The report–”Claims Automation in U.S. P&C Insurance”–noted that with the hard market in U.S. p-c insurance rapidly “waning,” insurers will look at ways to control costs and increase efficiency in core systems processes while developing “a strong customer service culture.”

“Claims processing and management–which accounts for an estimated 80 percent of operational costs for a p-c carrier and represents the only direct interaction with customers after point of sale–represents a key area where carriers will seek to achieve these objectives,” the report continued.

By automating parts of the claims process, the report noted, “insurers can capture substantial cost savings and efficiency gains while providing a faster, more transparent and claimant-friendly experience.”

In a 2004 Datamonitor study involving end users at 70 insurance companies, “insurers indicated that they were most likely to reengineer existing processes rather than engage in end-to-end replacement,” the report noted. Areas most likely to be reengineered include:

o Legacy claims systems.

o Customer “touch points,” such as first notification of loss.

o Business processes and workflow.

o Integration with fulfillment partners.

Reengineering claims systems, however, doesn't necessarily mean that carriers will abandon their traditional mainframe platforms, according to Ed Blomquist, financial services technology analyst at Datamonitor and author of the report.

“Increasingly, carriers realize that legacy replacement can be avoided as standards improve and middleware allows functionality of legacy [systems] to be pulled out and connected across front-end claims systems, or used by third parties,” he said.

Mr. Blomquist conceded that “reengineering legacy claims systems would involve a high upfront cost for carriers–in some cases more than a replacement.” He pointed out, however, that replacement of systems involves increased risk, implementation time and disruption of a company's business cycle.

“Reengineering can be costly but can be done with less risk, as whole systems are not typically overhauled,” he explained. “Also it is often difficult to fit, let's say, a replacement of a large claims system, which can take years, into a business plan. Reengineering can allow the system to be used as it is being upgraded.”

The report also projects that internal development of IT systems among carriers will gradually give way to packaged software applications.

Larger (Tier 1) carriers will continue to develop IT functionality in-house using customizable toolkits, the report said. “At this point, we expect smaller insurers (Tier 2 and 3) will move to packaged solutions because they are less likely to develop applications in-house and may not have the customization needs of a large carrier,” added Mr. Blomquist.

How will more efficiency affect the need for human workers in the claims process?

“Efficiency in this context would generally refer to improved processes–fewer manual/paper processes, easier customization, more automation, and improved functionality/usability of data,” said Mr. Blomquist. “Automation of first notification of loss could theoretically result in loss of claims handlers, or at least their movement to the handling/settlement of more complex claims. Savings will be due to both improved processes and reduction of labor costs.”