Anyone with an ounce of sales resistance will recoil from promises of a product that is “new and improved” because experience teaches that even if the former is true, the latter may not be. Historical experience with claim technology by some insurance companies only confirms the skeptic's prejudice. Some technology initiatives promise far more than they can deliver, and even those that worked added cost and complexity.

Despite the industry's somewhat troubled adoption record, the upside potential of current claim technology is, in fact, demonstrable. An analysis of more than 10,000 claims and interviews with more than 3,000 claim personnel revealed that up to 45 percent of claim handlers' time is spent on activities that do not affect the outcome of a claim.

Mutually Assured Mediocrity

Of course, simply being aware of such possibilities may not be enough for a particular company to commit to renovating a claim system through new technology investments. Some insurers are distracted by concerns beyond buyer's remorse, such as coping with competing technology standards, adjusting to the hardening and softening of the market, and coping with increasing global financial uncertainty. Their complacency also has been fostered by a kind of mutually assured mediocrity, whereby everybody counts on the limits of each other's capabilities.

The greatest drag on progress is caused by the recalcitrance of the legacy systems and processes themselves. Claim systems bear the mark of their origin as financial systems designed to support reserves, payment processing, and statistical coding. This core functionality remains detached from the claim-handling process because most claim handlers still perform the lion's share of their work manually, only entering data into their claim applications as required. Critical data is isolated in physical files or databases with limited access, and the battery of related claim tasks — including retrieval of information, exchange of expertise within the claim area, and management of vendors — is performed with limited process discipline in a time-intensive, repetitive, and error-prone fashion.

Insurers have enjoyed some efficiency gains and services by applying package technology solutions to different segments of the claim process. But that is unlikely to be a viable strategy for the long haul. Each separate set of capabilities increases the overall burden on the claim professional, not to mention the complexity of the systems, increasing maintenance challenges, and driving up the total cost of ownership. Because of integration challenges, up to 50 percent in any given claim-technology investment can be consumed by what are, in effect, non-discretionary costs.

Both a Business and IT Issue

The answer is not to bolt on more and more blocks of isolated functionality, but to build a new foundation of process and technology. The new systems and the new technology organizations under construction today begin with reusable, net-centric, component-based applications built on services-oriented architecture. This architectural approach embodies the realization that claim transformation is both a business and IT issue. It abandons the simple view of technology-as-utility, and instead espouses the simultaneous deconstruction and re-engineering of business processes and the technologies that support them.

Services-oriented architecture makes it possible to rebuild core claim functionality piece-by-piece, then add new capabilities where none existed before. It provides a flexible framework that can be applied to ease the work of claim handlers, automating some tasks and creating electronic linkages between all parties to a claim, where manual, paper-driven hand-offs once prevailed. It also facilitates automation and coordination across the enterprise, enabling claim leadership to fulfill the expectations of other business areas, such as underwriting and product development. The blueprint for claim technology requires automated support for almost every activity in the claim-handling process while allowing for an open architecture that make its possible to integrate and reuse functional components.

The companies that recognize the power of this approach to claim transformation know that it takes them far beyond wringing a few pennies out of the process. For them, the end game is to better manage their financial and service results — and to not merely nose-out their competitors, but to leave them in the dust.

Their ambition is rooted in the proven capabilities of the technology, which allows insurers to capture more detailed, accurate information in a timelier manner. In turn, they can segment claims more precisely and re-evaluate them as conditions on the loss change. Resources can be assigned automatically, down to the level of individual claim activity, distinguishing between various levels of risk, and ensuring that low-risk claims are handled quickly and with maximum automation, while high-risk claims are given the necessary attention.

Services-oriented architecture also provides electronic linkages to bridge gaps formerly spanned by manual steps between disjointed application functionality. By automating the routine, technology expedites virtually every transaction — every letter, every file document, every phone call and inquiry, each work step, and all payments.

A centralized, holistic approach to capturing and gaining access to data can deliver huge dividends. It can offer claim handlers information at just the moment when it is needed in areas like fraud detection, recovery opportunity identification, and proactive injury, treatment, and return-to-work management.

The component-based development approach of services-oriented architecture also helps claim departments take advantage of subsequent technological innovations. With the ability to collect or discard functional components, insurers can take full advantage of new advances without massive investments of time and money. But perhaps more importantly, its piece-by-piece approach allows a company's transformation to occur gradually, reducing the typical risks of many large-scale automation projects.

Reusable components within a service architecture offer a kind of “jump start” that greatly accelerates delivery and the achievement of business benefits. One insurer was able to reuse more than 90 percent of pre-existing components and eliminate years from its projected implementation time. With this level of reusability, several insurers have gone from project start to full-scale implementation at a model office in less than a year. The applications they implemented were sizable, supported all lines of business and all jurisdictions, and were successfully integrated with a variety of legacy policy and financial applications.

Of course getting to the point where such benefits can be realized requires a significant initial investment in people, focus, dollars, and commitment — claim transformation is nothing less than strategic and must be on the CEO's agenda. It will involve a multi-year investment where the duration and terms are solemnly agreed to by IT and the business sponsors.

Tomorrow's Winners

The companies willing to make that investment ahead of their competitors will enjoy a window of opportunity that could last from two-to-five years or more. Carriers that take a wait-and-see attitude before implementing their own component-based solution will be two-to-three years behind the leaders. Others that choose to work on their own to rebuild their systems from the ground up may lag five or more years behind — perhaps longer if the project falters or they exhaust their corporate stamina along the way. Each of these insurers will face a long struggle to survive when competitors begin to offer customers lower premiums and a better claim experience. They also may face the possibility of acquisition by an aggressive competitor armed with a more effective operating capability.

Every insurer's leadership sets itself growth objectives, but the reality is that there are only so many customers to go around. Those who lose customers will find the reacquisition of them to be much more costly than retention — and much more difficult as competitors' reputations for superior claim resolution spreads. Insurers who recognize today that the total solution includes new technology with new business processes, and claim handlers trained in both, will be tomorrow's winners.

Michael Lucarini is senior executive in charge of global claim solutions in Accenture's Insurance practice. Nicole Michaels is a senior executive in charge of Accenture's claim technology initiatives for North America.