Unlocking value: outsourcing is an important tool to help insurers manage claims.

Leading carriers are increasingly considering creative solutions such as outsourcing to unlock the value in claims. Claims payments and loss adjustments consume nearly 80% of property/casualty insurers' annual revenue, yet few carriers have sustained a competitive advantage in claims. Traditional approaches to improving claims performance--reducing claims handling expenses and loss costs--typically yield short-lived success.

Several factors have caused carriers to rethink their traditional position that claims must be controlled exclusively by internal staff:

* The high cost of maintaining and upgrading technology, process design and staff skills across geographies and lines of business;

* Difficulty in meeting increasingly complex and conflicting standards for customer service, business results, data needs and regulatory compliance; and

* The success of outsourcing in other insurance (glass claims) and noninsurance applications.

Efficiently handling smaller, more routine losses is a challenge for most carriers. An Accenture study of more than 12,000 settled claims in North America and Europe found that claims handlers spend nearly half their day on routine administrative tasks that have little impact on the outcome of the claim or on improving customer service.

High-volume, low-severity claims, such as single automobile accidents with no bodily injury, are typically over-processed because carriers use a "one-size-fits-all" approach to claims processing. These claims, which are often handled by newly hired and inexperienced adjusters with inconsistent process support, have the highest percentage of loss cost leakage. Disproportional attention devoted to smaller claims prevents more serious claims from receiving the attention of top claims staff.

Small claims are often processed with tittle or no scrutiny of the settlement amount. Larger claims, however, are given a great deal of attention with supervisors and technical experts often involved. The irony is that while severity is low, the frequency of small claims makes it such that improvements in handling can have a dramatic impact on the bottom line. Depending on the mix of a carrier's business, these smaller claims represent approximately 30% to 50% of claims and between 10% and 15% of total claim cost.

Carriers outsourcing smaller claims--generally those that can be settled for under $10,000 within 90 days and not involving serious injury or litigation--can reap significant benefits, including reduction in cost and outside expense per claim of 20% to 30%; reduction in leakage by more than 5%; reduction in IT costs through the introduction of leading edge technology; improvement in customer satisfaction levels and renewal rates due to reduced cycle times to settlement; and improvement in outcomes due to the introduction of consistent, high-quality processes that support best claim practices.

The key to building greater efficiencies into the claims process starts with developing a highly-refined approach to claims segmentation. Very simple claims, for example, should be auto-adjudicated without the need for human intervention at any point. Low-risk claims that don't qualify for "no touch" can be outsourced for processing by a dedicated trait that works at high levels of productivity. Automation and outsourcing of smaller claims leave complex claims in the hands of highly-skilled, experienced claims handlers.

To enable the strategy, technology must supply some key capabilities. The claims technology platform must be able to accurately identify claims that have similar characteristics and require similar handling; quickly and accurately route similar claims to the appropriate and available resource; seamlessly connect to vendors and outside service suppliers; effectively adjudicate claims; continuously evaluate claims during their life cycle to determine if new conditions warrant reassignment to a more experienced handler; and readily move work between units as conditions change or assistance is needed.

A "one-stop-shopping" concept is one of the more innovative solutions for claims processing that leading carriers are considering. First notice of loss would be received and entered at the outsourcing partner's call center. The partner then segments and assigns claims, with tasks for the simplest claims being automatically processed. As appropriate, automatic payment would be initiated upon receipt of an invoice. Simple claims that require some human intervention would be handled by the outsourcing partner's licensed adjusters. The remaining core claims would be referred to the carrier's internal claims department for handling.

By carefully segmenting all claims, arming claims handlers with proper technology and tools, and outsourcing simpler claims to an outsourcing partner, carriers can transform their claims units into high performers.

Samuel F. Altiero (at right) and David R. Dahle are partners and Jeffrey G. Weiss is a manager at Accenture's Insurance Services Group. They can be reached at [e-mail].