SOA, BPM and Event Driven Architecture SOA, BPM and Event Driven Architecture

Applicability to Financial Services' Business Issues?Applicability to Financial Services' Business Issues?

Object Management GroupObject Management GroupSan DiegoSan Diego

March 27March 27thth, 2007, 2007Presented by -- Presented by -- Cindy MaikeCindy Maike

P&C Insurance Carriers—P&C Insurance Carriers— Claim costs have to decrease dramatically Claim costs have to decrease dramatically

Hand-off increasing lifecycle and cost of claim Skilled staff tied up on routine and largely manual process Number of fraudulent claims Legacy systems non-integrated but difficult to replace – ‘rip out and replace’

pain too big Expensive multi point-to-point technology development and maintenance

costs

Required changesChallenges & Changes

Customer satisfaction

Qua

lity

Tim

ing

Costs

Challenges (as formulated by participants)

“More emphasis on automatization.” “Get rid of the paper mountain and welcome imaging” “Integrate certain processes using the Internet” “Change from product oriented claims processes towards process oriented

behavior. Uniformity is key.” “Fighting fraud is becoming a major assignment for us.”

Required changes (as formulated by participants)

Source: Trend & Benchmark Study June 24, 2003

Challenges in claims managementChallenges in claims management

The challenges and changes

required can be categorized

into 4 main areas:

Costs

Quality

Customer Satisfaction

Timing Challenges & Changes

Challenges & Changes

Customer Satisfaction

Quality

Tim

ing

Costs

Combined Ratio

Customer Satisfaction

Source: Trend & Benchmark study June 24, 2003

The Combined Ratio & the Customer Satisfaction are The Combined Ratio & the Customer Satisfaction are influenced by a number of indicatorsinfluenced by a number of indicators

NOT EXHAUSTIVE REPRESENTATION OF VALUE DRIVERS

Combined Ratio

Combined Ratio

Average payment per

claim file

Average payment per

claim file

Cost per claim fileCost per claim file

ALAE ratioALAE ratio

ULAE ratioULAE ratio # Claims per claims

administrator

# Claims per claims

administrator

Customer SatisfactionCustomer

Satisfaction

Average claim cycle

time

Average claim cycle

time

Fraud ratioFraud ratio

Recovery ratio

Recovery ratio

IT assessment

IT assessment

Percentage files closed

without payment

Percentage files closed

without payment

Complaint ratio

Complaint ratio

Best Practices in claims focus on three key value leversBest Practices in claims focus on three key value levers

Improve customer satisfactionImprove customer satisfaction– Improved retention and increased Improved retention and increased

revenuesrevenues

Reduce operational expensesReduce operational expenses– Loss adjustment and Allocated Loss Loss adjustment and Allocated Loss

Adjustment expensesAdjustment expenses

Reduce loss costsReduce loss costs– Indemnity paymentsIndemnity payments

– Eliminate fraudEliminate fraud

– Reduce leakageReduce leakage

– Accurate and stabilized reservingAccurate and stabilized reserving

Customer Service

Loss Adjustment

Loss

Customer Service

LossLoss Adjustment

What it is

• Accessibility

• Responsiveness/ courtesy

• Speed of settlement

• Process and payment explanation

Current state of market

Objective: Address and satisfy customer needs

What it is Current state of market

• Focus on refusing claims to the detriment of customer relationships

• Excessive investigation and decision support

• Excessive specialization, increasing staff costs

Objective: Minimize leakage

• Work flow differentiation

• Actual vs. appropriate payment

• Anti-fraud efforts

• Supply chain management

• Speed of assignment

What it is Current state of market

• Reluctance to change claims

• Limited specialization – focus on total service teams

• Excessive staffing levels and limited IT leverage to support uneconomic service levels

Objective: Reduce friction costs & increase in efficiency

• Increase efficiency of adjusters

• Focus special services/resources

• IT enabled and leveraged

The claims process can be decomposed into three broad sets The claims process can be decomposed into three broad sets of activity categories, each with its own objectiveof activity categories, each with its own objective

• Focus on increased throughput and reduced overhead

• Performance based on claims throughput productivity (tendency to overpay to expedite claims

• Reduced specialization to balance loads

Source: IBM analysis.

Evaluating the Claims Value Chain/Process lends insight Evaluating the Claims Value Chain/Process lends insight into the value leversinto the value levers

Notification Assignment Coverage ContactInvestigation

&Evaluation

Negotiation&

Settlement

LitigationManagement

Recovery&

Salvage

Management, Supervision & Review

Could we Instrument the Process for the component Could we Instrument the Process for the component metrics based on process events?metrics based on process events?

Notification Assignment Coverage ContactInvestigation

&Evaluation

Negotiation&

Settlement

LitigationManagement

Recovery&

Salvage

Management, Supervision & Review

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

ProbePoint

Event Repository

Evaluating current position – generating eventEvaluating current position – generating event

LossSustainable 63.5

Hollow 67.5

Destroyers 68.5

Total Industry 69.1

Reserves Not Within 5% of actual payout*

Not receiving Field assignment on serious claims*

Trigger components

Business Response

Allocate more staff to audit claims and correct combined ration

Action

Fire Excessive Loss Event

Operational Profiles provide for implementation of specific Operational Profiles provide for implementation of specific “business policies” to respond key activities/events“business policies” to respond key activities/events

Profiles define explicit policy responses to events triggered Profiles define explicit policy responses to events triggered via modelvia model– Business rules that should be invokedBusiness rules that should be invoked

– Specific processes that need to happenSpecific processes that need to happen

– Values that make sense for the contextValues that make sense for the context

Needs to support both internal events (based on model) Needs to support both internal events (based on model) and external events, such as pending weatherand external events, such as pending weather

Loss

Customer Service

Loss Adjustment Loss

Customer Service

Loss AdjustmentSustainable 63.5

Hollow 67.5

Destroyers 68.5

Total Industry 69.1

Sustainable 13.2

Hollow 10.0

Destroyers 11.1

Total Industry 11.8

Sales Processing Index

Claims Count Litigated

Number of Service Complaints

Average Telephone Wait Time Natural Disaster

Natural Disaster

Could an Event Repository help drive analytical analysis and Could an Event Repository help drive analytical analysis and lead to the activation of an operating model/profile?lead to the activation of an operating model/profile?

Loss

LAE

Non-Loss Related

Severity

Recovery

Frequency

ULAE

ALAE

Employee

Customer

Enterprise

Loss payments Fraud payments and overpayment Deductible application

Subrogation Salvage

Underwriting Education

FTEs Travel Shared services (e.g. IT, Legal, Real Estate)

3rd-party appraisers 3rd-party adjusters Outside counsel

Turnover, recruiting Productivity, training

Retention Acquisition/new business Cross sell

Enterprise integration Process & organization enablement

Event Repository

Analytics

Loss

Customer Service

Loss Adjustment Loss

Customer Service

Loss Adjustment Loss

Customer Service

Loss Adjustment

Value of Event Modeling Standards – Insurance IndustryValue of Event Modeling Standards – Insurance Industry

Modeling for Predictive Analytics leading to autonomic Modeling for Predictive Analytics leading to autonomic processesprocesses– Examples of Operational Profiles:Examples of Operational Profiles:

Operation Profiles for Catastrophes Operation Profiles for Catastrophes

Enhance Catastrophic ModelsEnhance Catastrophic Models

Seasonal eventsSeasonal events

Discussion, Next Steps…….Discussion, Next Steps…….