Many of today’s P&C insurance carriers are still dependent on legacy systems for their core claim processing. As a result, they are burdened with manual processes, operational inefficiencies, and high costs associated with processing data multiple times and securing new customers to replace the unhappy ones. When faced with the process of IT transformation, however, these carriers often must confront several challenges before they can reap the desired benefits of faster, more accurate claim processing and better customer service.

The claim transformation journey is not the same for every carrier. The speed of decision making for major projects, the availability of funding, and project prioritization — both in terms of burning platforms and department clout — are among the typical factors that determine how long it takes to launch any major project. Regardless of the transformation timeline and the strategy required to get there, every carrier will encounter five major milestones, each of which must be recognized and responded to appropriately to maximize success. As you’ll see, subsequent decisions will build on prior actions, and the success of the legacy transformation project will depend on all of them.

Transformation is more than just replacing the legacy claim system. Because of the age of many legacy systems, over the years, carriers have often adopted business practices that were built around their claim system’s limited capabilities and increasing shortcomings. As a result, the entire claim operation must be reevaluated. Changing the system without examining directly and indirectly related business processes, the interaction with claimants, and how data is managed would be akin to driving a sports car the same way great grandpa drove his Model-T: You’ll not only have a serious crash, but you’ll also do so much faster.

Milestone One:
Why Transform Claim Operations?

Historically, P&C insurers have underinvested in improving claim processes and modernizing their claim technologies. Given the functional adequacy of current systems, it was often difficult to build the business case and ROI argument to support replacement or modernization. This is showing signs of change. A Gartner consumer study conducted in 2006 with 2,629 U.S. consumers found that one of the top service priorities was the insurers’ capability to reduce the turnaround time on claims. In response, more carriers appear to be contemplating replacing or improving their claim systems. Increased demand for better claim-IT systems has triggered a substantial increase in the number and sophistication of the packaged claim offerings now available in the marketplace.

There are numerous reasons — some of which are listed below — why the industry needs to continue to significantly enhance claim operations from start to finish.

• The strong link between claim processing/customer service and customer retention.
• Loss adjustment expense management problems.
• Regulatory compliance pressures for transparency in claim handling.
• Competitive pressures, such as web enablement for increased adjustment throughput and/or ease of insured/claimant access.
• Mergers- and acquisitions-driven complexities requiring consolidation or integration of multiple claim systems.
• Inability to easily and rapidly respond to underwriting coverage changes.
• Requirement for improved data management for underwriting and pricing decision support.
• Claimants resorting to the courts or bad-faith actions caused by slow or inaccurate adjustments.

Pressure or problems in two or more of these areas are sure signs that systems and processes need to be quickly reviewed and re-optimized or completely changed. An all-too-typical response from carriers has been to juggle these problems, opting for Band-Aid approaches to all of the problems — even if the "patient" is hemorrhaging — or opting for the lesser of the array of evils, rather than a true cure. This approach is no longer necessary, as both of the best-of-breed and end-to-end IT solutions available address all of these problems. These current solutions can also be rapidly, cost-effectively deployed.

Milestone Two:
Where Do I Want To Go?

Once the first milestone has been passed, the next step is for a company to assess what it has today. This is a thorough mapping of the current body of business rules and processes within the claim operations. This entails determining what resides in the current IT systems, what processes and procedures are formally documented, and what actually takes place and is recorded only inside the staff’s heads. This is critical, because a successful transformation is more than simply jumping from one system to another.

As this is completed, the next steps can quickly fall into place. Create a picture of where you want your claim operation to be over the next three to five years, using the issues and answers raised under the "Why Transform Claim Operations" milestone. A gap analysis is next, clearly and candidly understanding what is required in terms of system and process changes to reach where you need to be versus where you are. This becomes an actionable roadmap for the rest of the transformation journey — and how you get past the rest of the milestones.

Milestone Three:
Choices at the Fork in the Road

Now is the time to narrow the options. Selecting the solution that best fits the company generally comes down to "build/modernize" versus "buy."

Although "build" is the more commonly used term, the process is often more of a modernization than a build from scratch. Building blocks for modernization in service oriented architecture (SOA) consist of best-of-breed tools and components: such as BPM tools, business rule engines, insurance data models, and middleware. This approach can result in less of an impact on budgets and the current business processes, though the results may be less feature-rich and more time-consuming.

The "buy" option offers the feature-rich content of the current crop of commercial off-the-shelf (COTS) solutions. It can represent a faster deployment option, depending on the amount of customization needed. Often the leading packages available in the market may not completely address all of the gaps, so you may consider additional solutions or alternate outsourcing options. One example is the bill review process, which is not commonly found in packaged solutions and would thus require a separate decision and implementation.

This decision is driven by the "actionable roadmap" mentioned in the second milestone. Which of these choices gets you from where you now are to where you need to be in the best time frame, and at the best price? The key to success with either "build" or "buy" is having the right solution accelerators available, thereby ensuring that system implementation can be done quickly and correctly.

Milestone Four:
Are We There Yet?

Once the solution is selected, implementation is the next milestone. There are six major challenges that a company must overcome at this point in the journey. They are configuration; integration — for instance, internal/external systems on different platforms; data conversion/reconciliation; testing; training; and business analytics. These are the six key work streams in the implementation process. All of them must be executed nearly concurrently, which requires close governance and strong collaboration throughout the milestone.

Configuration is the area where companies usually pay the most time and attention. In many respects, it can also be the easiest to achieve, as the COTS provider will customarily provide SMEs to handle this, and company IT staff can fill this if the build option is chosen.

Integration, data conversion, and testing are the points where the greatest amount of uncertainty and complexity come into play, and they often present great temptations to take short-cuts. Fortunately, they also lend themselves to solution accelerators, such as business rules extraction and mapping tools, data comparison tools, and test case repositories.

Training and analytics often receive the least attention — commonly because of exhaustion of energy, time or budget; or all three. Yet, they are of equal importance to any other aspect of the journey; they are both pay-off steps.

If this is a true transformation project, then not only will there be significant changes to the system features and functionality, but also new processes will have to be learned and fine-tuned. With the new knowledge acquisition and application process, the material benefits of the journey and anticipated ROI can be fully realized.

In this instance, business analytics determines what data is now more accessible, and what new data is now becoming available, both of which can be converted into valuable decision support information. It can range from better understanding of catastrophe events, to fraud prevention, to insured behavior-coverage interaction. If not present in the packaged application, then it needs to be added as part of a DB/BI strategy that takes advantage of this enhanced capability. This could be the most valuable return from the project.

There is one other critical factor that must be considered here: the speed of implementation. True transformation can fail to emerge if the project is fraught with delays or unexpected setbacks. Providing solution implementation accelerators, such as tools for data integration and test repositories, as well as bringing deep domain knowledge to the project can help carriers avoid this pitfall and deliver the implementation on-time and at-budget.

Milestone Five:
Reaching the Destination

It may seem obvious to say that, once the system is fully installed, the staff trained and the data flowing, you do not simply dust yourself off and assume that the trip is finished. Yet all too frequently, that’s exactly what happens; however it should not and does not have to.

A lasting objective of this journey is to never return to the starting point. That is, the company ends up with a system that is inflexible and requires convoluted manual processes to make up for shortfalls. The beauty of today’s new technology is that it lends itself to easy and rapid change that often can be executed by the business users rather than solely the IT staff. Moreover, underlying change management processes like Six Sigma can be implemented to help keep processes and tools in synch with claim environment realities. The focus should be to continue to build on the foundations laid through the successful completion of the six challenges in the prior milestone, particularly training and analytics.

Accomplishing all of this keeps the data fresh; the claim staff engaged and oriented towards positive change; and, perhaps most importantly, can make claims a brand differentiator instead of a growth inhibitor. All of that, however, also requires continuous monitoring and encouragement from senior leadership. So, the trip never really ends.

Now What?

If claim legacy system replacement or enhancement is truly to be a transformative journey, then care must be taken to fully understand and achieve each of the major legs. There are no short cuts. You have to follow the road past each milestone. To attempt otherwise can leave you lost: you are then neither where you were, nor where you want to be. Nevertheless, there are things that can be done to smooth out the road and speed up the trip.