Claims Magazine, December 2009 – The P&C insurance industry generates top-line annual sales (net written premiums) ranging between $480 and $500 billion, depending on how you count the numbers. Roughly speaking, claim payments and expenses account for about 70 cents of every premium dollar. In other words, claim departments spend between $336 billion and $350 billion each year in managing and settling claims. This is a huge amount of money, and something insurers constantly try to reduce to improve the bottom line.

While the vast majority of this money is paid in claim settlements or indemnity dollars, it is not the intent of insurers to become more profitable or less costly by reducing customer settlements. Rather, the intent is to become more efficient in service delivery, much better at leakage reduction (including about $30 billion related to fraud annually), and quicker and more consistent in delivering settlement to insureds.

The ability to offer insurers reduced costs and improved service delivery is a huge revenue and market opportunity for technology and software providers. As a result, many innovative minds and vendor companies are finding new ways to apply technology to the claim process, a movement that continues to gain momentum.

It is not only the vendor community that is focused on claims. A recent Novarica study found that improvements in claim handling was the second-most frequently cited initiative amongst P&C carriers looking to create competitive advantage.

Discussing Legacy Replacement

As recently as two or three years ago, the big technology conversation in the claim world was whether to take the plunge and replace the core legacy claim administration system. In just a few short years, the legacy replacement discussion has expanded and migrated from the thought leaders and early adopters to include an overwhelming majority of carrier companies.

The reasons for this rapid movement include the well-publicized and now well-proven advantages of new administration systems, which are based on configurable technologies. The benefits include integrated workflows, work management, business rules, and ease of use. Also, many carriers have successful implementations behind them. It is now apparent that these new systems offer an attractive alternative to replace complex and brittle legacy systems.

As the perceived risks inherent in such a move are measured against the obvious advantages, the adoption of new claim administration systems have now gone mainstream, with the more pragmatic and conservative insurers hopping aboard. This trend will only continue and grow through 2010 and into the foreseeable future.

Those thought-leader carriers that have completed or nearly completed claim administration replacement are now looking at a broad spectrum of new technologies that show promise in various areas of the claim-handling process.

Prepaid Debit Cards

When you get to the front of the supermarket checkout line, the bagger asks, “paper or plastic?” Insurance carriers may soon be asking their customers and claimants the same question.

In the age of credit cards, the Internet, and electronic commerce, insurers print and mail hundreds of millions of claim-settlement checks each year. In some instances — catastrophes, for example — those checks may be undeliverable. In other instances, such as the case with workers’ compensation, the claimant may receive multiple checks over a period of years. Checks get lost, are subject to fraud, have to be cashed, take days to arrive, and according to various studies, cost about $10 each to issue and deliver.

In recent years, a few innovative insurance carriers have experimented with prepaid debit cards to replace paper checks. Prepaid cards offer obvious advantages in that the card is issued only once, and then subsequent “payments” are made electronically (which means immediately, date certain, and inexpensively). The claimant can then use the card to pay for services or to obtain cash without having to visit a bank or pay a check-cashing fee. The card can be issued before it is needed and only activated and loaded (again, electronically) when appropriate — following a catastrophe, for instance. As an added benefit, the carrier can even brand the card for marketing purposes.

It would seem that prepaid cards are a no-brainer, especially for catastrophe and workers’ compensation payments. They save money — by some estimates as much as $8 to $9 per payment — while offering the insured more usage options. Prepaid debit card customer satisfaction studies are not yet widely available within the insurance industry, but other industries have found high degrees of acceptance and adoption, along with increased customer satisfaction.

Of course, the insurance industry had to wade through multiple jurisdictional and regulatory mazes in order to establish that card payments are an acceptable alternative to paper checks, but much of this ground clearing has been completed. The regulatory picture has become clearer, and more carriers have become aware of the obvious advantages of prepaid debit cards. Combined with the relatively modest implementation costs, this technology likely will become more widely adopted…

To read more on this topic, visit http://www.propertycasualty360.com/2009/12/03/emerging-technology-trends

Source: Claims Magazine, George Greive