Allstate Says New Claims System Puts Customers In Good Hands

The new technology will lead to faster claims processing and help ensure Allstate pays out the "right" amount to every claimant.

Mary Hayes Weier, Contributor

April 12, 2007

6 Min Read

Claims processing is the center of the universe for insurance companies. Done well, it cuts costs and keeps customers happy. Done poorly, it bloats the business and provides grist to those who claim insurance companies rip off their customers.

Allstate is halfway through the rollout of a $125 million claims processing system overhaul designed to strengthen its you're-in-good-hands motto, produce more consistent payout amounts, and shorten claims processing time. It's even hoping that it'll be able to settle uncomplicated claims, like fender benders, with one phone call.

So while customers will benefit from faster claims processing, a main goal of Allstate is to ensure that the system bolsters its reputation as a company that consistently pays out the "right" amount to every claimant. In the constant tug-of-war between insurance companies and consumers, the right amount often is in the eye of the beholder.

At the core of the Next Gen system is a massive data consolidation project that's improving the way claims are managed, accessed, and routed. Allstate has moved to a services-oriented architecture, which project leaders say vastly improves application integration -- and thus information access -- and will make it far easier to do data analysis and mining.

The consolidation also lets claims processors and adjusters use just one companywide software application, replacing the dozens they had to log in and out of at various stages of a claim. Allstate's property business has been running on Next Gen since last year, and it plans to begin rolling it out for its auto business in June, region by region, until the work is finished in 2008.

The biggest benefit of Next Gen will be improved customer satisfaction, said Mike Jackowski, Allstate's VP of claims technology services, in an interview. Jackowski, previously a consultant with Accenture, was hired to lead development of the new system in 2004.

Property insurance customers already are benefiting, Jackowski said. "In many cases we can schedule an appointment right there, on the very first phone call, and have an adjuster come out, do an appraisal, and look at the damage in the home," he said. But every case is different; flooding, for one, is typically less complicated than fire damage. "We're not looking to go so fast that the customer doesn't get exactly what is owed for the policy," Jackowski added. Accuracy of claims is a sensitive topic for insurance carriers, and occasionally has landed Allstate, the country's second-largest provider of personalized insurance after State Farm, some negative publicity. The carrier still hasn't shaken the aftermath of the 2005 Hurricanes Katrina and Rita, which cost it $3 billion in payouts. While it's rebounded from a money losing quarter in late 2005 (its 2006 revenues were nearly flat year-over-year at $35.8 billion, but its yearly net income jumped from $1.77 billion in 2005 to $4.99 billion last year), it's still dealing with lawsuits. A jury was selected this week for a highly publicized lawsuit that's landed in federal court in Louisiana, brought by a Katrina-hit couple alleging that the approximately $400,000 paid out by Allstate for damage to their home didn't cover everything they were owed.

Allstate is also the subject of a recently published book written by trial lawyer David Berardinelli -- presumably to be read by other trial lawyers in the business of suing insurers -- called "From Good Hands To Boxing Gloves," which alleges that consulting firm McKinsey & Co. helped Allstate develop new processes in the 1990s, called Claim Core Process Redesign, that ensure it pays out as little as possible on claims and denies customers legitimate benefits.

But there's another side to that story. Paul Newsome, an insurance analyst with A.G. Edwards & Sons, said in an interview that CCPR did improve Allstate's profits; Next Gen is more about technology than processes, he said, and calls Next Gen "round two, if not three, four, or five" of CCPR. Yet Newsome downplayed the negative impact of any process fine-tuning on customers. Trial lawyers were up in arms about CCPR because they stood to lose out. Through smarter processing, Allstate was able to eliminate an automatic cash reserve it set aside for every claim that involved lawyers, discouraging any ambulance-chasing antics.

Allstate already has a reputation as an efficient handler of claims, perhaps more so than any of its competitors, Newsome said, and Next Gen is "probably more evolutionary than revolutionary." Still, it'll help keep Allstate at the head of the pack. "A good insurance company is going to relentlessly try to improve its claims processing, because it's the most important part of the business year in and year out," he said.

What's more, while CCPR improved processes, it led to the technology monstrosity that Jackowski and his team is resolving with Next Gen. Researchers at MIT's Sloan School of Management published a paper last August on the initial work of Next Gen as a case study of how good things happen when IT and the business side work more closely together. The paper cited Allstate's process redesign projects of 1990s as a typical case of "throwing the requirements over the wall to IT." Next Gen, Jackowski said, "starts with the capabilities of technology." At one point, Allstate had 90 different applications, many of them running on mainframes, for accessing data in many different places. It's consolidating much of that data into an Oracle database. It's using Tibco Enterprise Application Integration software that supports standard Web service protocols, making data exchange between systems much easier.

This reduces many of the IT labor costs associated with maintenance and integration of many different applications, and also brings business process improvements. Next Gen includes new content management systems for unstructured data, including those that manage document images, eliminating much of the paper shuffling and overnight mailing of documents from one office to another.

Perhaps most importantly, the services-oriented architecture makes it much easier to create and alter business processes as needed. That's allowing Allstate, for example, to more easily refine its workflows so that more types of tasks can be handled by claims processors and don't land on the desks of more highly paid adjusters, creating unnecessary labor costs and slowing down the process. SOA also means being able to create a new service, such as one that determines the best path to immediate settlement for a specific type claim, that can be reused for other types of claims.

Allstate can more easily do analysis on claims to make sure there's even more consistency, identifying cases where there is a payout amount discrepancy between two seemingly identical types of claims. Data analysis may help Allstate identify areas where it thinks payouts have been too high, but Newsome doesn't necessarily think that'll lead to customer strife if the claims are processes faster. "People seem to be more happy with less money right away, than more money after a lot of hassle," he said. "There's a lot of evidence that suggests the faster a claim is adjusted and resolved, the lower the cost of the claim to the insured." When people wreck their cars, for example, they may have to pay out of their own pockets to rent an auto while the claims process is underway. Insurers don't grow a business through unhappy customers, which is why execution of Next Gen is important. "Claims processing is the most critical contact with customers," Newsome said. "Long term growth is dependent on how well you do it."

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