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March 29, 2005

Customer-facing aspects of claims will be top IT priority for US P&C insurers in 2005

With numerous challenges to stability looming on the horizon, US property and casualty (P&C) insurers are seeking ways to improve operational processes, and secure their profitability gains. As such, costly claims management apparatus will be their leading strategic area of IT investment in 2005. Datamonitor expects US P&C insurers to pump $4 billion into revamping these systems in 2005.

By CBR Staff Writer

US P&C insurers are looking to establish a long-term competitive advantage by retaining existing customers and acquiring new ones. Claims processing will account for the bulk of IT expenditure while claims handling, driven by the uptake of the internet as a factor in all phases of the claims cycle, will experience a growth rate of over 12% through to 2007 – over twice as fast as the other areas, as spending growth reflects the emergence of web-based, customer-facing solutions.

The vision of an insurer as a customer-centric organization is transforming the claims process into a competitive differentiator and key to customer retention and cross-sales. By automating all or some of the elements of the lengthy claims process, insurers can capture substantial cost savings and efficiency gains while providing a faster, more transparent and claimant-friendly experience.

Drivers for claims automation

Property/casualty insurance fraud cost insurers roughly 15% of total payout on claims. Leakage – loss resulting from human error – results in delays in settlement and, hence, costlier claims.

The hard market in US P&C is waning. While pockets of strength will remain in certain areas, the industry will become more competitive as premium income growth falls. Claims processing and management, which accounts for an estimated 80% of operational costs for a P&C carrier and represents the only direct interaction with customers after point of sale, represents a key area where US P&C carriers will seek to achieve these objectives.

To offset falling revenue and remain competitive, US P&C insurers will be looking at ways to control costs and increase efficiency in core processes in order to maintain low combined ratios during what should be a more turbulent and less predictable operating environment. At the same time they are seeking to develop a strong customer service culture in order to increase retention rates, drive additional sales and differentiate from the competition.

Business benefits of claims process automation

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Claims process automation lowers processing costs via reduction of manual and paper-based processes, costs associated with staff and those of claims leakage. Streamlined workflow will lead to more effective handling of both generic and exceptional claims.

Increased functionality and transparency in the claims process and decreased service times will improve customer retention. Improved management information to track key performance indicators (KPIs) will enable claims managers to improve load balancing, better measure effectiveness and determine areas of success and failure in applying future applications.

Market opportunity

Datamonitor expects US P&C expenditure on IT in claims and management systems to total $4 billion by the end of 2005. Claims processing, the largest sector of spend, will grow 5.4% over the next three years, driven by the need to reduce manual processes and high error rates. Claims handling, driven by the uptake of the internet as a factor in all phases of the claims cycle, will experience the fastest growth rate.

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