Leveraging Best Practices for Claim Operation Transformation April, 2013 BLOG POST
Overview Efficient and effective claims management is an integral part in the insurance business and is as fundamental to customer retention as it is essential to profitability. An insurer’s reputation and financial stability is at stake based on the quality and efficiency of their claims operation. On an average, two thirds of a dollar is spent on claims paid out and one-tenth of a dollar on claims expenses for every dollar collected in premiums. Greater number of life insurance policies end up having a claim in comparison to general insurance – due to various factors such death of insured, policy maturity, etc. Typical Insurance Claim Process
The National Health Insurer Report Card, which is issued annually by the Chicago-based American Medical Association, examined 2 million claims submitted to seven top insurers, and asserts that one in five claims, is processed inaccurately by the carrier. This leads to $15.5 billion in wasted administrative costs annually. Challenges towards maintaining efficient claims management •
Varied nature of systems act as bottlenecks for interoperation of systems and also in bringing right to the system
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Archaic systems provide little flexibility to claims provision while launching new products
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Little or absence of automation for workflow handling the claims operations
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Limited fraud detection as not all systems/applications can support fraud detection capability – increasing claims ratio, hence decreasing efficiency
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Diverse products, geographies and changing regulatory requirements
Technology to rescue More efficient operations by diagnosing fraudulent claims early in the claim processing life cycle – saves large amount of cost. Use of sophisticated business intelligence tools, automated processes and upgrading business practices to effectively reduce indemnity costs. Use of mobile applications would provide “on-demand” user experience. Use of effective analytics is recommended, which can forecast patterns and trends, to provide faster critical insights. Factors affecting better claims management process1 Developing a healthy organization - Highly motivated, trained and empowered workforce aligned with the company’s vision for claims operations; being supported by robust IT infrastructure. Enabling agility in claim processes – Insurers must build agility in their claims processes in order to deal with new regulations, catastrophic events, etc. Enabling straight-through processing (STP) – STP addresses both customer service and operational efficiency considerations and is fundamental to claim operations transformation. Automated management and workflow of the entire claims process via STP. Ensuring comprehensive view of customers – Insurance representatives should have complete knowledge of customer policy status, when they are contacted, while considering policyholder’s privacy. Fraud identification – By the use of advanced procedures, investigation tools, and analytics insurers can identify fraud efficiently. Optimizing the reserving process – Modern claims solutions such as multiple reserving techniques and monitoring reserves in near-real time, thereby giving an optimum reserve balance by automatically reducing reserves when claims are paid and closed. Leverage claims information for underwriting process – Analysis of claim information provides critical insights into risk trends. Conclusion With the right technologies, health payers and providers can find the middle ground necessary to avoid what has become a painful, manual, error ridden process that represents billions of wasted dollars annually. In U.S. the National Insurance Crime Bureau suggests that 10 percent of all property and casualty claims are fraudulent, yet only 20 percent of those are detected. Use of predictive analytics in insurance claims management can provide combined savings of as much as 25% - 30% in expenses and losses incurred. Although it has been argued that the use of automation in the claim management process is an efficient solution – areas in claim management process needs to be identified, where the use of automation 1
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Property Casualty 360 : Leverage Best Practices for Claim Operation Transformation
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would be best suited, and some of areas should be best left for human interaction with the customers during their instance of loss.
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