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"the cost of claims processing is a major challenge for insurance organisations. Online claims processing provides an obvious method of reducing these costs"

e-Enabling the Claims process

With the cost of the claims process now accounting for up to 80-85% of the total operational costs of European P&C insurers, re-engineering the claims function from end to end has become the number one strategic project for the industry. The insurance industry, and particularly the Lloyd’s market, continues to rely on paper-based documents - letters, faxes, slips, claims advices, etc. – that are generated when two or more parties in the insurance supply chain communicate. A radical change to the way that claims are treated by the industry is needed if these ingrained costs are to be reduced.

The cost of claims processing is a major challenge for insurance organisations. Online claims processing provides an obvious method of reducing these costs. Despite a host of industry bodies, technology suppliers and leading lights in the industry urging insurers to invest in their claims processing, the reaction among insurers has been mixed at best. As such, the need to improve the efficiency of this aspect of the insurance business process remains a priority. Will 2005 be the year in which claims is taken seriously as a suitable candidate for e-enabling?

The insurance sector – and particularly Lloyd’s - remains entrenched in traditional business behaviour, preferring to deal with customers via post rather than email, over lunch rather than over coffee. In many ways this serves as a strength for the sector, and provides the insurance market with much of its uniqueness, yet technology developments of the past few years have highlighted some obvious areas where insurers can increase efficiency and give customers what they want without losing service quality. Online claims processing is an obvious candidate, enabling insurers to move away from the traditional, costly and slow call-centre approach. Some insurers, who have invested heavily in call-centres either at home or offshore, continue to display a preference for claims to be handled by phone and, in the case of a complex claims, in person. In short, both insurance market traditions and complexity of claims are barriers to e-enabling the claims process.

Buyers of insurance products are entitled to demand real-time claims settlement. They are likely to use online banking to manage their personal finances, and may well expect to view the performance of their ISAs and other investments online. As such, they are likely to expect the internet to create similar solutions for the insurance market.

Cost of change

Current in-house technology and legacy systems are typically inadequate to handle complete straight through processing of an insurance claims. Conversely, handling a fully e-enabled claim costs a fraction of a claim handled through a call centre. However, updating the claims process via technology has been hindered by concerns over the amount of cap ex required. Some corners of the insurance community are still reeling from the impact of electronic data interchange (EDI). Small brokers felt compelled to invest comparatively large amounts of money to maintain continuity of business and their relationships with larger underwriting operations.

However, the cost of claims administration can represent over 60% of an insurers’ claims process and as such even small improvements in efficiency can amount to a major saving. If the cost of administering claims can be reduced the savings can immediately have a positive effect on premium levels and therefore customer satisfaction. In effect, this means that the claims process is one area of the insurance business process that typically shows a very strong ROI when the technology case is considered.

The primary benefits of e-enabling claims processing can be split into two areas. Policyholders are able to notify insurers of their claim, providing all the required information pertaining to the claim online and can subsequently monitor the progress of the claim. Secondly, back-office processes which were previously conducted manually are eradicated and so the claims process operates much more quickly. E-claims processing simplifies information flow and, done right, enables seamless communication between parties. This reduces processing time and the amount of resources required to complete the claim, which should reduce the associated costs.

Making the shift

So how much progress has really been made? The first point to make is that insurance companies can obviously only move at the same pace as their partners and, indeed, clients. Given the disparate nature of the insurance business, with a range of different parties handling different aspects of any given aspect of the business, perhaps it is not surprising that the insurance industry is only now beginning to fully integrate the claims process and use technology to bring together all parties involved - insurers, brokers and loss adjusters. Many insurance companies now allow for the registration of claims on their websites but in some cases, claims are an emotive issue and policyholders still prefer to speak to someone in the event of a loss. This is particularly true for complex commercial lines where the intermediary plays a vital role in the timely resolution of a claim. However, for personal lines and the more simple aspects of the claims process, there should be no excuse for failing to apply the appropriate technology to realise cost-savings and efficiencies and to make life easier for internet-savvy customers.

So, are the current examples of organisations which have fully e-enabled their claims process purely a stand-alone claims initiative or are they leading the way in the bigger push towards complete end-to-end e business processing solutions? NFU Mutual, the UK’s leading rural insurer, are working to replace their legacy insurance systems with an InsuranceFaces solution, which supports end-to-end business processing throughout the lifecycle of an insurance policy – from quotation to claim. As such, the NFU Mutual will be examining the e-commerce facilities it will make available to customers and business partners, with regard to claims.

Access to browser-based claims systems can be extended beyond the company to reach any third party involved in the claims process. Brokers, loss adjusters, reinsurers and law firms, to name but a few, can all be granted tailored access to the system or relevant parts of the system without any additional investment in hardware or software - all that is required is a web browser. The third party is allocated a password and the system security and integrity is ensured with the use of sophisticated encryption techniques, without affecting ease of use. An added benefit is that third parties such as loss adjusters could enter the details of a claim on location and employees could work from remote locations.

The future of claims

What this means is that the future of successful e-claims handling will involve more than just setting up e-mail claims tracking, it will involve the complete integration of back-office processes, information systems, and involve seamless communication between third parties.

Irrespective of where the industry is in the underwriting cycle, margins in the insurance business are constantly under pressure. As claim values increase and as regulation adds cost pressures to insurance industry, processing and settling claims seems unlikely to lose its position as insurer’s biggest cash outflow (sometimes representing up to 50% of Gross Written Premiums).

Successful claims handling is about the overall integration of back-office processes, information systems, and seamless interaction between parties. Increasing focus must be paid to the "technical" aspects of claims, especially levels of leakage, which typically runs at about 5 per cent of UK insurance industry claims annually. Mitigating the risk of leakage clearly depends on immediate access to accurate, up-to-date and complete information relating to the claim. It is here that technology can play its part – enhancing the business process to ensure that the right information is delivered to the right people within the claims department at the proper time.

Author: Martin Earley, Commercial Director, Harlosh

For more information on Insurance Faces click here

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