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Technological innovations bring significant improvements to claims process

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Traditionally a labor-intensive manual process, no operational aspect of the insurance industry benefits more from technological innovation than the claims process.

Presently, insurance companies and brokers can leverage advances in claims-processing systems and ancillary mobile and analytic technologies to fundamentally remake the way they receive, process, investigate and pay claims (see related story).

However, this bounty of technology options has not automatically triggered a stampede to revamp claims operations for their own sake, said Karen Pauli-Bradshaw, Boston-based research director for the insurance practice at CEB Tower Group. Rather, the prolonged soft market and flagging investment income renewed the industry's focus on expense control.

With claims being a primary customer interface, however, evolving standards of customer service may have convinced many companies to upgrade.

“Claims executives resisted technology harder than any group I had seen. But once modern core claims systems went in, they started to see the improvement in their organizations,” Ms. Pauli-Bradshaw said.

The configurable nature of modern claims systems give claims organizations the flexibility to fashion a system to adhere to their unique claims practices and business rules, Ms. Pauli-Bradshaw said. With readily adaptable systems in place, claims departments find that they can “move the needle” on metrics surrounding financials and customer service, she said.

Moving to a modern claims-processing and management system is often the precursor to even larger changes, after the system is augmented with predictive models and advanced analytics. Claims departments can use the models on the front end of the claims process to optimize workflows and adjuster assignments and on the back end to detect fraud and flag claims for subrogation.

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In 2011, Chicago-based CNA Financial Corp. implemented a fraud-detection framework developed by Cary, N.C.-based SAS Institute Inc., said Tim Wolfe, Phoenix-based assistant vice president for CNA's special investigations unit.

Mr. Wolfe said the addition of the predictive models and link analysis tools has helped his team home in on fraudulent social networks. For example, seemingly disparate cases of workers compensation fraud may share a common doctor or lawyer, a linkage that may escape even the most diligent adjusters, he said.

Thus far, the models have produced an 18% “hit rate” of suspicious claims across CNA's four lines of business, with the hit rate for the workers comp line at 30%, Mr. Wolfe said.

While all these claims will not turn out to be fraudulent, the models go a long way toward separating the wheat from the chaff, he said. “These are not claims referred to by an adjuster,” he said. “If it wasn't for the model, we would not be reviewing these claims.”

The upshot, Mr. Wolfe said, is a sea change in how a special investigative unit operates, as well as the types of people within it. While special investigative units traditionally were staffed largely by experts with investigative and law enforcement backgrounds, Mr. Wolfe said workers with mathematics and quantitative analysis expertise now are in demand.

“We are looking for people with an entirely different background than what we typically look for,” he said, noting the insurer has hired nurses and people familiar with diagnostic and billing codes to spot fraud in medical cases. “We want people who bring different skills to the table because of the complexity of the cases,” he said.

Stuart Rose, global insurance marketing manager at SAS, a business analytics and technology provider, said detecting linkages at many of the supplemental medical-services firms such as pharmacy, physical therapy and transportation providers is also a rich vein for fraud modelers to tap.

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Joe Friscia, Boston-based president of the Americas at fraud modeling provider BAE Systems Detica said insurers are profiting from advances in the speed with which analytic models are computed because faster computer hardware and improved data architectures mean that complex predictive models can run in near-real time.

Accordingly, insurers now have the ability to move the use of analytics further up in the claims process, even as soon as first notice of a loss, he said.

Another boon to the analytics marketplace was the defense buildup of the past decade as the government spent money on cutting-edge link analysis tools to identify terrorist networks. Variations of these tools now are available in the commercial market, Mr. Friscia said, noting that his firm is owned by defense contracting giant BAE.

Using these tools, insurance claims investigators can analyze complex claims to identify deviations from standard practice and elucidate connections between parties.

“The data tells a story,” Mr. Friscia said.