Info-driven insurers form KM vanguard

Few industries are as knowledge driven as insurance. Because of that, it is no surprise that insurance companies lead the way when it comes to knowledge management. The industry's needs and the technologies used for knowledge management are as diverse as the industry itself.

There are several different types of insurance companies:

• Life insurance -- Companies in this market tend to have enormous investment portfolios and sell traditional life insurance. The sales force of agents often have close personal relationships with their customers. Of all insurance companies, they have the fewest number of claims and the lowest fraud rates. Many life insurance companies can be Fortune 500 firms due to their asset/premium base, but still have only a fraction of the employees of other large companies.

• Health insurance -- The fastest growing segment in the insurance industry is in health. This market includes the mutual/non-profit firms (such as the Blue Crosses) and aggressive HMOs in the managed care arena. The health market tends to be price-sensitive, and operational costs are critical to success. This segment has the highest number of claims and most payments involve third parties (doctors and hospitals). Fraud is difficult to detect due to the subjective nature of many decisions made by dentists and doctors. One segment of this market is for third-party administrators (TPAs), which provide administrative services for large companies that are self-insured. The TPAs handle paperwork and ensure regulatory compliance without actually handling any investment activities that a normal life insurance company would have. TPAs can be small "mom and pop" companies or the traditional, large health insurance companies.

• Property and casualty -- Auto, homeowners and insurance for Dan Marino's arm are all examples of property and casualty (P&C) insurance. Claim volumes tend to be moderately high and customers place a premium on both service and price. Investment portfolios tend to be large, although that can vary depending on the exact business that the company underwrites. P&C insurers also face the highest fraud rates in the industry.

• Reinsurance -- Insurance companies often share the risk with reinsurance companies, which are designed to spread the risk to multiple companies or investors in certain situations. Instead of insuring a specific company or individual, they often insure a portion of an investment portfolio that includes a number of individual liabilities. They only work with other insurance companies, not individuals. From a knowledge management perspective, reinsurers are more like investment bankers than the traditional insurance companies.

Of course, most insurance companies are not limited to a single category. Many offer multiple product lines (life and health are common), and some even participate in reinsurance activities. Many are moving fast into other financial service offerings such as annuities, mutual funds and even checking account services. Virtually every aspect of an insurance company's operations is subject to state or federal regulations, and those regulatory issues are often key drivers of the business.

Insurance companies were among the first to implement large imaging systems. Their paper-intensive operations made them natural candidates for that segment of the knowledge management industry. Today, the insurance industry is at the forefront of knowledge management through the use of sophisticated tools to improve service, reduce costs and increase market share.

Imaging

Walk into any insurance company and you will find (literally) tons of paper. Few businesses are as paper-intensive as insurance. P&C and health insurance companies were early adopters of workflow-based imaging, especially for the underwriting process of new business. Because of the lower volumes and massive amounts of information, life insurers have lagged behind, but many have implemented less expensive systems for underwriting. A few even use their imaging systems to help with claim audits to detect fraud.

One area insurance companies focus on is the claims side of the business. For life and P&C insurers, that is frequently the customer's only interaction with the insurance company except for the application process. By its very nature, the transaction is often filled with anxiety, and paperwork is not high on the customer's priority list. Many companies use their agent to fill out paperwork, and imaging systems have limited usefulness for claims in those situations.

Many of today's P&C insurers are buying second- or even third-generation imaging systems. Selling in that environment requires sophisticated salespeople since those customers are the most knowledgeable in the industry today.

Forms processing

Probably the hottest segment of the market today is the ability to use OCR/ICR and forms processing to automate the data entry of information from claims forms. Health insurers are at the front of this market thanks to standardized claim forms (HCFA 1500s and UB 92s) and high data entry costs. Many are scanning their claims forms, processing them for data capture and storing or discarding the images. Many insurers have older systems (such as Recognition XP-80s) that were designed for machine-printed claims, but today's systems can process hand-print information and poor-quality machine print. Companies are fast replacing the older systems with new technology that can process their entire mail stream and eliminate costly paper sorting.

Enterprise reporting, formerly known as COLD

Enterprise reporting is the "no brainer" knowledge management technology to implement because of the incredible cost-justifications. The technology is designed to capture bill or statement information that is printed and sent to customers. Enterprise reporting means that reports, bills and statements can be stored on tape or optical disc and easily retrieved in the future. Many enterprise reporting systems can be cost-justified in less than a year, so virtually every insurance company has a system or is implementing one today.

Correspondence management

Few industries can match insurance for its ability to produce paper. Insurance companies often produce letters and forms that go to customers, providers and sales agents. Knowledge management systems in the form of automated correspondence managers are beginning to become a de facto requirement for insurance companies. They integrate to legacy insurance applications and control the production of correspondence that must be sent out. The systems can often pay for themselves in postage savings by their ability to combine multiple letters to the same recipient into the same envelope and sort mail by zip code to get bulk mailing rates. They also integrate into imaging and document management systems to provide a single interface for all information regarding a customer.

Document management

Small document management systems are working their way into insurance companies. Because most insurance companies are highly structured, there is relatively little unstructured information that fits into the document management environment. Nevertheless, some companies are using document management systems to capture the organizational knowledge such as proposals and executive correspondence. Some life and P&C insurers are using document management to help manage investment portfolios and help save information when researching possible investments.

Electronic forms

Some companies have decided that the future is paperless. Many life and some P&C insurers are using field laptops with special online forms knowledge management software to collect application or claims information. The software helps prevent data entry errors by checking the information as it is implemented. Some insurers use special pens for digital signatures, while others use the software to print forms that must be signed. Some insurers are experimenting with Internet forms for customers to fill out online without the use of a sales agent. Since the regulations vary from state to state, each state usually has its own form. Not all states have approved electronic forms, so the real growth is probably a few years away.

Data mining

Nothing drives insurance like information. Life insurance companies use complex research to predict when people will die. P&C insurers examine information about driver profiles to determine how much to charge a potential automobile policy holder. Health insurers carefully examine medical procedures performed by doctors to determine if unnecessary surgery is being performed.

Many insurance companies are reluctant to discuss their data mining applications out of fear of discrimination charges and competitive advantages, but the effective use of data mining is probably the single biggest knowledge management opportunity for most companies. By some estimates, a full 10% of P&C claims are fraudulent, so modest savings from data mining can represent huge dollars. In some cases, data mining can help insurance companies determine how to set pricing and gain market share. Historically, much of the information has been prepared by third parties that serve multiple insurance companies, but larger companies are using their own information to gain an even greater competitive advantage.