By Gregory Crawford (April 3, 2001)
Though they typically get lumped with other dot-com companies, the handful of firms using Internet technology to facilitate insurance claims settlement have not seen their businesses blow up amid fleeing investors and customers. But they have become somewhat wiser over the past year.
“We’ve progressed from being a dot-com and getting caught up in [that] hysteria to being a real company that provides a real software solution,” says Charles Brofman, president and chief executive of CyberSettle Inc., which offers an online claims settlement mechanism. “We even changed our name to CyberSettle Inc. We’re no longer CyberSettle.com, and the reason is that we have evolved into a software solution provider for the property/casualty industry.”
On the flip side, Roy Israel, president and chief executive of clickNsettle.com, which provides an online claims resolution mechanism and case management tools as well as offline arbitration and mediation, says he had the unfortunate luck of changing the company’s name from NAM Corp. to clickNsettle.com just as the dot-com bubble was about to burst.
“We always managed the business with an eye toward building a strong foundation, and while we never enjoyed a huge run up – the highest valuation our company ever had was six times revenue – unfortunately, because of the name change, we got pummeled in the dot-com correction,” Israel says. CyberSettle, clickNsettle.com and ClaimSettle.com offer claims adjusters and plaintiffs’ attorneys the ability to enter confidential settlement offers and demands for pending claims online. Other companies like ClaimsDesk.com, ClaimPlace and ProcessClaims provide insurance companies, claims adjusters, suppliers and, in some cases, policyholders, with tools to make claims processing more efficient.
These companies have largely avoided the plight of many of their dot-com cousins because the market they address – claims processing and claims settling – is huge and typically operated with little focus on technology.
“There’s a very big market opportunity in the claims efficiency arena,” says Alan Harvey, co-founder and chief executive of ClaimsDesk, an online service that provides content and tools designed to streamline claims handling. Although he says claims can account for roughly 80 cents of every premium dollar insurers take in, the claims area has often been overlooked by insurance companies that instead have focused on improving profitability by increasing sales and making distribution channels more efficient.
“We are convinced, and our market feedback tells us, that effective supply chain management is one of the real keys to reducing claims expenses,” Harvey says, adding that insurance company executives are focusing on improving the claims execution process.
Brofman concurs. He says that on average, an insurance company pays $75 a month in administrative overhead for every claim in its database. In addition, the average third-party bodily injury claim in the United States takes two to three years to settle.
The companies appear to be hitting the market at the right time. A report released by Forrester Research earlier this year on the auto insurance industry found that most of the insurance companies it interviewed were investing in claims reporting systems.
“Insurance companies really are the ones that have the ability to run the (claims) process,” says Todd Eyler, the Forrester analyst who authored the report. “The customer wants to go to them and trusts them. The insurance company is the one that’s in a position to manage the whole claims process. That being said, they’re not very good at developing the solutions for each part of that process.”
That’s where the CyberSettles, clickNsettles and ClaimsDesks come in.
On the claims resolution sites, parties to the claim will enter confidential settlement offers and counteroffers – otherwise known as blind bids. If the submitted figures fall within specified formulas, the parties split the difference and the claim is settled. The sites also allow users to negotiate claims around the clock in a secure environment.
Brofman says CyberSettle has typically cut the life of a claim by up to four to six months. The company did a pilot program with one of the top 15 property/casualty insurers in the U.S., and within 72 hours of uploading the claims into the CyberSettle system, 40 percent were settled. Within another 72 hours another 55 percent settled offline.
“In essence, we settled 90 percent and reduced their cycle by an enormous time,” Brofman says.
Israel, the head of clickNsettle, says that a year ago, he expected that the online blind bid tool would be “the end-all driver” of his business, which began in 1992 as National Arbitration and Mediation, or NAM. That wasn’t the case, although more users today are using the online negotiation resource in combination with the company’s Web-based case management tools and offline arbitrators and mediators.
“The person who goes online wants to resolve a case; he wants to avoid the high cost of litigation,” Israel says. “What’s important is that we give him the mechanism to settle, definitively, either online or offline.”
At ClaimsDesk, the focus is on the adjuster and easing the “friction points” in the claims supply chain by aggregating online content with tools that help adjusters gather information more effectively, ClaimsDesk CEO Harvey says.
Applications from providers like ClaimsDesk and the other companies are what insurance companies will seek as they upgrade their claims processing functions into a fully networked and technology-rich environment, Forrester’s Eyler says. He expects insurance companies to create – over the next several years – what he calls claims hubs, a single point of contact for all parties involved in a claim. These hubs will centralize claims-related data, automate workflow for simple claims and evaluate claims performance. All of which he expects will save the companies money.
“I think there will be a lot of little niche players that create specific types of products, applications and tools that fill in gaps in the claims hub,” Eyler explains. He says the online dispute resolution companies will be used mainly for the simple, smaller value property claims – a small dent on a car or minor damage to property. “Claims hubs will allow adjusters to automate a lot of the smaller claims and focus on the half-million- to million-dollar bodily injury claims where the money is.”
Gail A. Bonitati, director, forensic and litigation services, KPMG LLP, in Providence, R.I., communicates with insurers and reinsurers constantly and says Eyler is right.
“I’ve talked to people at some of the larger insurance companies and they’re really not using them (online claims settlement firms) on big disputes,” she says. “But they are beginning to look toward alternative dispute resolution mechanisms – trying to move away from litigation and arbitration. The more I talk to colleagues both at insurance companies and reinsurance companies, they are looking toward alternative dispute resolution mechanisms.”
That should be fine for the industry – clickNsettle’s Israel estimates that 20 million property/casualty lawsuits are filed every year in the United States, so there’s probably plenty to go around.
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Article reprinted from the Insurance Insider:
© Copyright 2001 KPMG LLP, the U.S. member firm of KPMG International, a Swiss association. Printed in the U.S.A. Reprinted with permission of KPMG LLP. All Rights Reserved.
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