Automatic Answer.

Online adjudication of some property/casualty and health insurance claims is now possible. The question is whether it's desirable.

Someday soon, a driver may be able to walk away from an accident, go to a personal computer, call up the insurance company's Web site, complete a form describing the accident and the damage, receive almost immediate notification that the damage is covered beyond a certain deductible, select a body shop from the carrier's list of preferred vendors, click into the vendor's calendar and schedule an appointment to have the car repaired. No questions, no hassles, no waiting to find out the cost.

And a patient may be able to find out before leaving the doctor's office exactly how much his or her insurer will pay for medical procedures.

The Internet makes possible automatic adjudication of some insurance claims. To take full advantage of the capability, however, insurers are going to have to think about handling losses differently, said John Flynn, principal and insurance industry practice leader for BusinessEdge Solutions, a consulting firm in New York. But some insurers don't think online claim adjudication is something their policyholders want.

On the property/casualty side, online adjudication is feasible for automobile claims and some homeowners claims, said Frank Soldano, vice president, claims strategic initiatives, Farmers Insurance, Los Angeles. Farmers and other insurers already offer first loss reporting online. After Farmers receives an auto claim notice online, the customer is contacted by a person who "adds empathy for the customer, makes sure we understand the facts about the loss, recommends a preferred body shop and arranges the repairs," Soldano said.

All of those things, except the empathy, can be done electronically, he said.

With online adjudication, a policyholder can determine if there is coverage and the amount of the coverage. Auto claims lend themselves particularly well, because almost everything is covered, Soldano said.

Fraud and Logic

New approaches can increase the number of claims that lend themselves to the online process, Flynn said. For example, history shows that certain types of losses have a very low incidence of fraud. It's worth the risk of automatically adjudicating those claims, because the insurer saves the cost of investigation and offers a value to the policyholder--speedy service--which may pay off with greater retention, Flynn said.

Along the same lines, a claimant with a good loss history, several years with the company, a clean driving record and a strong credit profile is a likely candidate for online adjudication, Flynn said.

Claims-processing systems today can be programmed to act on data based on specific rules. There are models that say, for example, "if these are the five factors of the loss, the probability of its being 'x' is very great, so make it an 'x,'" Flynn said. "Or if you get an 'x,' you do 'y' with it," he said.

But some insurers believe that just because you can manage some claims without any human intervention doesn't necessarily mean you should.

"It's not a technological problem. It's more a question of customer expectations," Soldano said. Customer surveys have shown that only a small percentage of Farmers' customers like to do business over the Internet. "I think it will grow. When they want it, we'll do it," Soldano said.

Some types of claims probably will never be adjudicated online. Third-party claims in which the extent and cause of the damages must be validated, for example, won't likely be adjudicated via the Internet, said Cal Hudson, group senior vice president and director of property/casualty claims, Hartford Financial Services Group, Hartford, Conn. Some parts of the claim-processing value chain, such as loss reporting and data collection and sharing, are enhanced by use of the Internet, but others, such as the negotiation and settlement process, work best with human involvement, he said.

"There are some interesting human dynamics that go into the [negotiation and settlement] process, like being able to look at the party you are negotiating with and being able to trade facts back and forth," Hudson said. Hartford has tried some electronic negotiations but met with mixed success, he said.

First-party property damage claims and auto claims that don't involve injury could be candidates for online adjudication, Hudson said.

Low-end claims are the only ones being considered for online adjudication now. But in the future, claims that are more complex are likely to be handled that way, said Joseph Zubretsky, president and chief executive officer, GAB Robins.

AIG Claims Services Inc. isn't offering online adjudication of claims, but it is offering online, real-time access to claims activity and is working toward electronic payment of claims, said Anthony J. Galioto, president. AIG Claims Services is a member company of New York-based American International Group Inc.

In a case like a simple workers' compensation slip-and-fall claim, most of the processing could take place online, but AIG Claims Services still contacts the injured person, the employer and the doctor, Galioto said. "We consider that part of our best practices today to make that contact," he said.

Following a Claim

The online real-time access to claims activity allows a broker or the insured to follow the adjudication closely In the case of a personal-lines auto claim, a policyholder can find out immediately that the claim has been paid or is pending without waiting for that information to be posted at night, said Kevin Murray, AIG Claims Services senior vice president and chief information officer.

Insurers who move some claims through online adjudication have the advantages of faster service and lower transaction costs for those claims, Flynn said. The process also frees the adjusters to concentrate on the more complex claims that represent the greatest amounts in loss and transaction costs, he said.

With health insurance, the focus of online claims adjudication has been largely on outpatient claims. It doesn't have to be limited, though. "There's no reason why hospitals can't adjudicate immediately," said Anne Castro, chief design architect for Blue Cross Blue Shield of South Carolina, which provides claims-processing services to other health plans and organizations throughout the United States.

But targeting outpatient services makes sense, because the average U.S. health plan subscriber has seven outpatient visits a year and one inpatient visit every 3.5 years, said Mark Anderson, vice president, health-care research, Meta Group, and chief executive officer, Arc Consulting Group. "The goal is to have about 80% of all doctor's office claims automatically adjudicated online without anybody touching them," he said.

Three Dozen Rules

The average doctor's office claim has to be checked against 36 different processing rules, Anderson said. These include simple checks, such as the doctor's identification code, and more complicated checks, such as making sure the treatment matches the diagnosis and the diagnosis matches the symptoms. Some insurance companies still do the checks manually, and even those who do them electronically can take up to 24 hours to complete them, Anderson said.

Blue Cross Blue Shield of South Carolina is researching online adjudication systems that will tell patients at the point of service how much they may owe for the service and provide them with an explanation of benefits, Castro said. Blue Cross Blue Shield already offers an online eligibility check and allows doctors to submit bills online. Having a payment amount computed while the patient is still there will be new, and the ultimate goal is to have electronic transfer of money so the claim gets paid as soon as it is submitted, Castro said. "That's what every insurer thinks when they think of online adjudication," she said.

The advantages of online adjudication of health claims include a better relationship with providers who appreciate getting their money sooner and fewer follow-up inquiries, Castro said. "The reason you have a back-office claims process is not for the claims that are accepted immediately; it's for the claims that are rejected for whatever reason," she said. Since all parties are at the point of service when the claim is filed, discrepancies and errors are less likely.

Blue Cross Blue Shield will either purchase the system from a vendor or develop it itself, Castro said. The company is looking for a system that will interface with its legacy system and adjudicate through the same codes, she said.

Legacy systems can be a problem in implementing online adjudication, Anderson said. Usually they have to be replaced, converted or supplemented with another system. Another problem is that most doctors don't have front-office access to the Internet. "The last number I heard was that only 5% of doctors' front offices have access to the Internet," Anderson said.

Cost Savings

Health insurers also are going to have to change some of their thinking if online adjudication is going to work, Anderson said. For example, it may be cost-effective to rewrite some rules. If most claims under $250 are approved, it might be worthwhile to have a rule that approves every claim under $250, rather than go through the time and expense of matching all the codes.

In the past, insurers have held off paying claims to earn additional interest on the money, Anderson said. They may find that with online adjudication they save more money on reduced administrative costs than they would have made by holding the money.