Claims Management vs. Claims Administration
New solutions integrate data and processes to provide both tactical and strategic improvements.
By Denise Garth
While U.S. property-casualty companies reported better net earnings last year as financial markets improved, combined ratios deteriorated overall. Claims management is the most significant area impacting combined ratios, affecting up to an estimated 75% of costs. Claims solutions traditionally focus on claims administration to improve cost efficiencies, but these administration solutions often don't embed a management system that enables innovation, transformation and sustainable operational results across the entire claim process.
Claims handling is often thought of as what insurers do within the "four walls" of their organization rather than the entire claims lifecycle, but service throughout the entire life of a claim is an emerging factor that consumers consider when purchasing or renewing their insurance.
There is a strategic difference between claims management and claims administration that focuses on basic, advanced and value-added functionality for the entire end-to-end claims process. By reaching across discrete processes and isolated units within an insurer's operations, claims management enables companies to control expenses, prevent claims leakage, improve retention, and provide business intelligence. It provides carriers the opportunity to connect with insureds at various touch points in the claim process and enhances the company's ability to learn—and apply lessons—from each claim experience to improve its operations.
Cases in Point
Two leading companies made strategic preparations that focused on claims management and, as a result, were able to respond to market changes when the time came.
The first company transformed its multi-country auto claims operation, which had eight different solutions, into a consolidated product and operation using a modern claims management and analytics platform. Its revamped process reduced operational costs and enabled competitive pricing. It enabled counter-fraud management and reduced administrative weight. It also increased the company's flexibility to respond to market/client demands for an increasingly mobile customer base and the need for online information. Initial benefits include:
- Productivity improvement of 25%-38%
- More than $10 million in administrative savings over five years
- Reduction in claims costs of 8%-12%
- Maximized claims recoveries
- Improved data quality, analysis and reporting
- Staff redeployment supporting claims volume growth
- Adaptability and speed of response to market changes and new initiatives.
Even more impressive, updating claims management processes improved efficiencies and provided cost reductions during the unanticipated financial crisis. This helped the carrier respond flexibly and with agility to changing market conditions. While other companies struggled, the innovations implemented provided this insurer critical adaptability and data, allowing them to adjust pricing, manage claims costs, enhance service, root out fraud and improve retention.
The second company's business transformation moved it away from a legacy, customized-access database system with significant manual processing for claims. The new claims management system, including analytics, is accessible by the carrier's underwriters (internal and third-party partners). In the first nine months of implementation, results indicated:
- Productivity improvement of 40%+ with more expected
- FTE costs reduced by 25%-30%
- Increased customer satisfaction
- Reduced paper/storage costs with the paperless environment
- Improved processes, reporting and controls.
Claims data, migrated to a central data warehouse and analyzed using claims analytics, are used to generate benchmarking information on operational results, claims progress, productivity and financial trends. This allows for greater accuracy in strategic planning.
By updating its technology and moving toward lifecycle claims management, this company moved from a legacy environment—fraught with inefficiency, leakage, training difficulty and an inability to measure—to a modern claims management solution that benefits its customers, its agents and its combined ratio.
In Deloitte's 2009 Shift Index—Industry Metrics and Perspectives, the "Big Shift" is the convergence of long-term trends, playing out over decades, that are fundamentally reshaping the business landscape. The long-term trend of declining return on assets suggests the current way of doing business is fundamentally broken. New claims management solutions underpin the future for insurers to enhance customer service, improve retention, and reduce claims handling costs and time frames. More importantly, it repositions claims as an integral part of achieving sustainable innovation, operational effectiveness, increased customer value and as a driver of profitable growth.
Denise Garth is vice president of Global Industry Affairs at Innovation Group. She works jointly with the BPO and software teams focusing on strategic marketing, analyst and industry relation and product marketing to meet the needs of insurers in North America.