BPM can reduce costs

By AJ Horne, southern African product manager for the AWD product suite, DST International [1]

Insurance companies often fall short when it comes to managing processes efficiently for new business, customer service and operational transactions. This release examines how insurance companies could benefit from implementing business process management (BPM) solutions, with particular emphasis on where and when these benefits can be achieved.

The insurance sector faces many ongoing business pressures, particularly to improve return on equity, retain customers, improve profits, be regulatory compliant and enhance customer service with a diversity of clients.

To meet these demands insurers need to make more stringent and smarter technology decisions, while at the same time improving their financial positioning and cutting operational costs. Investment decisions for business and technology need to be carefully matched against the business need. Insurers are now taking note of the fundamental benefits of BPM, when it is appropriate to use it, the kind of processes it can be applied to, who are the principal vendors and how it will affect the underlying IT architecture.

BPM is commonly defined as "the management of all the processes supporting a business transaction or event from the beginning to the end while applying the policies or rules needed to support an organisation`s stated business model at a specific point in time". [2]

BPM is not a package that can be bought off the shelf. It is a portfolio of solutions that can be deployed individually or as a whole. It can be broken down into the following components:

Business process analysis (BPA): Allows the modelling and analysis of "what if" process scenarios by insurers. What will be the impact on the business and the processes, for example, if the interest rate goes up by a percentage point, if claims need to be settled more quickly, if clients need to receive a quicker quote turnaround?

Business rule engine (BRE): Facilitates insurers` ability to change processes quickly in response to a change of corporate vision, a new regulation, a competitor`s new products, added features or enhanced terms and conditions.

Workflow: From where a lot of BPM functionality evolved. Workflow is about routing tasks to individuals and ensuring processing rules are adhered to; BPM has moved this on to incorporate the entire end-to-end process and all its aspects. A powerful combination exists between workflow and BRE as it facilitates the strategic move towards a policy to "automate the habitual, manually handle the exceptions," also known as exception-based processing.

Integration and collaboration: BPM often uses links to middleware and messaging technologies that can be used to integrate applications and people within the insurance company, and to collaborate with partners such as credit scoring bureau, banks, service providers, claims service suppliers and brokers.

Business activity monitoring (BAM): Enables the real-time analysis of processes. BAM is crucial in spotting bottlenecks like delayed policy issues and failures such as premium collection.

Optimisation: The renaissance of business process re-engineering allowing processes to be tweaked or changed in response to the hard data provided by BAM and the scenarios tested in BPA. There are two other key advantages to this re-engineering: One is that it facilitates compliance with new regulations, for example, when a new decision point is needed for selling a life insurance policy, and the other advantage is that it provides the means for continuous improvement.

Lower costs: Automated and exception-based processing will allow insurers to handle higher volumes with greater accuracy and less staff than would normally be required.

Service quality: The use of BPM allows sales and service representatives to be far better informed about their customers, and far more helpful. For example, they know what stage an application has reached, they can call up digital copies of relevant documents or make a real-time decision about the risk associated with a new application for a motor vehicle insurance policy based on risk assessment, third-party data and geographical comparisons. Furthermore, BPM can help insurers with workload balancing (auto assignment based on skills or availability), and automated event notifications such as notifying a broker that an applicant`s cover has been approved.

Flexibility, agility and speed: BPM`s ability to optimise and re-engineer processes, for instance by adding a new insurance product, feature, decision point or by swapping staff, should enable a more flexible and agile insurer. Greater process automation and seamless workflow can speed up claims, underwriting and service processes.

Consistency and accuracy: All information-intensive industries like insurance requires the efficient management of, and timely access to, information such as policy data, claims information, accounting records and more, to meet the changing needs of a diversity of clients. Policyholders must receive consistent information across all communication channels, be it by phone, e-mail, fax or whatever other channels. BPM can improve consistency and accuracy by modelling the inquiry process and then routing requests from different sources to a common application or data repository.

Eligibility and application: Using BPM for eligibility and application requests will help facilitate, speed and improve accuracy for insurers. Errors can be controlled and reduced through intelligent process management. Rules management will enable real-time data validation and notification of enrolment.

Quotations: Insurers can use BPM solutions to help extract accurate data from scoring engines to produce comprehensive and dynamic quotes, and improve interaction with applicants and customers. Duplication in efforts or in quotes rendered by different channels can be managed through enterprise workflow.

Underwriting: Internal and third-party data from applications can be compared to documented underwriting rules and guidelines to support exception-based underwriting. Low-risk and simple underwriting decisions can be automated, allowing underwriters to focus on the exceptions and high-risk cases that need manual underwriting.

Claims handling and management: Insurers can use BPM tools and techniques to support the end-to-end claims process from notice of loss through settlement and payment. This will create a common claims file for use by claims professionals and customer service representatives to provide policyholders and claimants with up-to-date and consistent information.

There are many reasons and business requirements that would prompt the implementation of a BPM program, with the most common being:

Disconnected: The right time to consider BPM is when the left hand doesn`t know what the right hand is doing. This is often the case with insurance companies that have gone through mergers and acquisitions, have multiple product lines and have a wide network of communication channels. With different lines of business operating in segregated islands, the message to a customer is a confused one (for example, sending out a cancellation notice for an insurance policy and cross-selling another policy during the same period). BPM can improve integration and so help to avoid these disconnects.

Slowcoach: When the insurer takes longer than its competitors to react to changes in markets, to events or to customer demands. Ever faster time-to-market and time-to-compliance is a feature of modern insurance. Customers are less loyal than in the past and can easily switch to a more responsive provider. Using the BPM capability for centralised rules, BAM to monitor the business and the processes, and the ability to run "what if" scenarios via BPA should help to address these issues.

Waste: When the insurer`s key metrics, such as cost per transaction and employee productivity, are worse than its rival`s, and it gets a low return on investment. The worst-case scenario for an insurer is that it is costlier than its rival`s, and less responsive. That is not an improbable scenario because systems that are slow to adapt are also likely to be the most expensive to maintain - a "lose/lose" situation. BPM will help to improve the productivity of both an insurer`s personnel and its IT systems.

There are many reasons for adopting business process management (BPM) and it can benefit insurance companies in many ways. It is important for an insurer to understand the full BPM portfolio in depth before deploying it in the company. Users must be educated that BPM is more than glorified workflow and includes a whole range of tools and technologies for analysis, modelling, deployment, operation and optimisation. Its potential should not be limited to high-volume, low-value transactions.

Insurers also need to appreciate that BPM is a dynamic technology that should follow a lifecycle, and not be a one-off deployment. Insurers should target and then monitor their processes - using BPM for optimisation and continuous improvement of these insurance processes. As an all encompassing technology that crosses over all departments and functions, BPM needs to be deployed strategically - it will become an essential component in the IT architecture for an insurance company. So BPM cannot be deployed just by the business to solve its pain points or by the IT department to help unify its systems.

It needs a holistic approach that involves all relevant parties. Finally, insurers must be aware that BPM is likely to be one of those technologies that mean different things to different people. Even with a common definition, the diverse histories and backgrounds of the vendors will mean that they have contrasting approaches to its use and deployment. Insurers choosing a BPM vendor must look beyond price and functionality to criteria such as strategic fit, a buy vs. build philosophy and architectural standards. The key differentiator among vendors will be offering industry templates and content that will speed up process modelling, provide a foundation for process modification and improve the deployment timeline.

And to choose a supplier that can deliver!

[1] DST International SA (Pty) Ltd is the supplier of the AWD solution suite, the world`s leading BPM solution. AWD currently supports four of the five largest insurance companies in SA. With 18 offices and over 1 300 professionals to support its growing client base, DST International provides a unique and comprehensive range of investment management and business process management software solutions and related services to over 600 clients in 55 countries. http://www.dstinternational.com

[2] Gartner (c) 2005 Gartner, Inc and/or its affiliates. All Rights Reserved. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.