Ross Gow suggests the reinsurance industry can better use technology to improve its claims handling.
A macro-economic view of the world suggests that there has been a considerable reversal of globalisation trends following the terrorist attacks on September 11, a change which could prevent multinational companies from accessing local markets. Tightening the focus, we can observe that considerable changes are transforming the way reinsurance companies are operating. The new realities of risk management in these uncertain times require that insurer business models and strategies be supported thoroughly by information technology (IT) vendors, to accurately manage insurance risks and opportunities.
Clearly, e-commerce is a forceful agent driving forward change, cutting out mundane costs and standardising processes both in the front and back offices. Recent events demonstrate further the necessity for tightly integrated reinsurance recovery systems and processes, as the size of catastrophic loss continues to spiral. As indicated by the Washington Post Online, prior to the 2001 terrorism atrocities, the most expensive man-made disasters in the US were the 1992 Los Angeles riot, causing $775m in property damage, followed by the 1993 bombing of the World Trade Center at $510m and the 1995 Oklahoma City bombing at $125m, according to the Insurance Information Institute. Post-September 11, with claims estimates ranging up to $70bn, the spotlight has increasingly fallen on claims management as an area that could benefit considerably from the application of intelligent software.
Claims handling revolution
The `e' explosion of recent years has undoubtedly been revolutionary in shaping the way claims are managed, alleviating problems of duplication of effort by insurers, brought about by complex, paper-intensive risk assessments. It has created value in the business chain and assisted in the creation of new business and processes such as the evolution of virtual communities and the client portal. However, capital exploitation in recent years and the burst of the financial bubble have led venture capitalists, once eager to invest in online technologies, to think twice before investing in online applications. Today's claims technologies need the backing of solid companies with strong financial portfolios, proven technology, capability and experienced staff to survive. Technology standards, business rules and meta-level standards must be aligned and integration platforms, and services managed.
Within the world of reinsurance, many companies are overlooking millions of pounds of unidentified reinsurance recoverables. Considering that reinsurance claims in the US of $10bn a year have been reported, it would only take a small proportion of this amount to be uncollected for the industry to find that there are millions of dollars unaccounted for. This incapacity to recover money owed will impact heavily on their stakeholder relationships.
The intricate recovery and reinstatement programmes, endemic in reinsurance, merely serve to heighten the confusion and delay. These are also often non-standardised transactions including varying layers of coverage and complex premium calculations. Auditing of reinsurance claims is frequently time- consuming. Another problem for companies is that when a catastrophe strikes, enormous pressures are put on insurance companies by governments to aid in the recovery of affected infrastructures and communities in terms of hurricane or flooding problems.
Information must be processed very rapidly, increasing the scope for human error unless the claims systems are tightly integrated. As acknowledged by specialist insurance consultant Roger Foord, composite recovery and reinstatement programmes do not simplify the process. While the original premium may have been processed diligently, retrieving the money owed by reinsurers can prove more difficult. The solution to alleviating the problems involved in processing complicated reinsurance demands lies in integrated reinsurance recoveries systems, which bind the entire operation together and make the whole process transparent. All recoveries are clearly identified, analysis is simple and detailed, reporting instantaneous.
Through the implementation of new innovative technologies, considerable `intelligence' can be added to the business value chain to detect and predict fraud, whilst significantly reducing costs, increasing accuracy and speed to market.
Specialist systems such as those provided by ReClaim can be used to facilitate the automation of recoverables and improve cashflow through advanced cash management facilities with built-in flexibility to administer mid-term changes, catastrophe and clash covers. Companies can also use innovative technology to manage uncertainty through executing realistic disaster and `what if' scenarios to calculate rapidly IBNR possibilities. Consequently, skilled and trained claims technicians have more time to concentrate on maintaining quality standards, increasing accuracy, efficiency, productivity and therefore overall profitability. New technology incorporating artificial intelligence (AI), neural networks and fuzzy logic are all available in tried and tested software solutions. The use of this software enables not only unidentified, or incorrectly allocated, claims to be administered for reinsurance claim recoveries, but gives the re/insurer confidence regarding catastrophe claims identification. The correct allocation of inwards claims to events and then to outwards reinsurance collection can save literally millions of dollars, suggests claims recovery specialist, Gary Izatt. These new processes are only available due to new technology and prove that business needs are, at last, being served by such advancements.
Further technology transformations can also challenge fraudulent claims. New innovative technology powered by AI embedded in new intelligent decision management software can detect and notify insurers about suspicious claims early in the lifecycle. Advanced fraud detection software can also be predictive, prospectively identifying fraud and saving the company considerable time and expense.
The entire reinsurance industry is operating over an unsustainable cost base: data is generated, printed, re-keyed, printed and often re-keyed again. Cash transfers take months, not seconds, and millions of dollars are squandered on duplication of documents and replication of wordings. It is truly disheartening to see seasoned claims brokers in the London market struggle down Lime Street over-burdened with mountains of files, steeling themselves for hours of queuing at a claims box. Surely it is now time to apply some intelligence to the management of claims.