Technology and Claims: Blessing or Curse?
August 2008
"Technology and claims"—these terms go together
much like beer and pretzels or death and taxes. I guess it depends on your perspective
… and experience.
by David Tweedy
Albert Risk Management
Consultants
The common thinking today is that technology is and has been a boon to the
insurance industry and to claims management in particular. Automation has virtually
remade the claims industry. I don't think many would disagree. And this technological
progress has mostly been for the better, too! But technology can be a double-edged
sword—both a blessing and a curse. Like fire, one of the original new technologies,
it must be used properly and safely or disaster can occur.
Let's look at some advantages and drawbacks from a 10,000 foot level.
Advantages of Technology
The advantages are many. Here are a few.
Greater Speed, Efficiency, and Power
This is a hands-down improvement from the days of football field sized rooms
filled with large, noisy mainframes chugging out data cards. Today, systems
can pore through terabytes of data to discern fraud potential in seemingly unrelated
files. Reserve updates, payments, medical bill repricing, and financial reconciliation
tasks can all be performed simultaneously with great speed and accuracy.
Improved Data Availability and Analysis
Again, this is a no-brainer, too. There is now far greater data availability
at one's fingertips both through well-designed databases and via the Internet.
In years past, obtaining the same information was tedious and time consuming.
Further, today's claim systems have greatly increased the ability of the claims
professional and risk manager to analyze vast amounts of claims, identify problem
areas, and take corrective action from both a pre- and a post-loss basis.
Fraud detection, early intervention of potentially disastrous workers compensation
claims, litigation management modules, and other specialty areas are examples
of greater analytical capability. Expert systems that can collectively estimate
ultimate aggregate reserves based on multiple factors help predict costs much
more accurately and help claim executives and risk managers alike to reduce
unwelcome surprises.
Greater Cost-Efficiency
Reduced manpower is an often-cited "benefit" of increased automation. This
is both true and false, but it is beside the point. Data entry people are being
replaced, in some cases, by Internet-based applications. But the real issue
is the intelligent use of new applications and innovations in systems design
such as is achieved through Straight Through Processing (STP), Service Oriented
Architecture (SOA), and other advances that have improved system-to-system communication
and interaction.
Take the interesting debate on whether to use strictly Internet-based First
Report of Injury software or Intelligent Call Centers (using nurse case managers).
Both methods are a decided improvement on a cumbersome problem: how to most
effectively and efficiently report the claim to the right parties and get immediate
action with the fewest amounts of errors possible. Because, in the claims business,
time is definitely money, both methods are decided improvements on the old method.
The bottom line, either way, is a better usage of claims personnel which may
or may not involve a lesser Full Time Equivalent (FTE) count.
These improved applications are brought to bear on an intelligently designed
business process. These include:
- Well-designed claims administration software
- Analytics algorithms
- Business process management software
- Specifically designed portals
- Other very carefully designed applications all aimed at improving the
core claims management process
Celent, an IT think tank, recently estimated that implementation of these
applications has the potential to improve the property/casualty industry's combined
ratio by up to 7 points. Now that is cost savings.
Disadvantages of Technology
Sounds great, doesn't it? Let's look at the drawbacks now.
Mismanagement
One doesn't have to go too long without hearing about some system project
going way over budget, not delivering expected promises, and being harder to
operate than the system it replaced. What is the root cause? No project management?
No planning? Failure to accurately gauge what the users really need?
Unfortunately, this happens all the time and the associated costs are staggering.
A project is estimated at $X, then the scope shifts (called "scope creep"),
timelines drag out, expectations rise and fall, and the project ultimately results
in a drastic overrun (sometimes 2 to 3 times) and goes months beyond its anticipated
signoff date.
This can be seen in a graphic: the so-called
Project
Management Triangle, where each side represents a constraint. One side of
the triangle cannot be changed without affecting the others. A further refinement
of the constraints separates product "quality" or "performance" from scope,
and turns quality into a fourth constraint.
Misapplication
Many times, technology is misapplied. For example, why build an involved
database management system with all of the "bells and whistles" when a combination
of Excel, Access, and some preliminary thought might suffice? Or try and build
an elaborate "artificial intelligence" reserving system to replace experienced
claims personnel? I personally have seen a system developed in the mid-1990s
intending just that outcome. When all of the variables were plugged into the
AI expert reserving system, all that came out was nonsensical gibberish. It
turned out that there were far more variables than the system's architects counted
on when they were designing its layout.
This reminded me of the old Star Trek episode when an "expert system" was
built to replace human involvement (Captain Kirk) and ended up blowing away
everything in its path—enemy and friend alike: a prime-time example of technology
run amok.
Obsolescence
This issue is apparent to anyone looking to buy a new laptop or desktop computer
… or risk/claims information system. The speed at which improvements and changes
occur in the IT arena is amazing. The bad news is that many of the systems developed
in the 1970s, 1980s, and even the 1990s are using outdated hardware and software.
The advent of the Internet has accelerated the differences between the old
mainframe based "legacy" systems and the newer, sleeker, and faster systems
that are coming out today. A lot of the older software and hardware do not work
too well with the newer versions, and expensive connections (called "interfaces")
have to be created to plug the gap until the older systems can be phased out.
But replacing the legacy systems is very expensive, so it must be done carefully.
For example, "ripping the cover" off of an old, legacy system with its antiquated
plugs and codes written by people long retired will pose some knotty problems.
However, the opportunity cost of not replacing the antiquated systems can be
even more expensive when compared with the benefits of improved productivity,
speed, efficiency, and systematized business processes.
Summary Comments
- Map your business processes carefully.
- Determine where opportunity best exists to effectively blend people
with technology improvements.
- Understand the Project Management Triangle lessons: prioritize needs,
manage the scope, watch the time. If this is done, cost will be minimized
and quality enhanced.
- Select technology vendors based on priorities, not just the "sizzle."
- Make changes, not for the sake of change itself, but because of a carefully
thought out vision of where you want to go.
*The
Albert Risk
Management Consultants claims management team (Glenn Brown, Lisa Hartman,
William Quinn, Jr., and David A. Tweedy) contributes articles on claims topics.
You can reach Dave Tweedy at dtweedy@albertrisk.com.
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