In the News
Customer-Centric Cash Flow
Insurers typically neglect the critical customer touch points of premium and claim payments. A customer-centric approach to these traditionally back-office functions not only pleases customers, it also brings efficiency and transparency to insurers' processes as well.
By Anthony O'Donnell
Insurance & Technology
September 05, 2006
Read Majesco Mastek Coverage
Much progress has been made in the insurance industry's arduous transition from policy and line-of-business orientation to a more enterprise-wide, customer-centric approach to processing. However, insurers have continued to lag behind other industries in one of the most important contact points with customers: the exchange of funds, whether payments from customers to insurers in the form of premium, or from insurers to customers in the form of claim payments.
Carriers typically have done better in making claim payments, particularly in the property and casualty segment, given the conception of claims as the time for an insurer to shine. But even P&C companies struggle with multiple systems issues with regard to payment and a lack of a unified and more real-time method of managing collections and disbursements. When all is said and done, payments to and from an insurance carrier constitute, like claim service, another moment of truth, and one in which carriers' performance often leaves much to be desired.
When it comes to payments, in either direction, what customers want are options, according to Kristen Park, COO for personal lines, The Hanover Insurance Group (Worcester, Mass.; $2.6 billion in revenue). "They want options, and they want them in multiple ways -- in how they receive and pay, and how they access related information," Park says. "They want that information to be clear and concise, and they want to know that they have paid or received the appropriate amount."
The front-line options in question include the ability to select from the gamut of existing fund transfer mechanisms that go beyond paper, including electronic check, credit card and debit transactions, and scheduled electronic funds transfer (EFT). But, even with these mechanisms in place, the customer experience can fall flat without the back-office systems capability to craft payment schedules and respond to customer inquiries about the status of billing or claim payments. "Carriers are struggling with getting to a single account balance system across their several lines of business, where they can deliver the customer a single bill and reconcile short-pays and over-pays," asserts John Burke, VP, insurance solutions, SAP America (Newtown Square, Pa.).
Full-Spectrum System
A full-spectrum system, Burke says, should be Web-enabled and include self-service bill payment and presentment wherein customers not only can see their bill and payment status, but also can apply funds to whichever policy they choose, on whatever schedule suits them. Such a system would improve customer satisfaction and also reduce call center-related costs. Further, it would enable rapid reconciliation of accounts, even when customers have multiple policies with different premium payment priorities. "In the case of anything going wrong, I could apply a rule to a payment and leave open the possibility of a customer coming back and reversing the transaction," Burke notes.
"Billing, payments and account balances should all be stored in the same place," Burke adds, "because when they're not, things fall out of sync very quickly and companies struggle." And unfortunately, struggling in this area is something insurance companies are used to.
One reason for that is the places in the insurance enterprise that these functions traditionally reside. Claims and billing have been handled separately from a functional standpoint, and from a financial standpoint they have been connected only loosely, in terms of processing, within the concept of collections and disbursements. And while the service aspect of claims is well understood, the continuum between claims and billing generally has been owned by the CFO. "There is unified ownership of the functions, but only in the very back office, despite the fact that front-office people are touching the customer when it comes to getting money from and paying money out to the customer," observes Donald Light, a San Francisco-based analyst with Celent. "Rarely does anyone talk to the CFO about how he or she is managing the customer experience."
Most companies have yet to consolidate their internal billing and payment systems, according to Light. But they are making important moves -- which further drives the competitive imperative for other carriers to follow suit.
Super-regional P&C carrier The Hanover Insurance Group, for example, seeks to maximize its competitive position by delivering service options characteristic of both the more technologically advanced national companies and the more responsive, high-touch regional players. The carrier has built the capability for its independent agent distribution partners to accept full or partial premium payments for new home and auto policies via electronic check, credit card and debit card at the point of sale (POS), as well as enabling customers to call the carrier and use an interactive voice response (IVR) system to pay by credit card. The Hanover also is offering discounts on its multivariate Connections Auto™ product to customers who pay in full via electronic payment.
"Customers come to us through our agents, so it's important to provide the customers, and therefore our agents, the same options they would have in the direct market," says The Hanover's Park. "It's very important to agents not to have to pass that money on to us or to worry about depositing checks. Remitting funds happens immediately at the transaction."
To provide the capabilities to agents, The Hanover built a new user interface into its The Agency Place agent portal. PegaSystems' (Cambridge, Mass.) PegaRULES Commander product enables configuration of different pay plans, pay options and account summaries, according to Mike Clifton, The Hanover's chief technology officer. Agents have the ability to enter a credit card, for example, and execute the transaction in its entirety or choose a billing plan.
"The configurability of our POS system allows for the rules within the customer service flow to automatically offer the appropriate options for payment," Clifton remarks. "The billing capability is mainframe-driven, while the rules are embedded in our POS capability. Having the rules outside the billing system pretty much lets you be as creative as you could wish." Other vendor partners include BillMatrix (Dallas) for bill presentment and credit card payment at POS and over the phone, and CheckFree (Atlanta) for online electronic check capability.
Planning for the work began in November 2005. The project, carried out by a team of 12 to 15 developers, kicked off in February; full functionality was rolled out by the end of July.
An Enriching Experience
Clifton comments that The Hanover has sought to build upon the traditional customer experience of receiving a bill that simply shows the customer's various policies and balances. "We want to enrich that experience, whether online or on paper, to let you know what other products might be built -- for example, the possibility of building an umbrella policy over other lines," he says. "On top of that, if you've made any endorsements against a home, for example, we want to be very descriptive -- the better the description, the easier for you to look at the bill and decide in a 30-seconds-or-less transaction that you're going to pay the bill. What we've done is build a strategy and billing capabilities that can tie all that together."
Clifton reports that since the electronic payment capabilities went live, adoption has exceeded The Hanover's expectations -- even without advertising. "Our cost/benefit analysis projected a 24- to 26-month return on investment. But with the level of adoption we've enjoyed, we're hoping for that to happen a little bit earlier," he relates. "We tripled our CheckFree [Atlanta] and BillMatrix [Dallas] flow from what we expected in the first 90 days -- agents and customers are very happy with it," Clifton adds, referring to the e-payments service providers.
If customers can be made happier when they're making payments, there must be ways to make them happier still when the money is moving in the other direction. Among those ways would be providing flexibility as to how and when claimants get paid -- including the ability to adapt to changes over time -- and rapid insight into the status of payments relating to any claim, according to Eoin Kirwan, head of product management for FINEOS Corp. (Dublin, Ireland). "That would include bulking payments into a single check and providing good quality information explaining any offsets, deductions, etc., and showing clearly how the carrier arrived at the compilation of the benefit amount."
Insurers commonly have one system that is good at electronic case management, providing a single summary workstation view of a given claim, according to Kirwan. But when it comes to the point of approval, they generally have different systems for managing the payments and integrating them with a check production system and general ledger. Carriers in this situation "would typically be using a BPM tool to handle claims intake through various sources right through to approval," Kirwan explains. "At that point, they would either rekey the information into a payment system, or have point-to-point integration with another system. Either way it becomes difficult to track claims, handle customer inquiries and provide a quick view of payment status."
Problems arise when claims undergo corrections and the system is unable to track, understand and manage changes. "Tracking such changes and recording the reason a backdated change is made with a certain effective date is quite a difficult thing to do," Kirwan says. "If the system can't manage that, then it gets solved off-system, and someone has to manually make adjustments to ongoing payments."
FINEOS' solution cracks that problem by uniting the different processes and treating payments as as much a part of the electronic claim file as documents, contact history and other data, Kirwan asserts. The FINEOS product presents a given claim along with several tabs for documents, contacts, workflow tasks and payments. "It tracks payments that are due, those that have been made, the status of payments paid and projections into the future so that the claims handler can very quickly give the claimant an up-to-the-minute view of the last payment, when the next payment is due, what the amount is going to be and also any balance issues," Kirwan says.
Too Eager to Pay
An eagerness to make customers happy caused trouble for Madison, Wis.-based CUNA Mutual Group ($2.64 billion in 2005 revenue), a provider of financial services to credit unions and their members, and tended to have the opposite effect in the long run, as payments were made excessively as well as inconsistently with regard to contract terms. In the absence of rules-based automation and process controls, the carrier was paying out too many inappropriate claims, according to Craig Everson, VP of customer operations IT. Claims handlers, says Everson, "had an incentive to pay quickly because that's what customers wanted, and so they paid pretty much everything that came in and for whatever period of time the person said they needed them."
In an effort to bring a legacy system-bound claims process into more competitive shape and stem the flow of overpayment, CUNA decided to build a state-of-the-art claims system in 2001. The project failed to take shape, according to Everson. After about a year the carrier took a different tack, studying the more successful claim experience of its Canadian subsidiary, CUMIS (Burlington, Ontario), and launching an initiative with Edison, N.J.-based MajescoMastek to build a multi-product claims processing solution called Claims Express in fall 2002, he relates. Under an extended agreement, a joint team of Majesco and CUNA Mutual personnel will maintain and enhance the system going forward.
A key feature of the Claims Express initiative was the automation of payments, which Everson characterizes as "implementing a set of business rules that were compared to the contracts as to whether to pay or decline." The benefit to the customer, he says, "is that the credit union knows we're paying the right claims, and we're paying them consistently."
Having estimated that building a system for all the carrier's products would be impractical, CUNA Mutual focused first on implementing a limited version of the system for credit disability, its largest product, which had the most leakage and the greatest customer impact. "The advantage we saw was that the value to doing that was about $1.5 million per month, and so we pushed it out within 15 months," Everson recalls. "Within three or four months we got it stabilized and started seeing the benefits," he continues. "The system had all the major claim components -- adjudication, notification settlements, billing, payments -- and it integrated with our policy admin system, our financials and our accounts payable system."
CUNA Mutual delivered the system for its credit life product in mid-2005 and recently has made further modifications to improve speed of delivery, adding flexibility in product definition to allow for faster addition of products, implementing object-oriented design and code to ease rules maintenance, and reusing code for multiple products and to allow for quicker integration with legacy systems, according to Everson. Subsequently, CUNA Mutual implemented process improvements relating to the behavior of credit union members on disability. "In the first wave of improvements, the business value related to the speed and accuracy of automated payments," Everson comments. "The next wave of changes was more about value and duration."
Everson explains that members with long-duration disability tend to remain on disability as long as they can. That inertia can be mitigated with back-to-work strategies that encourage members to return when they are able. From a technical standpoint, the back-to-work measures involve integrating communications and claim file technology with the Official Disability Guidelines (ODG) database, which houses standards for proper duration of given types of disability.
Among the customer benefits of Claims Express were the reduction of payment backlog by more than 75 percent, according to Tom Gosnell, CUNA Mutual's CIO. That figure was driven largely by speeding claims payments from 20 days to about seven days. The number of fraudulent or otherwise inappropriate claims has dropped significantly, and the volume of claims that are made in fully automated fashion has increased about 30 percent, Gosnell adds. "That clearly increases customer satisfaction by our being able to get the money out to members quickly," he comments.
Being able to increase savings through properly adjudicating claims carries a benefit both for CUNA Mutual and its credit union policyholders/owners, Gosnell emphasizes. "We estimate that 400 percent in savings came to both CUNA Mutual and our customers," he says.
Rethinking Billing
Traditionally the most "back office" of back-office processes, billing is beginning to be recognized as an important aspect of service and competitive distinction, according to Celent's 2006 report, "Billing: Business and IT Issues for P/C Insurers." P&C carriers are beginning to emphasize the importance of billing, with nearly half considering it a service or even marketing issue rather than simply a financial one, the report says. Roughly half of insurers already offer electronic bill presentment and payment (EBPP) for agents and policyholders, but the average insurer with more than 100,000 policies has 3.7 different billing systems, the report adds. In the interest of further improving insurers' mastery of billing, Celent offers insurers the following recommendations:
- Billing should be regarded as a service issue rather than a pure financial issue.
- E-business support and flexibility in payment methods are becoming important competitive issues. Insurers that do not offer EBPP or ACH/EFT (automated clearinghouse/electronic funds transfer) payments, and even card payments, will find themselves at a competitive disadvantage.
- Homegrown systems tend to have inherent flexibility limitations. Insurers should look to vendors that will support their current needs and have the flexibility to support their potential future needs.