Bust For Big Three Auto Could Be Boom For Warranty Insurance Companies

With the big three US automakers impacted by the recent recession and becoming very unsteady – closing dealerships, factories, laying off workers, discontinuing lines, and possibly even filing chapter 11 – consumers are faced with a conundrum; To buy or not to buy, that is the question.  The only way for automakers and dealers to get out of this mess is to move cars.  However, will consumers want to purchase a car from a company that may not be around long enough to back their warranty, let alone provide service after the warranty has expired?

For those risk averse consumers that still want to take advantage of these “fire sales”, a great way to get that warranty back is to purchase an extended warranty agreement on their vehicle.  These warranty agreements are backed by warranty insurers like Mercury Insurance, a.k.a. Certified Car Care, Great American Insurance, or Federal Insurance, a Chubb company.  An extended warranty essentially replaces or broadens the manufacturers warranty coverage so that consumers do not have to bear the full burden of repair costs to their vehicles.  Just as with any other insurance, each company’s coverages and benefits are different.  Edmunds’ offers a great description of warranty coverage and how to shop for it.  Here’s an excerpt:

Do you have to pay the bill up front and get reimbursed?  Does the company whose plan it is offer any payment to the repair facility via a credit card over the phone so you don’t have to pay any out of pocket expenses?  How easy is the plan to use at the repair facility that will be dealing with it?  Being on the phone, on hold, waiting to get authorization could cause a major delay in getting your vehicle repaired in a timely manner.  Will a representative from the auto warranty company have to come out and inspect the vehicle?  That will also add delays to the repair process.

The automakers misfortune could become an opportunity for warranty insurers.  Assuming premiums remain reasonable, and there’s no reason not to, warranty insurers could see their business quadruple.  For those insurers that have automated their systems for application and claim processing, they will be in good shape to keep up with the large increases in demand and processing requirements.  The departments that cover these types of policies are no where near the size of the bread-and-butter departments like General Liability.  Those insurers that can keep up with the demand with automated functionality for application entry, quote, and issuance, as well as claim submission and adjudication, should become very profitable.  For those companies whose systems are not ready for the bubble, it could become a nightmare threatening the viability of the company due to reputation and service damage.  Once they cannot keep up with the demand, those requests will dramatically decrease and potentially go away completely.

This can also be another opening for frontline agents.  When consumers come in to request auto insurance, agents could seize the opportunity for the up sell and offer warranty insurance to cover that newly purchased US auto, or any auto for that matter.  Most consumers will expect to hold on to vehicles longer, making the warranty insurance coverage a very attractive option.  Agents are probably already representing carriers that offer this coverage and could easily add this arrow to their quiver.

The Benefits to Insurance Carriers of Automated Workflow Processing

mailcartDo you still distribute paper files and mail the old fashioned way?  I see this all the time.  Even Underwriting departments have people that distribute paper policy files to Underwriters for review of applications, renewals, MVR and CLUE reports.

Why do so many insurance organizations still use a manual distribution method for workflow – especially in the Claims arena which has transactions that are so heavily paper based? There are so many problems created by paper files and mail being stacked on adjusters’ desks for handling without regard to priority.  An insurance organization takes on too much risk:

  • Increased Error Rates
  • Increased Operation Costs
  • Reduced Service Response Time
  • Extending the Lifecycle
  • Raising Adjuster “Burn Out” Rate and Increasing Employee Turnover and Training 

When I was a claims adjuster, every day was the same — about 10:30, after the morning mail was opened (which I had to go to the post office and retrieve because I was a “field adjuster”), a stack about 3 inches tall, wrapped in a rubber band, would be dropped on my desk like a ton of bricks.  At least the claim file numbers were written on them which the administrative staff would spend about 90 minutes researching.  Then I would have to take that stack of mail, and start retrieving all the paper files from cabinets associated with that mail – PIP applications, damage appraisals, attorney correspondence, medical bills, etc.  How was I supposed to go out in the field when I had all those paper files back in the office?  You couldn’t take them with you because they weren’t allowed to leave the office IN CASE THEY GOT LOST.

Granted, this was a long time ago, and I had to consider myself lucky that at least I had a mainframe system into which I could enter my reserves, payments, notes and confirm coverage.  But these days, not storing files electronically and making them accessible remotely is almost inexcusable.  All that wasted time and productivity.  I probably could’ve handled twice the case load and closed files twice as fast if I could have been out in the field all the time.

Like so many of their policy brethren, many modern claim systems include automated workflow and straight-through processing features that insurance organizations with legacy systems can not, or do not, utilize.  But these legacy systems don’t necessarily have to be replaced in order to implement these types of functions.  Many independent automated workflow systems can work right along side existing legacy systems and push work forward.  I know carriers that implement a simple document management system with high speed scanners that scan and distribute 10,000 – yes, ten thousand – pieces of mail every day.

There are those claim managers that are considering making a change to their claim administration system, and may want to increase the priority of the automated workflow function in their search criteria.  By introducing an automated workflow, many insurance organizations have improved productivity by as much as 100%, recognizing savings to the hundreds of thousands of dollars, and supported a 20% increase in business with existing staffing levels.  The additional benefits to an Insurance organization of a workflow utility are that it can:

  • Implement continuity in processing,
  • Decrease processing costs, and
  • Increase efficiencies to improve Service-level Agreements (SLAs) with customers, agents, and company departments. 

Insurance organizations can also benefit by increasing the collaboration of resources using a document repository. A single repository would enable organizations to reduce resource costs associated with searching for non-existent data or recreating data that is unable to be found, such as loss control guidelines, rating specifications, or even just the office fire procedures.  Call center and other service-related expenses can also be reduced by providing customers with access to their documents via the Web for policy documentation and/or claims forms.  In addition, field workers would be more efficient by being able to review and transfer documents remotely, reducing claim processing times and expenses, and allowing for claim payments to be issued more promptly to customers; spending more face time with insureds, claimants, and agents.  Face time is always good for business.

One final note, Enterprise Content Management (ECM) and Workflow can also be utilized as a knowledge broker between the many systems and departments within an Insurance company, and can become an important source for Business Intelligence (BI). It can provide consistent searchable metadata for proper document retrieval that can be used to support Dashboards and other BI reporting tools for executive management, resulting in improved productivity even at those levels. 

But that’s all right.  You keep paying rent on that office space for file cabinets and maintaining resources to pass paper around.  I’m sure you’re not losing market share or unnecessarily increasing your expense ratios.

Top 10 Reasons for System Implementation Failure

Insurance carriers are not typically custom development or system integration experts – their business is insurance, not software.  There are some national carriers that have built their company around providing insurance directly over the web and have created proven methods of software development and integration.  That is not the case for most, especially small- or mid-size carriers.  These carriers see the need to improve  products, speed to market, and flexibility. They address the underlying system needs by buying, building, or a combination, and introducing new systems into their technology ecosystem.  Unfortunately, too many times these projects fail.

There are many different reasons why  system implementations to fail, but this is the top 10 in my experience.top_10-708117

1)       No experience running an RFP to begin their selection. The RFP was pulled from the internet, modified slightly and sent out.  Out of 4 responses, three eventually dropped out, so they went with the one remaining, never taking a close look at what they were buying.

2)       Inadequate Project / Program Management Process. The project was driven by hard completion dates without having a valid work breakdown structure for a project plan to really understand what it would take.  One high level executive ran the project, and no one was empowered to reveal that the emperor had no clothes.

3)       The software development company was located in Europe and the stateside representation was a consulting company that did not understand the carrier’s business.

4)       The carrier failed to properly check the vendor’s references of successful installations, of which they would discover there were none.

5)       The carrier wanted to perform too much of the work themselves, learning as they go, and not allowing the experts to do what they do best.

6)       Tried a big bang (All lines, all states, and all systems on day one).

7)       Scope management. Tried to put everything in the first release afraid that if it was not there, they would never get it.  As a result, they got nothing.

8)       The carrier’s requirements were actually pretty good, but they did not know how to manage them. They could not set and hold on to their agenda, rather than letting the vendor set the agenda.

9)      Not enough involvement in the process by the business.  After the selection all the work was done in a “black box” and what was delivered was not what the business wanted.

10)   Poor or no Quality Assurance process.

Business Change vs. System Change: The Slippery Slope

(Wouldn’t It Be Nice If…)


Wouldn’t it be nice if vendor product administration systems could be configured to your exact specifications, screen designs, workflow, automation, and include flick of a switch integration. Wouldn’t it be nice if the system was intuitive enough to know that most of your business uses the same forms, limits, and deductibles, except in a small number of cases. Wouldn’t it be nice if the implementation was as easy as installing music software and you only have to run the setup.exe file and you’re ready to start writing business or administering claims.

That would be nice. But its not realistic. Implementing a new system to support your business is laborious and requires the proper attention by the proper people; otherwise, garbage in – garbage out. Underwriters, Claim Managers, Agent Relations people, don’t want to deal with putting in a new system, they just want the system in and working. But what does “in and working” mean? Many companies often do not recognize the magnitude of what they are undertaking. They go through the process of selecting an off-the-shelf product and believe this is what they really want. “This works for us and we can move forward with this.” Most of the time, that’s true. Unfortunately, most of the time its also true that the business then decides that there are many shortcomings in the new system and wants to reinvent it using five simple words: “Wouldn’t it be nice if…”, and IT must respond. This starts the snowball down Customization Mountain and before anyone realizes, the requests for changes are so frequent, and often so unnecessary, the hopes of what will be in production are unrealistic. The pedestal upon which the system has been placed is so high, it cannot be reached.

Wouldn’t it be nice if the user could put on a helmet, and the system could read their thoughts to enter the data and move through the system. Just like Clint Eastwood flying the Russian aircraft in the movie Firefox.

But what are the reasons for some of these changes? Why does the business need so much customization for a system they spent so much time and money selecting?  When asked these questions, often the business response is, “Because that’s what we do now.” Doesn’t that defeat the purpose of implementing a new system if you just want to keep doing what you’re already doing? That’s like buying a new horse to pull your trailer of goods, instead of a pickup truck. You’re not taking advantage of the features, functions, and new technology of the system, if you don’t also look at Business Process Adoption. Changing your business processes is most often much more cost effective than system customizations and will reap longer term benefits for the company. System changes increase maintenance time and costs with upgrades, not to mention being the major source of costs overruns and project delays.

Try to remember that vendors build systems to satisfy everyone; and you can’t satisfy everyone all the time. Go as close to the base product as possible, even putting that into production first, then look at making necessary changes. Your success rate will be much higher and your budget won’t get blown out of the water. Don’t try to rush everything into production on the first go-around. Take it in pieces and concentrate on delivering successfully using as much forward-thinking implementation as possible, such as using SOA in your existing architectures and platforms.

Then management will say: “Wasn’t it nice that the system went in on time and on budget.”

ICD-10: Apocalypse or Advantage?

mayan-calendarWith humanity coming up fast on 2012, the media is counting down to this mysterious — some even call it apocalyptic — date that ancient Mayan societies were anticipating thousands of years ago.  However, the really interesting date in healthcare will happen one year earlier. In 2011, per the mandate of Senate Bill 628, the United States will move from the ICD-9 coding system to ICD-10, a much more complex scheme of classifying diseases that reflects recent advances in disease detection and treatment via biomedical informatics, genetic research and international data-sharing. For healthcare payers and providers that have used the ICD-9 coding system for submitting and paying healthcare claims for the last 30 years, it could be apocalyptic without proper planning and execution.  Conservative estimates of the cost of switching to ICD-10 are 1.5 to 3 billion dollars to the healthcare industry as a whole and nearly $70,000 for each doctor’s practice.

Since 1900, regulators of the U.S. health care system have endeavored to give care providers a systematic way to classify diseases so that care processes could be standardized and appropriate payments made. Like many of the world’s developed health care systems, the United States follows the World Health Organization’s (WHO) International Statistical Classification of Diseases and Related Health Problems (ICD) code standard that is typically used internationally to classify morbidity and mortality data for vital health statistics tracking and in the U.S. for health insurance claim reimbursement. In 2011, technically, healthcare providers and payers will be moving from ICD-9-CM to ICD-10-CM and ICD-10-PCS.  To meet this federal mandate, it will be essential that information systems used by U.S. health plans, physicians and hospitals, ambulatory providers and allied health professionals also become ICD-10 compliant. The scale of this effort for healthcare IT professionals could rival the Y2K problem and needs immediate planning.

The challenge is that the U.S. adoption of ICD-10 will undoubtedly require a major overhaul of the nation’s medical coding system because the current ICD-9 codes are deeply imbedded as part of the coding, reporting and reimbursement analysis performed today. In everyday terms, the ICD-9 codes were placed in the middle of a room and healthcare IT systems were built around them. It will require a massive wave of system reviews, new medical coding or extensive updates to existing software, and changes to many system interfaces. Because of the complex structure of ICD-10 codes, implementing and testing the changes in Electronic Medical Records (EMRs), billing systems, reporting packages, decision and analytical systems will require more effort than simply testing data fields – it will involve installing new code sets, training coders, re-mapping interfaces and recreating reports/extracts used by all constituents who access diagnosis codes. In short, ICD-10 implementation has the potential to be so invasive that it could touch nearly all operational systems and procedures of the core payer administration process and the provider revenue cycle.

A small percentage of healthcare organizations, maybe 10 to 15 percent, will use ICD-10 compliance as a way to gain competitive advantage – to further their market agendas, business models and clinical capabilities. By making use of the new code set, these innovators will seek to derive strategic value from the remediation effort instead of procrastinating or trying to avoid the costs. An example will be healthcare plans that seek to manage costs at a more granular level and implement pay for performance programs for their healthcare providers. In addition, ICD-10 offers an opportunity to develop new business partnerships, create new care procedures, and change their business models to grow overall revenue streams. Healthcare organizations looking for these new business opportunities will employ ICD-10 as a marketing differentiator to create a more competitive market position.

There are three key areas for healthcare organizations wanting to convert regulatory compliance into strategic advantage with ICD-10 remediation:

  1. Information and Data Opportunities – Healthcare entities that are early adopters of ICD-10 will be in a position to partner with their peers and constituents to improve data capture, cleansing and analytics. This could lead to the development of advanced analytical capabilities such as physician score cards, insightful drug and pharmaceutical research, and improved disease and medical management support programs, all of which create competitive advantage.
  2. Personal Health Records Opportunities – Using ICD-10 codes, innovative healthcare entities will have access to information at a level of detail never before available, making regional and personal health records (PHRs) more achievable for the provider and member communities. Organizations that align themselves appropriately can provide a service that will differentiate them in the marketplace.
  3. Clinical Documentation Excellence Program – Developing and implementing a Clinical Documentation Excellence (CDE) program is a critical component of organizational preparedness to respond to future regulatory changes because there could be an ICD-11 on the horizon.

Healthcare organizations need to understand the financial impact that ICD-10 will have on their bottom line and begin the operational readiness assessments, gap analyses and process improvement plans to facilitate accurate and appropriate reimbursement. Without action, a healthcare organization can expect to endure “data fog” as the industry moves through the transition from one code set to another. Now is the time to choose to gain the advantage or procrastinate on the coming code apocalypse.