Case: Disability Insurance Claims Handling at InsureIT
We consider the following business process for handling insuranceclaims for disability insurance1 at an insurance companyInsureIT.
The process starts when a customer lodges a disability claim. To doso, the customer fills in a form including a 2 -page questionnairedescribing the disability. The customer can submit the formphysically at one of the branches of InsureIT, by postal mail, faxor simply via e-mail (digitally-signed document).
When a claim is received, a junior claims officer first entersthe claim details into the insurance information system. Data entryusually takes 10 minutes. The same junior claims officer performs abasic check to ensure that the customer's insurance policy is validand that the type of claim is covered by the insurance policy. Itis rare for the claim to be rejected at this stage (it only happensin 2% of cases).
Otherwise the claim is marked as “eligible” and moves forward inthe process. Next, the claim is moved to a senior claims officerwho performs an in-depth assessment of the reported disability andestimates the monthly benefit entitlement (i.e. how much monthlycompensation is the claimant entitled to, and for what period oftime). In the case of short-term disability benefits, the seniorclaims handler can perform the benefit assessment without requiringfurther documentation. In these cases, the benefit assessment takes20 minutes.
Once a decision is made, the senior claims handler registers theentitlement on the insurance information system and informs thecustomer of the outcome via e-mail or postal mail. However, in thecase of long-term disability claims (more than three months), thesenior claims handler requires a full medical report in order toassess the benefit entitlements. Senior claims handlers perceivethat these medical reports are essential in order to assess theclaims accurately and to avoid fraud.
Once the senior claims handler has received the medical report,they can assess the benefits in about one hour on average. Thesenior claims handler then sends a response letter to the customer(by e-mail and post) to notify the customer of their monthlyentitlement and the conditions of this entitlement (e.g. when willthe entitlement be stopped or when is it due for renewal). Theentitlement is recorded in the insurance information system. Later,a finance officer triggers the first entitlement payment manuallyand schedules the monthly entitlement for subsequent months. Thefinance officer takes on average 20 minutes to handle anentitlement. Finance officers handle payments in batches, once perworking day._____________________________________________________________________________________1 From Wikipedia: “Disability Insurance is a form of insurance thatinsures the beneficiary's earned income against the risk that adisability creates a barrier for a worker to complete the corefunctions of their work.”_____________________________________________________________________________________
When a medical report is required, a junior claims handlercontacts the customer (by phone or e-mail) to notify them thattheir claim is being assessed, and to ask the customer to send asigned form authorizing InsureIT to request medical reports fromtheir health provider (hospital or clinic).
Health providers will not issue a medical report to an insurancecompany unless the customer has signed such an authorization. Oncethe authorization has been received, the junior claims handlersends (by post) a request for medical reports to the healthprovider together with the insurer's letter of authorization.Hospitals reply to InsureIT either by post or in some cases viae-mail.
On average, it takes about 15 working days for InsureIT toobtain the medical reports from the health provider (including 4working days required for the back and-forth postal mail). Thisaverage however hides a lot of variance. Some health providers arevery cooperative and respond within a couple of working days ofreceiving the request.
Others however can take up to 30 working days to respond. As aresult, the average time between a claim being lodged and adecision being made is 3 working days in the case of short-termdisability claims, and 20 working days for long-term disabilityclaims. Naturally, so long waiting times cause anxiety tocustomers. In the case of long-term disability claims, a customerwould on average call or send an e-mail enquiry twice, while thedisability claim is being processed. Such enquiries are answered bythe junior claims handler and it takes about 10 minutes perenquiry. In about a third of cases, junior claims handlers end upcontacting the health provider to enquire about the estimated dateto obtain a medical report. Each of these enquiries to healthproviders takes 10 minutes to a junior claims handler. The totalbenefit paid by the insurance company for a short-term disabilityis $5K (typically spread across 2 or 3 months). For long-termdisability, this amount is $20K, but some claims can cost up to$40K to the insurance company.
In case of long-term disability, the duration of the benefit(number of months) cannot be determined in advance when the claimis lodged. In these cases, the benefit is granted for a period of 3months and the case is reviewed by a senior claims officer every 3months in order to determine if the benefit should be extended.Half of the benefit renewals are done after a simple check, whichtakes 30 minutes to the senior claims handler. But in the otherhalf of renewals, the senior claims handler requires a new medicalreport, which means that the whole process of obtaining a medicalreport has to be repeated (except that the letter of authorizationsigned by the customer during the initial assessment can bereused).
It often happens that the renewal takes too long and customersstop receiving their monthly benefit temporarily during the renewalprocess. The insurance company receives 2000 disability claims peryear, out of which 20% are for short-term disability and 80% forlong term disability. The company employs two full-time juniorclaims handler and two full-time senior claims handler dedicated todisability insurance.
The performance of insurance companies is often measured interms of the so-called combined ratio, which is the sum of claimpayouts plus operational expenses (per year), divided by the sum ofinsurance premiums paid by customers (per year). The disabilityinsurance unit of InsureIT has a combined ratio of 97%. As anyother insurance company, InsureIT perceives investment income fromthe capital it retains. InsureIT's sales department estimates thatthe extreme delays in handling disability claims costs $50K peryear to InsureIT in lost sales of insurance policies due tounsatisfied customers and the resulting negative publicity.
Given the persistent problems with obtaining health reports in atimely manner, claims handlers have tried to negotiate with severalhealth providers a faster approach to obtain medical reports. Ahandful of health providers (the more cooperative ones) are willingto accept medical report requests by e-mail to save 2-3 workingdays.
However, the majority of health providers do not see anyincentive to put more resources into issuing medical reports forinsurance companies. They perceive that their customers are thepatients. The process of issuing medical reports to insurers issecondary for them.
Questions:
Q1: Model the above "as is" process in BPMN. Keep in mind that thepurpose of this BPMN diagram is to serve as a means ofcommunication between InsureIT’s managers and claims handlers, andthe business and IT analysts who have to re-design and automatethis process.
Q2:Classify the activities in this process into threecategories: "value adding" (VA), business value-adding (BVA) andnon- value-adding (NVA).
Q3: Calculate the cycle time efficiency of the as-isprocess. You can assume a working week of 40 hours. In case thereis missing information, you can make assumptions about the missinginformation (e.g. assume a given processing time for a task). Inthis case, you have to explicitly state yourassumptions.
Q4: Identify at least 3 issues in the aboveprocess.
Q5: Draw a "to-be" BPMN model that incorporates yourproposed changes.
Q6: Calculate the improved cycle time.
