At this point, the cycle begins again with the design phase. It continues iteratively, delivering incremental process improvements until either the business targets are achieved or cost or time constraints are encountered.

The Benefit to Claims

A carrier's claim department is especially suited for a BPM implementation for a multitude of reasons. First and foremost, the claim function is human-centric and labor intensive, with many manual processes that can benefit from BPM modeling and automation.

Second, claim processing represents the largest operational cost of a carrier. Thus, gaining operational efficiencies via process improvement can significantly impact the bottom line. There is also potential for controlling claim leakage by reducing the claim cycle time through BPM initiatives.

Additionally, claim handling has many internal and external touch points with so many people, systems, and work flows involved in the process that it requires the intricate coordination of activities and flow of information across various departments, vendors, business partners, and customers.

BPM can effectively handle these complex processes that span departmental and organizational boundaries. BPM and claim processing is also a good match because it can enable transformation of a carrier's claim work flows — from a document-centric environment where documents are routed to end-users for review and follow-up to an adjuster-centric environment where the focus is on quickly and accurately assessing a claim.

Finally, it is often wise to introduce BPM at a departmental level before adopting it as a platform to be used throughout the organization. The nature of the claim process enables it to be broken up into smaller chunks that do not require the existing supporting systems to be replaced in one fell swoop.

Companies should carefully evaluate any claim management software packages that supposedly enable BPM to ensure that the software meets certain minimum qualifications. Software should have an integrated BPM/workflow engine, as well as a SOA-enabled, web services architecture. A system should contain pre-built process templates that are highly configurable and quickly modifiable by a business analyst. Also necessary is support for business rules that enable advanced workflow automation, adherence to carrier-specific policies, and exception handling. One last word of advice is to look for reporting or analytics that enable the carrier to monitor the performance of its BPM process models.

Modeling the Claim Lifecycle

Figure 1 illustrates how the claim lifecycle can be modeled using BPM concepts. For ease of understanding, this example doesn't incorporate formal diagramming techniques or standard notations.

1. A business analyst would first define the valid states in which a claim can exist. The end-user would be able to view such states through a data field labeled “claim status,” which is typically displayed on claim-management system screens.
2. Next, the analyst identifies the transitions that are allowable between claim states. In this example, a claim in the “new” state can only transition to an “open,” “closed,” or “voided” state, as depicted by arrows protruding from the “new” oval.
3. The analyst then defines the events that trigger the transitions from one state to another. For example, the “open financials” event triggers the transition from “new” to “open.” This can even be the creation of any financial transaction, including setting a reserve or making a payment.
4. Finally, the analyst identifies any business rules that should be invoked either before, during, or after a state transition has occurred. In our illustration, the business rules “claimants, insured units and coverages identified,” “user financial authority limits not exceeded,” and “policy limits not exceeded” are evaluated after the “open financials” event has occurred. Moreover, if all three rules have successfully passed validation, then the claim is automatically transitioned to the “open” state.

Admittedly, this is a simplified example of a highly complex process. Once a claim is in the “open” state, a multitude of additional processes require modeling. This includes those processes that center around the following business objects: reserves, payments, recoveries, financial adjustments, checks, claim notes, diaries, notifications or alerts, inbound documents, outbound forms or correspondence, and claim contacts.

The advantages of modeling business processes in this manner are multifold. First, it yields process visibility throughout the organization for possible reuse and integration opportunities. It also equips companies with the capability to perform “what if” analyses on the process models in order to identify potential bottlenecks or problem areas. Another positive is that it allows for prototyping of business processes to determine feasibility prior to a full-scale implementation in a live production environment. Companies can quickly modify process models to respond to changing business drivers or market conditions, as well.

The Big Payoff

By successfully implementing BPM, carriers can improve various aspects of their business. They can experience increased visibility of business processes and continuous process improvement and optimization. Additionally, a company can become more flexible in responding to emerging business trends and changing market conditions. Business and IT costs are reduced on the development and maintenance of business processes and systems. Companies may also notice that speed-to-market for new products, coverage, and services accelerates. Other improvements relate to operational efficiencies, the enhancement of which can lead to a more solid foundation for process automation and establishing straight-through processing. Customer service and satisfaction levels rise through the integration of disparate and disconnected work flows into a holistic service delivery model. All of this can lead to improvements across an organization: Consistency in processing is enforced; company policies; and industry “best” practices are institutionalized; and human errors are minimized.

One should keep in mind that BPM is not a panacea. It requires a major commitment from carriers in terms of time and resources — both human and financial — in order to be successful. Carriers should fully expect to face a multi-year timeline and investment to successfully introduce BPM in their organizations. However, by selecting the claim function to introduce BPM at an insurance company, measurable benefits can be achieved well before the discipline is adopted enterprise-wide. Additionally, carriers can expect to reap ongoing rewards as continuous process improvement takes hold throughout the organization.