claims as one of their key initiatives for 2007.
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Donald Light |
However, industry observers caution that the transition from legacy-based claims processing systems to more open, interactive systems may take some time. “Despite the realization that their claims processing needs to be improved, insurers are having a hard time letting go of their legacy systems, multiple stovepipe applications and outdated technology that serve the process today,” says John Burke, VP insurance for SAP America, Newtown Square, Pa. That’s because “companies postpone strategic technology projects and opt instead for tactical quick fixes and extensions of the existing systems,” he says. “Unfortunately, quick fixes can’t address the underlying problems of poor data integrity, lack of integration, no support for new technologies, and the limited flexibility and scalability inherent in many legacy systems.”
The savings from implementing newer claims processing systems can be significant. Jim Kinzie, senior consulting manager for New York-based Deloitte & Touche USA LLP, estimates that “proper implementation and organizational enablement can lead to significant reductions in claims cycle time of 15% to 20%, and a corresponding loss adjusting cost reduction.” He adds that best-in-class tools for imaging, document management, evaluation and settlement solutions, and other critical capabilities can ultimately reduce the administrative burden on claim handlers by as much as 40%.”
DRIVING THE BUSINESS
While insurers can increase the efficiency of their claims processing systems via automated imaging and archiving, the business process challenge needs to be addressed as well. Claims systems need to integrate with all points within the business. SAP’s Burke says that insurers need to view their claims operations “as a strategic differentiator that can help drive corporate objectives, by not only being more efficient, but by integrally supporting key growth and competitive initiatives.”
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