Processing Claims

The claims processing business is estimated to be worth $400 million by 2005

for Indian BPO vendors. A number of insurance companies are increasingly

offshoring to India. However, while the opportunity is huge, Indian companies

need to examine the need for providing automated solutions in order to gain

sustainable competitive advantage. More than 1,500 companies in the US sell some

form of property and casualty insurance (P&C). It is estimated that direct

written premiums exceed $280 billion and millions of individuals submit about

120 million P&C claims every year. Of these, around 72% were charged to

personal-lines insurance policies, personal auto liability, auto physical

damage, and home and farm owners.

Insurance carriers spent around $42 billion in loss and loss-adjustment

expense supported by $180 million in actual settlement payouts. Finally, it is

estimated that US claims professionals distribute over $200 billion annually.

Statistics show that the P&C claims industry spends approximately $23

billion in human capital annually–with estimated 150,000 claims professionals–and

more than 300,000 supporting personnel. Furthermore, these individuals process

about 750 claims per professional per year or about 120 million new claims every

year.

The claims processing function has become one of the key differentiators to

sustain competitive advantage for insurance companies. However, most companies

have been slow to address claims services through technology. They face a

challenge not only of technology automation, but also of differentiating their

claims services from competition. Additionally claims costs are forcing

insurance companies to focus on a significantly higher level of proactive

management. According to a recent study by Tower Group, on an average, 70% of

every premium dollar goes towards claims costs.

What it means for India



The claims organization and settlement function is one that holds

significant potential for Indian BPO and call-centre players. In this function,

the potential for cost savings is the highest, and feasibility of offshore

operations–based on the level of standardization of the process, level of

centralization, and the need for physical interaction–is also high. To

calibrate the feasibility of offshoring and the cost saving potential of any

process, a rigorous four-step procedure was followed.

• Lay out the entire value chain for the process

• Break down each segment of the value chain into its
  
  constituent activities

• Identify the activities that can be performed remotely
  
  based on the criteria mentioned

• Estimate the cost of activities like labor and associated
  
  infrastructure that can be managed offshore.

What this means is that while in claims processing, most

activities in origination and closing can be done offshore, others require a

physical interface with the claimant and therefore cannot be managed offshore.

The current trend in the insurance sector that are being managed offshore also

suggests that claims and servicing are the focus processes. Most companies that

offshore the insurance process to India started with simple low-complexity

claims and policy servicing processes.

The risk factor



Insurance companies and BPO vendors in the US are aggressively pushing for

building a more efficient claims industry. What this means is that the emphasis

in now more on the importance of open, modular, and accessible solutions. Some

observers contend that the Internet, which was supposed to make things better,

has actually convoluted the industry as multiple, proprietary applications have

crowded the market. Explains Op de Beeck of ADP Claims, "We may be

connected on a superficial level, but our systems and applications do not talk

to each other." The result has been confusion, not the comprehensive

solution that industry leaders envisioned. The stakes of this disconnection are

high. According to Beeck a truly open, modular, accessible solution could

provide several billions in annual savings to the claims industry. This,

however, can be achieved only by enabling increased use of electronic

communication, reduced cycle time and elimination of redundant data entry.

In fact, a truly open solution needs to be open not only to

integration within organizations, but to vendors and competitors as well. Making

these solutions modular decreases time to market, enables easy updates and

allows users to structure workflow. And finally, accessibility means getting

needed information anytime, anywhere and from any device.

TEAM DQ

What Indian Vendors Need To Do

According to Nasscom, in order to obtain a sustainable competitive advantage

in claims processing, Indian vendors need to provide automated solutions

Automotive claims: Industry example



Such solutions would simplify and accelerate the cooperation and

communication between the participants in a claim event: the damage dossier

would be managed centrally and documents from the dossier would be transmitted

electronically without any delay. Such a solution would connect all the parties

who are affected by collision damage: insurers, assistance networks, repairers,

claims adjusters, assessors and their organizations, lawyers and care rental

companies.

Key features of the solutions



l It

would eliminate the need for multiple data entry-the data is gathered once only

and the solution then ensures it is forwarded and supplied to other systems for

supplementation or further processing via defined interfaces-resulting in less

administrative costs and reduced errors.

l The

partners would communicate with one another via a standardized network-saving

expense and time as well as speeding up decision making and implementation.

l Participants

could obtain (within the limits of their authorization) an overview of the

current situation and inform their customers.