It is not only the vendor community that is focused on claims. A recent Novarica study found that improvements in claim handling was the second-most frequently cited initiative amongst P&C carriers looking to create competitive advantage.

Discussing Legacy Replacement

As recently as two or three years ago, the big technology conversation in the claim world was whether to take the plunge and replace the core legacy claim administration system. In just a few short years, the legacy replacement discussion has expanded and migrated from the thought leaders and early adopters to include an overwhelming majority of carrier companies.

The reasons for this rapid movement include the well-publicized and now well-proven advantages of new administration systems, which are based on configurable technologies. The benefits include integrated workflows, work management, business rules, and ease of use. Also, many carriers have successful implementations behind them. It is now apparent that these new systems offer an attractive alternative to replace complex and brittle legacy systems.

As the perceived risks inherent in such a move are measured against the obvious advantages, the adoption of new claim administration systems have now gone mainstream, with the more pragmatic and conservative insurers hopping aboard. This trend will only continue and grow through 2010 and into the foreseeable future.

Those thought-leader carriers that have completed or nearly completed claim administration replacement are now looking at a broad spectrum of new technologies that show promise in various areas of the claim-handling process.

Prepaid Debit Cards

When you get to the front of the supermarket checkout line, the bagger asks, “paper or plastic?” Insurance carriers may soon be asking their customers and claimants the same question.

In the age of credit cards, the Internet, and electronic commerce, insurers print and mail hundreds of millions of claim-settlement checks each year. In some instances — catastrophes, for example — those checks may be undeliverable. In other instances, such as the case with workers' compensation, the claimant may receive multiple checks over a period of years. Checks get lost, are subject to fraud, have to be cashed, take days to arrive, and according to various studies, cost about $10 each to issue and deliver.

In recent years, a few innovative insurance carriers have experimented with prepaid debit cards to replace paper checks. Prepaid cards offer obvious advantages in that the card is issued only once, and then subsequent “payments” are made electronically (which means immediately, date certain, and inexpensively). The claimant can then use the card to pay for services or to obtain cash without having to visit a bank or pay a check-cashing fee. The card can be issued before it is needed and only activated and loaded (again, electronically) when appropriate — following a catastrophe, for instance. As an added benefit, the carrier can even brand the card for marketing purposes.

It would seem that prepaid cards are a no-brainer, especially for catastrophe and workers' compensation payments. They save money — by some estimates as much as $8 to $9 per payment — while offering the insured more usage options. Prepaid debit card customer satisfaction studies are not yet widely available within the insurance industry, but other industries have found high degrees of acceptance and adoption, along with increased customer satisfaction.

Of course, the insurance industry had to wade through multiple jurisdictional and regulatory mazes in order to establish that card payments are an acceptable alternative to paper checks, but much of this ground clearing has been completed. The regulatory picture has become clearer, and more carriers have become aware of the obvious advantages of prepaid debit cards. Combined with the relatively modest implementation costs, this technology likely will become more widely adopted.

Automotive Black Boxes

One development that should be of great interest to all insurers of private passenger automobiles — the largest single line of business in the P&C market with annual net written premiums greater than $140 billion — is the deployment of event data recorders (EDRs). All new cars and light trucks being manufactured are now equipped with EDRs. Another just as important development is the establishment of a federal data standard for the storage and retrieval of information from these devices.

An EDR is an electronic chip that is housed in the airbag compartment of a vehicle. The EDR remains passive unless woken by a sudden and unusual change in the vehicle's movement, such as acceleration, hard braking, or swerving. These are actions, which often presage an automobile collision, cause the EDR to start gathering data, which can prove critical in reconstructing an accident. Amongst other things, the EDR can detect speed, direction, swerving, braking, seat-belt usage, and the time of collision.

This data can prove instrumental in establishing the true nature of an accident. In some instances, the data procured can indicate fraud, establish fault, and provide a strong indication as to the merits of soft-tissue claims. EDR data has been found admissible and reliable in courts. Thus, it offers the potential to radically change the nature of auto claim investigations and settlements.

Like all new innovations in insurance, the use of EDR data must run the regulatory gauntlet. It is strongly opposed by the plaintiff lawyer lobby, which sees a large part of its income under threat from such a development. There are still many issues to resolve, such as concerns related to ownership of data, data access, chain of custody, and the American public's sensitivity to privacy issues. In this case, the mistaken notion that “Big Brother is watching” persists, as well. Even taking the current obstacles into consideration, the potential benefits in terms of reduced fraud, lowered litigation, and questionable settlement costs are so massive that carriers will work to overcome the roadblocks to ensure broader use of this technology.

GIS and Mapping

In the age of Google Earth and other mapping applications, it is not surprising that these technologies continue to penetrate the claim arena. Geographic information system (GIS) technology has been around for years and has been used to map coverage concentrations for underwriting and catastrophe modeling.

More recently, the use of these same technologies have been extended specifically to claims for such mundane, yet critical, tasks as locating insured properties. Hurricanes frequently destroy road signs and other markers that would normally allow adjusters to locate an insured residence. This was famously the case with Hurricane Andrew in Dade County, Fla. Road signs, roads, and entire homes disappeared in the Category 4 storm, in some cases leaving only a concrete slab to mark the location of an insured residence.

Some carriers are even experimenting with GIS and mapping technologies to track wildfires and hurricanes in order to make proactive calls to insureds. GIS data is also now being harnessed by artificial intelligence software to optimize routings for mobile claim appraisers.

Additionally, some of the largest U.S. auto insurers have deployed routing software to increase appraisal efficiency, reduce expense costs, and to quickly deliver service to the insured.

The primary resistance to these technologies comes from insurance professionals who have traditionally organized their own routes and schedules. They are also concerned (and perhaps rightly so) that not only is Big Brother watching them, but that he is also telling them precisely where to go, when to go, and how to get there.

Beyond auto appraisals, these technologies also offer application in the engagement and coordination of replacement and cleaning services. With no regulatory or consumer barriers to overcome, GIS and mapping technologies should continue to penetrate the claim market as they prove cost beneficial.

Other Technologies

While the P&C claim market represents a huge opportunity for vendors to build and sell new technologies to increase service and reduce claim expenses and leakage, we have not yet talked about the elephant in the room: fraud. Responsible for an estimated $30 billion annual drain on the industry, fraud is a huge issue. Fraud-fighting initiatives' costs now exceed more than $1 billion per year.

Data analytics, which is growing rapidly in both the claim and underwriting areas, is increasingly used to provide recognition of fraud patterns, such as multiple checks paid to the same claimant at different addresses, or multiple individuals receiving checks at the same address. Content and keyword search capabilities are employed to identify fraud patterns in huge amounts of unfielded data, such as statement transcripts and fraud checks at the point of first notice of loss. The goal is to detect fraud as early in the claim process as possible to stop issuance of fraudulent initial medical and loss of income payments, and to capture leading indicators from third-party claim data to enable more proactive fraud handling.

Claim technology remains an interesting and vibrant area of development, driven by the huge potential cost savings and the insurance carriers' never ending goals of improving the fulfillment of “the promise” that insureds paid for and expect at their times of need. The development and adoption of claim technologies have gained speed in recent years. All indications are that they will continue to do so in 2010.