Enabling Integrated Claims Management


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For insurance carriers, an integrated claims management system is an ideal solution to the IT quandaries they face. Such a system's benefits come from the coordination among the presentation, business logic, and data store layers in its IT architecture for the insurance industry.

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Enabling Integrated Claims Management

  1. 1. • Cognizant 20-20 InsightsEnabling Integrated Claims ManagementCreating a more streamlined and intuitive insurance claimsenvironment can pay huge dividends. Executive Summary Among all others, claims management is one of the important functions for an insurance carrier. The financial services industry has undergone For starters, it directly impacts the carrier’s risk a paradigm shift over the last two decades. This exposure and liquidity. Hence, IT must serve as shift has brought about fundamental changes in a strategic enabler in the management of both the manner in which business is conducted and these crucial functions. the ways customers perceive the business. This shift has also attracted many control measures by In this paper, the authors share their thoughts regulators. and ideas to improve the efficiency of claims management through the consolidation of claims Globalization has resulted in exponential growth systems into an integrated claims management for many successful enterprises both in financial system. It covers some of the benefits that could and non-financial industries. In the majority of be leveraged by the insurance carriers and used these, growth can be attributed to inorganic for competitive advantage. expansion through mergers and acquisitions (M&As). Specifically, in the insurance industry The Need M&A activity has been on the rise since the early In the insurance business, a prospect gets 1990s — especially in the UK, continental Europe converted into a customer/policy holder after and North America. The extent of exposure to the contract is executed and the policy is issued. risk has grown multifold with the growth in this As a prime expectation, the policy holder will industry. Recently, the industry has witnessed a expect the insurer to settle the claim in a hassle- government bailout for some carriers. free and speedy manner when the need arises. From an IT perspective, both M&As (in organic So handling a claim is a process that involves a growth) and bailouts have resulted in systems sequence of steps that need to be followed by the acquisition and consolidation, leading to insurer. Figure 1 represents a typical claim process enterprise-wide transformation initiatives. For segregated into L0, L1 and L2 levels. As repre- an insurance company, under any circumstances sented in the figure, the claim process will involve (a situation demanding change driven by market multiple actors and will interact with multiple situations, natural calamity or environmental systems for cross-referencing. forces), it needs to be agile to fulfill its basic A greater number of life insurance policies end up mission, which is to provide direct financial having a claim in comparison to general insurance. protection to its customers. This happens due to different situations (policy cognizant 20-20 insights | may 2012
  2. 2. Typical Insurance Claim Process L0 Claims Management Initiation Document Investigation Litigation Payment/Settlement Processing Management L1 Fraud Reserve Management Management Vendor Payout Management Administration Claim Claim Initiation Evaluation & Reporting ADR Settle claim Policy Entitlement & Benefits Facilitation Hearing Claims Closure Disputed L2 Claims Verification & Claim Rejection Tracking Appeals Issue Payment Undisputed Claims Close Claim Actors PolicyHolder Insurer RepresentativeFigure 1maturity, death of the insured, etc.). From a • There is little or no automation of the underlyingcompetitive perspective, insurance carriers vary workflow handling the claims process. And evenamong themselves with the efficiency level in if the claims process is automated, there ishandling claims and settlements. Of late, some often a difference in the process flow betweenof the carriers have made claims processing the participating systems.efficiency as their unique selling proposition.Towards this, customers started analyzing the • Limited fraud detection. Though insurance carriers have a comprehensive fraud detectionClaims Repudiation Ratio (CRR) of the insurer process to ensure genuine and legitimatebefore taking a final decision on buying a product claims, not all systems/applications supportfrom the carrier. such fraud detection capability. This increases the claims ratio, thus imposing a direct impactSome of the reasons why many carriers are not as on the cash outflow and efficiency in processingefficient as they should be are as follows: genuine claims.• Varied nature of systems (mostly legacy) that • To add to the complexity, there is the diversity are either home-grown or acquired through due to difference in products, geographical M&As. These act as bottlenecks in interopera- regions and changing regulatory requirements. tion of the systems and also in bringing the Addressing these divergences forces carriers right changes to the systems. to adopt different process steps to meet the• Aging systems provide little flexibility to incor- needs of claims management. porate claim provisions while launching new • From a business focus perspective, carriers products. have traditionally been allocating a larger• Difference in the channels for claims entry and share of their IT budgets to meet the needs of registration. Following are the examples: new product rollout, underwriting and finance areas of insurance functions — with very >> In an M&A situation, the carrier being ac- little focus on streamlining the claims area. quired might have only call center inter- facing as the channel for claims initiation Though inorganic growth has been realized whereas the carrier acquiring it might have in recent decades, the factors outlined above additional channels (e.g., Web, IVR). have been bottlenecks for a customer-focused >> Similarly, home grown systems might not business model. Hence, it has become imperative be capable enough in provisioning multiple for the carriers to focus on streamlining the channels (e.g., the legacy claims system claims management area for further business might not be supporting Web enablement). enhancement. cognizant 20-20 insights 2
  3. 3. Since it has a direct impact on insurers’ business Regulation-wise, insurance carriers are requiredsuccess, consolidation of claims management to retain the customer and policy data for asystems into an integrated platform needs to certain duration (typically 20–25 years) after thefollow a methodical approach, under a well-con- closure of the policy. In light of this, opting for theceived strategy. reuse option could provide larger benefits to the carriers. Selecting the reuse option is also drivenSolution Options by the cost and time involved in rewriting suchWith most of the claims systems being legacy applications afresh.in nature, the solution options for consolidatingclaims management into an integrated applica- However, it is important to note that the solutiontion generally are the following: option selected for the purpose should be in line with the overall strategy defined for business and• Build:This involves building an enterprise IT alignment (see Figure 2). claims management system from scratch with the desired rules and functionality. Typically, an enterprise architecture blueprint and road map would outline this alignment, highlight-• Buy: This involves buying a ready-made ing the need to focus on some of solution areas product intended for this purpose and then (e.g., claims management in this case). customizing it as per the carrier’s needs. Once decided, the adoption of an integrated claims• Reuse: This involves redesign and implementa- management system (through build, buy or reuse) tion of the whole claims management system landscape while utilizing existing infrastruc- could follow a structured program management ture, system/s, business process/es or any other and organization change management process. aspects as applicable. Any aspects that do not However, in the case of reuse, the formation exist currently but are required in the future of an integrated claims management system will be built afresh; existing processes will be could follow a traditional application rational- reengineered so that they fit into the rede- ization process involving the carrier’s business, signed claims management system landscape. technology and operations teams.However, each of these options has pros and cons Integrated Claims Management Systemthat are important for decision makers and influ- Relying on current technology capabilities,encers to consider. Some of the main pros and insurers have started to form a holistic andcons are outlined in the table below: integrated claims management system with the following salient features: Option Pros Cons • Minimum additional investment • With most of the claims systems being legacy, on Cap-Ex. reengineering could be complex • Leverage existing infrastructure • Migrating business processes from legacy to the Reuse and systems. target system could be very complex. • Might result in retaining the legacy system as the consolidated system, giving little or no flexibility for modernizing later. • Will result in providing an agile • Moderately high investment requirements. and modern technical platform. • Requires uncompromisingly high maturity in the Build • Easy to implement future needs. subject matters to be built afresh. • Easy to integrate with other • Demands a very meticulous program insurance platforms. management and risk mitigation ability. • A ready-to-use platform with • High investment requirements. little customization. Buy • Increased dependency on the vendor. • Would provide a uniform view of Additional customization and enhancement end-to-end claims process. requirements could add to OPEX. cognizant 20-20 insights 3
  4. 4. Insurance Industry Drivers Business Drivers IT Drivers Market Competition Funding Governance Conditions Aligned & Balanced Regulatory & Mergers and People Innovation Legislation AcquisitionsFigure 2• Hasability to initiate claims from multiple experience and accurate data capture are y channels (mobile and non-mobile), including fax. critical aspects to be incorporated. Bu log sin no• Has a streamlined workflow to handle various • Business logic layer: Once the claim is es ch s Te activities under the claims process: claims initiated, it undergoes a predefined set of reporting, case management, policy entitle- activities or steps before a settlement state is ment and benefits tracking, handle disputes reached. This layer hosts required workflows, and arbitrations, vendor management, etc. applying necessary rules and adjustments. Wherever applicable, it takes care of making the• Enables third parties to access and use the Operations claims management system interoperate with system. other core or non-core insurance platforms.• Has a common view of all the carrier’s claims. The interoperation could be achieved either by• Should support all processes or adapt to means of standard interfaces or by represent- changing processes for all claim types. ing the business objects as services.• Integration with other core insurance systems: • Data store layer: This layer would store the policy administration, customer data, calcula- claims data in a data store (RDBMS/non- tions and derivations, etc. RDBMS). Claims data existing in multiple data stores will migrate to one or more data stores,• Ability to store historical data in various forms consolidating them into a uniform data model. including e-forms, images, etc. Based on the maturity of the applications, theFigure 3 presents the contours of an integrated migration could happen in a “lift-and-shift”claims management system’s reference architec- mode. Otherwise, the data needs to be trans-ture. Though the reference architecture depicted formed (which is highly unlikely consideringhere contains only three layers, it could logically the complexity involved). Apart from storingbe segregated to have multiple layers depending the claims data, this layer will have storage foron the scale and diversity of the claim function e-documents (e.g., those received by fax) orfor the carrier considered. images received by e-mail or fax. Similarly, it may host file stores.As represented in the reference architecture,each of the layers meets a specific requirement The actual architecture and design of thisof the claims process, as follows: integrated claims management system would vary from one insurer to another. There are• Presentation layer: This layer enables several prepackaged systems available in the customers and representatives to initiate the market for this purpose. Most of the major BPM claim through different channels, as in the (business process management) product vendors Web, mobile, fax, e-mail and handheld devices. have prebuilt claims management packages. (The Web, fax and e-mail are the dominant Similarly, database vendors have developed modes through which claims are raised.) User data models encompassing claims management. cognizant 20-20 insights 4
  5. 5. Integrated Claims Management System Reference Architecture Presentation Layer Handheld Web Mobile Fax E-mail Telephone Devices Business Logic Layer Business Processes Integration Rules Regulatory Compliance Data Store Layer Consolidated Document/ Claims Data Store File Store Image StoreFigure 3These solutions are specific to a layer/component • Staff morale: An integrated claims managementbut not to the whole integrated system. Given system results in reduction in manual processesthat there are three solution options and reuse and work-around — thus helping improve staffis widely followed, the reuse aspect is typically productivity and morale.followed for data stores (to avoid remodeling L0 Claims • The integrated system, being a consolidatedfrom the ground up) and for business processes. Management of claims, helps in the following: viewThe other layers/componentsProcessing Initiation are usually newly Document Investigation Litigation Payment/Settlement >> Efficient tracking. Management L1developed for this kind of endeavor. Fraud Reserve Management Management >> Management fraud detection. Effective Vendor PayoutDepending on the IT strategy of the carrier, the Administration Claim Claimintegrated claims management system could Initiation Evaluation >> Identifying and tracking recoverables from Settle claim & Reporting reinsurers. ADR Policy Entitlement & Benefitseither be hosted in-house or could be hosted in Facilitationthe cloud. Few of the major insurers have already Disputed >> Improved customer service, especially dur- Hearing Claims closure L2 Claimsadopted to the cloud for the claims management ing customer/claimant interactions. Verification & Claim Rejectionarea of their business. Tracking >> Easier enforcement of service levels. Appeals Issue PaymentExpected Benefits ConclusionSome of the benefits of an integrated claims In the current market, the claims repudiationmanagement system are as follows: ratio has become an important parameter for measuring an insurer’s position. So far, more• Improved operational efficiency. attention has been paid in making the policy• Agility: Improves ability to respond to changes administration, billing and collections functions faster in a cost-effective manner. agile. Of late, insurers have felt the need to focus on streamlining the claims management process• Standardization: An integrated claims manage- — thus providing a better customer experience ment system results in consolidation of dispa- and winning trust. Towards this, a focus on having rate claims functions carried out using multiple a consolidated, modernized and integrated claims systems following different process steps. management system is crucial. cognizant 20-20 insights 5
  6. 6. About the AuthorsSai Sekhar Patnaik is a Senior Enterprise Architect in the Global Technology Consulting Practice ofCognizant Technology Solutions. He specializes in enterprise architecture consulting and has a widerange of experience in defining IT strategy and road maps for many Insurance carriers. Sai Sekhar hasexpertise in enterprise solutions in the space of EAI, SOA, BPM and enterprise information management.He can be reached at Saisekhar.p@cognizant.com.Varad G. Varadarajan is a Principal Architect/Associate Director in Cognizant’s Global TechnologyConsulting Practice. He works on enterprise architecture, business architecture and IT strategy. He hasover 23 years of experience in IT and holds a B.tech (IIT Madras), MS (in computer science) and MBA (SternSchool of Business, New York University). He can be reached at Varadg.Varadarajan@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 137,700 employees as of December 31, 2011, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.