For many carriers, the task of processing claims consistentlyand in accordance with new programs has become complex and dauntingfor both adjusters and the IT organizations that support them. Therules governing critical claim-handling processes are oftencumbersome and managed manually by professional staff. In thoseinstances where rules are automated, usually they are implicitwithin custom code scattered across multiple applications. Implicitbusiness rules and policies prevent organizations from becomingagile, since even simple claim processing rule changes to such asystem can take weeks or even months. The lack of a centralized,explicit, and auditable rule repository will eventually result ininconsistent claim handling and outcomes across the company. Facedwith regulatory compliance issues, this can lead to fines and,worse, the loss of an unhappy customer to the competition.

Insurers are increasingly turning to Business Rules ManagementSystems (BRMS), or business-rules engines to address thesechallenges. Simply put, a BRMS is a software system that explicitlyrepresents the business logic and policies in a format that can beunderstood by an actuary or business analyst. Business rules andpolicies are then managed externally and in parallel with otherapplication software assets. Managing rules outside of theapplication, a BRMS increases agility and drives the automateddecision-making capabilities of applications, such as claimprocessing, so that they can be changed more quickly and easily bythe actuary instead of a programmer. As a result, a BRMS enablesactuaries or business analysts to customize claim policies,programs, and other business decision criteria associated with theclaim processing function almost in real time. Since the claimprocess is inherently rule-driven, doesn't it make sense toautomate the rules so that highly skilled adjusters do not wasteprecious time repeating manual processes?

In claim processing, a BRMS provides a repository for thebusiness policies and the business logic that governs theclaim-handling processes. Its decision-support capabilities enablethe automation of such tasks as approving claims, assigning claims,instantiating best practices, accommodating regulations that oftenvary by state, scoring claims on a number of criteria includingfraud detection, and specifying payment and settlement methods. Infact, the business rules approach supports an earlier and moreaggressive form of fraud detection, since predetermined triggerscan be easily integrated into the system and more quickly andeasily modified as methods used to attempt fraud are changed.

With the most advanced BRMSs, business analysts can create andmaintain the business logic through a natural language interface.Equally important is the ability of the system to support theconcept of inheritance, exclusion, and overwrites so thatmulti-jurisdictional rules can easily be represented in astraightforward manner. After verifying and simulating the businesslogic, it can then be deployed to a business-rules server. Thebusiness-rules server can be integrated with .Net, Java, or may beimplemented as a web service so that it can be accessed easily bymany SOA-enabled applications, including legacy systems. Enablingthe actuary or business analyst to capture the policies and rulesthat govern claim handling in English without requiring a lot ofcostly, time-consuming transformation to programmer requirementsand subsequently implementation increases business agilitydramatically. A BRMS thus enables application logic to be changedwith flexibility and quickness, without requiring ITintervention.

Reducing Claim Leakage

BRMSs can help insurers shorten claim cycles and reduceclaim-related costs by efficiently automating all or part of theprocessing of those claims within acceptable limits and thresholds.Providing an easier way to create, change, and standardize claimrules quickly across the insurance value chain is a key driver forsuccessfully reducing claim leakage – the common term for“preventable” claim settlement expenses caused by such factors asinefficient processing, improper payment, bad decision making,human error, or process breakdowns. Avoiding these traps is thebest way for carriers to drive down the delta between what itshould cost to settle a claim and what it actually costs.

Improving the claim process can bring significant bottom-linevalue to carriers. In the property/casualty business alone, forexample, U.S. carriers face claim leakage-related costs of some $30billion annually, according to TowerGroup, mostly due to fraud. Theability to automate and shorten the claim-processing cycle andallow the various people who are involved in the claim process tobe more efficient in their roles is critical to reducing both thecost of claims and the associated cost of managing theclaim-settlement process. Making claim adjusters both moreefficient and effective helps reduce loss payout and lossadjustment expenses, while freeing up time better spent ondetecting and preventing fraud and managing the most difficult orcomplex cases.

Other Business-Rule Benefits

One of the key advantages of implementing business rules forclaim processing is that it enables actuaries or business analyststo author and maintain the rules. Rule-management tools can providethe ability to organize claim-processing rules in understandableand manageable modules, create versions of rules changes, and allowthe use of effective dates for rule applications. After a claimrule is in production and business needs change, policyadministrators can easily modify the parameters of a rule or addnew logic without custom development work. The result is aneasy-to-use, comprehensive, and flexible system.

Another key benefit of adopting business rules is its supportfor insurance-specific industry standards. Standardizing the flowof information across the claim lifecycle through the ACORD XMLstandard can help insurers increase claim-processing efficiency. ABRMS can extend the payback from deploying the ACORD XML standardfor carriers by supporting pre-loaded ACORD vocabulary, enablingthe rules engine supporting the claim system to understandinsurance terms and relationships out-of-the-box. This allowsbusiness users to more easily author decision-making rules andpolicies that can be standardized across all entities involved withclaims, including the carrier, its agents, suppliers, andthird-party business partners.

Long-Term Value

Tapping the power of a business-rules management system forclaim processing enables insurers to achieve greater speed andflexibility in meeting some of the toughest challenges of handlingclaims. As with underwriting, deploying business rules for claimprocessing helps support straight-through processing and can allowthose claims meeting prescribed thresholds to be handled with moreautomated decision-making and less manual scrutiny from senioradjusters. In addition, the agility brought by a BRMS means thateach carrier can afford to fine tune its deployment for claimprocessing until all the thresholds and rule triggers arecustomized precisely for its unique requirements at both theenterprise and business unit levels.

Business-rule solutions help carriers to walk the fine linebetween the often conflicting objectives of internal operatingefficiency and cost reduction versus customer service andpolicyholder retention. Insurance industry data has shown that howwell carriers handle a claim in the eyes of the policyholder has adramatic impact on the customer's satisfaction. In theproperty/casualty field, for example, studies have revealed thatcustomers who had a positive claim experience had a 95 percentretention rate, while those that had a negative claim experiencehad only a 25 percent retention rate.

By externalizing the business logic from the claim-processingapplication, rule maintenance is simplified and the speed of rulemodification is greatly enhanced. This allows for more consistentclaim processing with fewer costly errors across all of thecarrier's lines of business. This tends to reduce claim leakage andimprove customer satisfaction and loyalty over the long run.

By deploying a business-rules solution for claim processing,carriers can achieve optimal claim results and improved customerservice, despite a continuously changing business and regulatoryenvironment.

Hans Witt is CEO and president of Haley Systems, and has 30years of product leadership and executive management experiencewith some of the world's most successful software brands, includingIBM, NCR, Datapoint Corporation, Microsoft, and Intel.