To download the Power Point presentation for this article please click here (2.45MB)UK claims are big business because:Motor claims cost £7.7bn in 2002The total cost of property claims incurred was £4.5bn Total cost of liability claims incurred was £2.1bn UK insurance is paying out around £15bn a year in claimsThe total underwriting loss was around £700m.
Across all three classes, the overall results have been negative for most of the last ten years. We know that investment income can offset these losses to a large extent, but stock market conditions, low interest rates and low bond yields have made this more difficult in the last three years. So the focus is, more than ever, on controlling claims costs, and the expense of handling claims, without compromising customer service, or the principles of good corporate governance. Based on a Datamonitor survey of UK general insurance claims in 2003, the top factors boosting claims include: rising settlements, subsidence, increasing life expectancy, stress and asbestos. Factors pushing the other way include: better fraud control, reducing numbers of thefts, better risk management and better control of the supply chain.While the range of factors is very diverse, there is increasing evidence that technology and processes are having a significant impact, especially on the downward factors. These include: Fraud control in motor through the use of vehicle databases and voice stress analysisReduced third party claims services involvement through earlier identification of likely claims, and quicker settlementsRepair and replacement networks offering lower costs and less claims leakageFlooding perils monitored more closely through digital mappingRisk management process improvements through training, knowledge bases and access to experts.
While we can't expect technology to solve every problem, it can make a substantial difference by improving the initial assessment of risk, and by addressing all aspects of the claims process, leading to sustainable savings of up to 15% in total claims costs. Microsoft sees the claims process as an end-to-end activity starting and ending with the claimant, and requiring the capture and sharing of a rich mix of information among several parties, who have rights to the claim information based on their roles in delivering the claims service. We describe this as the insurance claims value chain, and our strategy is to make collaboration between all of the parties as easy as possible, in accordance with our 'any platform, any time, any place' vision. To do this requires more than just smart technology, it requires a change in organisational thinking, from hierarchical, span-of-control-based, to enterprise process management. Microsoft works in partnership with Accenture to deliver large scale solutions for the claims process that can deliver the benefits described above. Accenture has surveyed 7,000 claim files in Europe and the US, and identified sustainable improvements of around 15%, which are obtainable through process automation and improvement. In addition, the study found:Claims payments and loss adjustment expenses typically consume around 80% of an insurer's incomeThere is a direct linkage between claims performance and shareholder valueClaims payments can be reliably reduced by 15% and still comply with good market and customer practiceMore than 40% of the time spent in claims departments is on tasks that have no influence on the final payoutTechnology is the only way of delivering reliable, sustainable claims payout reductions – other approaches fail in the long term because of staffing, information and process weaknessesMicrosoft technologies address all of the information needs of the claims process and its participants.
The study uses the concept of lost economic opportunity (LEO), which is the percentage value to be gained by moving from average to optimal performance in any step of the claims process.The steps with the greatest LEO are investigation, evaluation, negotiation and recovery. Reasons for the LEO being greater in these four stages are:Failure to collect all relevant informationDamage/injuries not inspected/re-inspectedThird parties not contactedAlternative diagnoses/remedies/estimates not collectedPoor, or no negotiation planMissed recovery opportunities.Smaller claims (less than £1,500) have a larger LEO than large claims – this is a strong indicator of a resource-constrained activity.
There are four main ways in which technology can be used to extract the value locked up in the LEO analysis:Segmenting means dynamically re-evaluating and assigning resources appropriate to the complexity of the claim as it proceedsConsistency – making certain there is no deviation from best practices once establishedImproved information and training – the latest information whenever, wherever needed, including mobile accessFilling the technology gaps – the gaps between core systems, and between partner's systems, are what holds back the claims process.
Technology can make the links in the claims value chain simple, robust, and secure. These links can be in three areas:Customer links for claims notifications, inquiries, and status updatesInternal links for enterprise integration (claim folders, utilities, co-ordination, team management), and knowledge management (policies, fraud, legal, medical) Partner links such as direct supplier links with discounts, service level agreements, and competing supplier bids for services.
Integration is where technologies such as electronic document management, XML-based forms, and enterprise application integration, or 'middleware', are applied to the insurance claims value chain. At Microsoft we're delivering that integration by building all of our software to a common model called .NET, which allows any one of our products to collaborate with any other using XML-based web services.Internal connections, customer connections and supplier connections mean that the same information is captured once only, in standards based formats. This information can then be shared and processed by whichever web services are needed to record, assess and settle claims.
A practical definition of web services has three parts:A web service exposes an application or data on one computer to requests from applications on another computer, using standard, platform-independent, transport protocols, and text-based messaging and data formats, such as XMLA web service can be either internal, for example over a TCP/IP network, or external via the internetA directory is provided so that users/ requesters can search for services, and locate and interact with
them dynamically, without either party having previously been aware of their location. However, many early implementations of web services have not used the directory element. Instead they have built a direct connection between requester and provider.What has been the impact of web services on claims?Already they are being used to simplify and automate the contracting of motor repairs. A McKinsey study in 2002 cited a 5% reduction in repair costs through better pricing and lower administration costs.Improved reinsurance has been cited as a benefit by AIG, which has bypassed the expense and rigid format restrictions of EDI, and is sending claims data to its reinsurers using web services.The Progressive Insurance claims process is probably the most startling example to date and merits a closer look. The benefits for Progressive and its customers have been exceptional:Better claims data leads to lower loss costsQuicker settlement means less litigation and improved customer satisfactionQuicker settlement also reduces costs, such as car hire and storageSimpler process has reduced staff numbers neededIn four years, revenues have tripled and profits gone up five fold.
So we can see that attention to the core claims process, doing the right things, doing them right all the time, can lead to step changes in the results for the customer and for the insurer.Some important lessons have been learnt by the early adopters of the collaborative approach to claims processing: The real value creation is in end-to-end processes that cross organisational boundaries Enterprise process management can be applied to the claims processCollaboration between the individuals needed to settle claims can now be entirely automatedStandards-based inter-operability is key to allow innovative solutions to add real value.
Using these lessons can ensure that you too can improve your claims results without compromising customer service.
How Progressive Insurance revolutionised its claimsThe Progressive Insurance claims process merits a closer look. Such is the impact of technology that adjusters aim to see all claims in nine hours and most are done in two hours. Indeed the technology has allowed some claims to be settled at the site of the crash within hours of the crash happening. The benefits for Progressive and its customers have been exceptional:Better claims data leads to lower loss costsQuicker settlement means less litigation and improved customer satisfactionQuicker settlement also reduces costs such as car hire and storageSimpler process has reduced staff numbers neededIn four years, revenues have tripled, and profits gone up five fold
So we can see that attention to the core claims process, doing the right things, doing them right all the time, can lead to step changes in the results for the customer and for the insurer.