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A safety net for insurers

This article appears in the issue October 2007, [Vol 16, Issue 9]

Insurance companies are depending on knowledge management (KM) to determine risk, price policies, control costs and improve customer service.

Folksamerica Reinsurance Company insures insurers. When frontline insurance companies experience higher than expected losses due to excessive claims, they count on their policies with reinsurance firms to cover the difference.

Therefore, the success of a reinsurance firm is largely based on its ability to properly price its products for risk, accurately predicting what the losses of its customers (the insurance companies) will be, and to price premiums high enough to cover claims and provide a profit, but not so high as to lose the business to a competitor.

Proper pricing hinges on a reinsurer’s knowledge management capabilities, according to Philip Marzullo, Folksamerica CIO. For several years, Folksamerica had depended on a database that was hard to use because it relied on entering information via spreadsheets, a time-consuming process that was cumbersome and offered little in the way of executive control or transparency, increasingly important factors following the enactment of Sarbanes-Oxley.

"We wanted to put a new loss reserving system in place," Marzullo says. "The main part was to buy a set of tools to make the whole process a lot easier. We needed to simplify the process of computing the loss reserve."

Folksamerica looked at various business intelligence vendors, asking them to complete loan loss projection models via a Web interface with the database. Information Builders delivered the loan loss reserve projections that met those that the company generated internally using the old method.

"They had an insurance data model already built," Marzullo says. "They had insurance industry expertise."

Folksamerica went live with Information Builders at the end of 2005, and was able to eliminate the spreadsheets in a couple of months, pleasing the auditors who were seeking better control of how data was computed for loan loss reserves.

"Auditors are always bringing it up in terms of control weaknesses," Marzullo says. "The data warehouse addressed that. It documents how you created the data. It has tight version control."

With the new database and Web interface, Folksamerica is developing more reports and producing them more quickly than they had with the older method. Marzullo says, "The users are able to analyze the data more quickly over specific time periods. That helps us in the pricing area. We combine the claims data with catastrophe modeling for our [rate] submissions for new business."

Reining in healthcare costs

As more companies go to self-funded insurance plans, they are counting on knowledge management to help contain healthcare costs, says Tracie Canby, senior VP of cost management strategies for Meritain Health, a third-party administrator that helps companies design and implement health plans.

"One thing that we do differently than a lot of our competitors is focus on data and the true cost drivers of healthcare costs," Canby says. From that data, Meritain Health works with employers to build health plans, including employee premiums, co-pays, provider groups that offer discounts and similar information.

While a company might have some health information about its own employees, it typically doesn’t have enough knowledge there to design a health plan. Meritain services several companies, so it has a large, self-developed database of health information that it can use to devise a plan based on not only the company’s health history, but also the histories of others meeting the same parameters (i.e., women in childbearing years).

One important element is to devise a plan in which the company uses doctors and healthcare facilities that are part of a discount network, which means that they charge 30 percent to 35 percent less than usual.

Meritain also formulates plans with biometric screenings, cholesterol screenings, preventive care benefits and other features, according to Canby. "There are a lot of different strategies that we can implement; it all depends on what the company wants to offer," she says.

The companies rely on the knowledge Meritain has built in healthcare to design the plans that meet employee needs at an affordable cost.

Improving customer service

In addition to aiding insurers, knowledge management is helping firms that depend on insurers for a substantial amount of their revenue.
American HomePatient, a large firm providing medical equipment to homes, relies on knowledge management to determine if a patient has insurance before delivering oxygen tanks and similar equipment.

It’s not that the patient won’t receive the equipment if there isn’t any insurance, but by knowing the coverage situation in advance, American HomePatient can make appropriate payment arrangements ahead of time, which is more effective, says Doug Gouy, senior VP of revenue and business technology.

Confirmation of coverage used to be handled via the telephone, but as insurance companies downsized staffs, it became increasingly difficult to confirm a patient’s insurance coverage before equipment delivery, according to Gouy. "Our profit comes from the co-insurance (typically the 20 percent a patient pays on his own). So it becomes very difficult to be profitable if there is a problem with those payments," he explains.

Knowing that the phone situation would likely get worse as time went on, American HomePatient sought a solution that would enable it to do a more accurate job of confirming insurance coverage as well as to streamline back-office workflow.

"We were looking for a tool that would electronically generate what we had on paper forms," Gouy says.

American HomePatient chose Cardiff’s (now an Autonomy company) Liquid Office offering, which generates all necessary insurance forms electronically. While many forms stay in the original format once generated, the application sends those that need a signed authorization to a fax server to be transmitted to the
relevant party.

Rather than calling to confirm benefits, American HomePatient employees log into the application, and check Medicare and other insurance coverage, process and archive forms and begin the billing process.

By going to the business process management application, American HomePatient has reduced the amount of paper generated by 50 percent and has reduced back-office staffing by 25 percent.

"This application has given us a lot of efficiencies," Gouy says. 


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