A common language: Internet platforms help insurers communicate more easily with service providers and vendors and can result in significant loss reductions and savings. (Technology).

The false start of the Internet era in insurance can be attributed to greater faith in persuasion than in control. Insurers seized the idea that consumers could be persuaded to use this medium to buy products more efficiently before they fully realized that captive audiences, like employees and service partners, could be forced to adopt Internet technology in their everyday lives.

Although persuading consumers to buy insurance over the Internet has its appeals, it also brings a host of issues and challenges, the resolution of which may ultimately challenge the economics of online insurance sales. By contrast, average claims processors at an insurance company, who are told how, when and where to process claims, would like nothing better than to get out from under that mass of paper choking and swallowing them whole.

And in claims processing--specifically physical damage to automobiles--Internet technology is delivering truly remarkable savings with loss reductions of as much as 16%. For some insurers, particularly public ones with a large portfolio of automobile insurance policies, savings of this magnitude can have a material impact on earnings and, therefore, stock prices and market capitalizations.

Come Together

At the broadest level, the technology that has the most impact on the insurance industry is Internet platforms that are open for all service providers to easily use, as opposed to proprietary technology from service partners that the carrier has to run on the adjuster's desktop. Increasingly, independent adjusters, towing services, car rental companies and site investigation firms are adopting existing systems for the benefit of carriers.

At last, the industry is headed toward a trend that allows the insurance company to require the service provider to supply an XML (extensible markup language) transfer into the online system with which the insurance company is already working. Some third-party providers now offer an online claims-management system that allows service partners to upload into the system the carrier already runs. This is the way the carrier makes the service provider conform to its way of processing, rather than the other way around.

"Every year for the past 10 years, we have made it a goal to develop a paperless claims process," said Rick Morgan, vice president of claims for Royal & Sun Alliance Insurance Co. And every year, it didn't happen, because of other priorities and the degree of difficulty, said Morgan, who is based at Royal's U.S. headquarters in Charlotte, N.C. "However, with the arrival of the right technology and development partners focusing on this challenge, what we now have in place leapfrogs everything that we had before," he said.

A Penny Saved

So where do all the savings come from? From true management and oversight of the claims process with point-and-click efficiency. Claims reps no longer have to pick up the phone to order a service, no longer have to transfer a call to get the rental car, no longer have to send and retrieve documents via fax and no longer have to surf the Internet to access sites working on different systems. "For us, it has eliminated paper, mail and the time spent running around putting the right piece of paper on the right desk," Morgan said.

The net result for carriers like Royal is a dramatic reduction of cycle times, which means lower rental-car costs, lower storage costs, higher volume per processor and increased customer service and satisfaction. Data show that setup times are 50% faster for claims processed in an online environment than for claims processed using traditional techniques. Run these cycle-time reductions across several hundred thousand claims, and the savings can be dramatic.

Other savings come in the area of vendor management. In an online environment, it's much easier to switch vendors and service partners. Plug one in, and unplug another. Old habits may die hard among claims processors, but plugging and unplugging vendors removes the choices or options that the carrier no longer wants the claims processors to make and points them, literally, to the ones that are more desirable.

Still more savings are delivered through the construction of online files vs. paper files. Photographs, accident reports, car-rental applications, body-shop estimates and towing requisitions are all built and managed online in a commonly accessible environment. There are obvious savings in storage and records management. And there are additional savings with uniform claims files that can be managed by any processor.

Less obvious, but far more powerful, are the savings that can be realized by getting the vitally important data that is a by-product of claims processing and putting it to work to root out inefficiency, waste and collusion.

What is the average paid loss per claims-processing office? What is the average paid loss per claims processor? Imagine a chart that shows cycle times per office, and then within each office, per rep, from the shortest to the longest. If a carrier could have this information on a real-time basis, it could manage better. If the insurer is waiting for its legacy system to deliver this information in, say, an electronic spreadsheet so it can manipulate the data even further, then it's going to wait a long time. More importantly, firms that don't have this information are at a competitive disadvantage to those that do.

To see how this access to real-time information can drive reductions in loss claims, start with the body shop, which is where the rubber, literally, hits the road in terms of the cost of claims. To date, insurance companies have done their best to do business with the shops that treat them right. And in the name of cost containment, many carriers negotiates special hourly rates. But to almost no one's surprise, as the negotiated hourly rates go down, the number of hours goes up. That's the way the business goes.

But once all the service partners in the claims process are plugged into the same platform, it becomes possible for management to get real-time reports on the average loss claim per repair shop. Forget negotiated rates or time wasted negotiating them; simply do business with the repair shops that deliver the best results. Suddenly, management has the ability to set a benchmark for pricing and the empirical evidence to enforce it. And finally, there's a manageable way to get repair shops that are not up to snuff off the carrier's list of vendors: Simply unplug them from the carrier's Internet platform.

Collision Collusion

The same analysis can be applied to independent adjusters. There's collusion in collision, and it's one of the major reasons for excessive cost in claims processing. The adjuster, the insured and the garage are all working face to face, while the carrier is some faceless, deep-pocketed entity miles away. Familiarity may ultimately breed contempt, but before that happens it often breeds the kind of conspiracy--consciously and unconsciously--that results in auto collisions claims being much higher than necessary. There are good adjusters, and lots of them, but who are they and how does a carrier know on the fly?

Once again, having real-time information on the loss experience per adjuster brings a number of very favorable variables into the picture. First, adjusters can be monitored, and assignments can be made based on past (meaning last month's) performance. Second, empirical benchmarks can be established. And third, the claims process can migrate naturally toward adjusters with the best loss performance, not through the sheer will of management to expunge certain adjusters from the memory of claims processors, but amazingly through a simple rearrangement of zeros and ones on the carriers' Internet platform to unplug those adjusters who cost too much.

It's important to remember that in claims processing, not much new has happened in the last 75 years. And even the minor breakthroughs that have occurred have had dramatic and positive effects. Remember when Polaroid cameras came on the scene? An instant set of photos meant no waiting on film development. Cycle times dropped appreciably. And remember when the fax machine came into general usage in the mid-1980s? No more waiting on the mail. It was like a revolution. In truth, it was evolution. The real revolution in claims processing has just now arrived.

Eric Seidel is chief executive officer of eAutoclaims.com, Oldsmar, Fla., an application service provider that offers auto claims processing applications as well as outsourced processing services.