Kofax Enterprise Capture: Achieving Measurable Gains by Automating Claims Processing

Kofax White Paper Achieving Measurable Gains by Automating Claims Processing By Jonathan Casher, Senior Consultant IOMA Advisory Services Executive Summary For nearly all lines of personal and commercial insurance, reducing the cost of claims processing is key to profitability. About the Institute of Management Reducing cycle time, the elapsed time from opening a claim to and Administration (IOMA) Since 1984, IOMA has provided authoritative guidance its settlement, is key to customer satisfaction. Moving to a fully to corporate managers across a wide range of automated process is a goal for claims processing of nearly all disciplines. In the Accounts Payable space, IOMA has insurance executives. Companies are at various levels of become the leader in promoting and explaining the AP automation and often do not have an appropriate strategy to function; in educating AP professionals; in supporting achieve higher levels of automation. This white paper identifies the AP function and its practitioners through AP seven levels of claims automation and provides a roadmap that certification; and in linking key accounts payable can be followed to enhance claims processing. This straightforward vendors and services to the markets they serve. approach can be used to increase the likelihood of successful automation. Background According to International Financial Services Research’s (www.ifsl.org.uk) December 2009 Insurance Report, global insurance premiums were $4.3 trillion in 2008, with the US, Japan, UK, France and Germany accounting for 63 percent of the market. Life insurance accounted for $2.5 trillion and non-life insurance accounted for $1.8 trillion. For life insurance, claims processing is fairly straightforward and costs are relatively low. However, claims processing costs are White Paper • Achieving Measurable Gains by Automating Claims Processing • Page 2 significant for other lines such as health, property & As a company moves from this low level of automation, casualty, accident, automobile and workers compensation. its costs and cycle times decrease. However, moving to Loss ratios, the percentage of premiums paid out in a higher level of automation is sometimes blocked or claims, are estimated to be between 60% and 110% of delayed due to various barriers. The higher the level of premiums for health insurance, and are typically lower automation, the greater the need for cooperation from and for other forms of non-life insurance. Combined ratios, coordination with other internal and external organizations. which include losses, underwriting and claims processing, are higher and typically over 99% of premiums. It is Many research and consulting firms have extensively estimated that claims processing costs range from about examined and documented approaches to claims 3% to 12% of premiums. Health insurance, which typically automation. Based on that research, supplemented with has a large number of claims per dollar of premium, often interviews with companies that have successfully has higher claims processing costs than other non-life achieved very high levels of automation, a framework of insurance lines. Property and casualty claims typically 7 levels of automation has been identified. Each level bears have a longer cycle time than other non-life insurance lines. specific benefits. Moving from one level to the next is a critical success factor to achieving operational efficiency, Three key goals of insurance industry executives for reducing cycle time and cost, accelerating data input and claims processing are: information access, and providing transparency and 1. Reduce costs. visibility into processes and information flow. 2. Reduce headcount. 3. Improve cycle time. Level 0 – Automated Claims Transaction Processing System There have been significant technological breakthroughs that can help dramatically reduce claims processing costs, All insurance companies have automated systems that allow reduce headcount and improve cycle times. However, the posting of claims transactions and making payments. many organizations have been slow to adopt them. Faster In addition to high costs and long processing cycles, there deployment and more effective use of technology are is often little appreciation by outsiders for the work that critical to achieving these three key goals. has to be done. Claims Automation Level 1 – Back End Scanning Every claims processing organization has some claims automation. At a minimum, organizations have automated There are many documents associated with the systems that are used to post transactions, feed processing of claims. These vary widely based on the information to the General Ledger and disburse funds to type of insurance and the nature of the claim. Many claimants. This type of automation is universally in place. documents are paper based. Some may be photographs. Companies with only this type of automation typically Scanning these documents while or after they are processed have high processing costs and long cycle times, which and storing them in a document management system have negative impact on operational efficiency and (often referred to as an “electronic file cabinet”) can customer service quality. dramatically reduce storage costs. Back end scanning can White Paper • Achieving Measurable Gains by Automating Claims Processing • Page 3 also reduce the risk of “lost documents” and the time employees. However, productivity improvements quickly required to retrieve documents when they are requested. offset the relatively low costs of training. Implementing back end scanning and manual indexing is Level 3 – Optical Character Recognition and inexpensive but not without risk. Documents that are not Intelligent Character Recognition sent to the claims department may still be “lost. While it ” improves overall productivity, it does not shorten cycle time. Optical character recognition (OCR) can be used to automatically extract information from images. The An advantage of back end scanning is that it has little manual keying of information from paper documents is impact on most processes within the claims department costly and subject to transcription errors. Incorporating and no impact on processes in organizations that interface OCR can significantly increase productivity. For many with the claims. Few people in the claims department types of claims, there are standard forms that may be are impacted when back end scanning is implemented. used. With standard forms, it is easier to determine the data elements that are being captured. Manual indexing of the scanned documents should not duplicate data that is entered into the basic claims processing Intelligent character recognition (ICR) uses algorithms to system. Tight integration between the claims processing “learn” from the documents that are scanned so it can system and the document management system is key to recognize and extract more information with greater an effective solution that links scanned document images accuracy than OCR. It is particularly useful when documents to transaction data.