In the second in a series of articles, Chris Brocklesby of Andersen Consulting explains that re-engineering business processes to make the most of the internet can lead to significant cost savings and efficiency gains. This is illustrated by looking particularly at opportunities in managing claims....
Most companies see the internet as a way of establishing a new sales channel, some as a way of setting up new 'virtual' businesses but, by focusing only on these impacts, insurers may miss opportunities to reduce costs and improve relationships in a number of existing business processes.
The internet represents the potential to link businesses with each other and with their customers more easily than before. It follows that the processes that can benefit most from this are those that require a large number of interactions and transfer of multiple types of information.
The benefits arise in several ways. The lead-time for interactions can be significantly reduced because internet communication of the total transaction is more rapid than alternatives such as post or fax, and there is less chance of mistakes as there will be a verifiable, electronic record of the transaction. Further, better decision-making is supported because the latest information can be quickly, consistently shared electronically across all interested parties. Finally, the net can provide the chance to extend the hours over which an existing service is provided to customers.
These are some of the more obvious benefits and none will be released without careful planning and investment, but in deciding whether to invest it should be recognised that the introduction of these new ways of working may also provide the opportunity to re-engineer the processes, perhaps by removing process steps or even intermediaries.
Most customer and business to business interactions take place within sales and service, reinsurance and claims. One of the most compelling arguments for refocusing a business around the Internet can be found in the claims process - a core business interaction which is typically responsible for over 80% of the costs of a general insurance company.
Three significant improvements could have a direct impact on bottom line performance.
Firstly, handling a claim requires a high degree of co-ordination between various parties inside and outside the claims organisations, including desk adjusters, supervisors, field adjusters, assessors, doctors and lawyers. Each one represents an 'interaction cost' for both the customer and the insurer. Claims files need to be copied, printed, mailed or faxed, and when received, information is re-keyed, or the paper file simply grows larger. Connecting the claims organisations through the internet makes access to a claim file immediate, improves data quality and makes additional information sources readily available. With access to better information and the ability to seamlessly involve multiple parties in the claims process, claims costs and customer service can be significantly improved.
Secondly, when a customer calls an insurance company about a claim, the two parties' objectives are often misaligned. The customer hopes to initiate the claim (and so settle the claim) as quickly as possible or wants to understand how long it will be before it is settled, while the insurer hopes to receive accurate and detailed information. By connecting the customer through the internet, he or she can submit their claim details or enquire on its status at their convenience. A well designed web site can help the insurer by providing guidance and completeness checks on the claim form as it is entered. Data can be made available to large account customers or groups using custom developed views. This approach offers the customer significant flexibility while effectively taking work and cost out of the insurer's claims process.
Lastly, replacement goods and services are either bought directly by the insurer or indirectly as a claim payment to the customer. Over a large general insurance book of business, similar goods and services – such as car parts and medical services – are 'bought' repeatedly. By using online catalogues from approved vendors at pre-negotiated prices, claims handlers and procurement professionals can improve the quality of purchasing decisions and provide better service by placing purchase requests directly with suppliers and offering replacement goods in place of claims payments. Such an approach has already realised a 5% to 25% reduction in procurement costs across many industries while also realising a wide range of processing efficiencies.
While challenges exist in implementing these approaches, of which the existing systems suite is probably the most significant, the business value is compelling. These opportunities can shorten the claims process and improve the quality of claims decisions. Improvements in the paid loss costs and loss expenses can have a significant impact on the combined ratio and hence bottom line performance. The internet is an essential weapon in the war on costs in which all insurers are now engaged.