RMIS-Web Risk & Insurance RMIS Article

"Claims Management Systems: A Vital Comparison"

by Henry J. Padilla and David P. Duden

April 1999

Directory: Leading Providers of Workers' Comp Claims Management Systems"

Vendors of workers’ comp claims administration systems are working to address the information and technology needs of claims managers. A survey by Risk & Insurance and Deloitte & Touche compares the various systems.

We have experienced tremendous technological growth during the 1990s—and many claims managers have been quick to raise the performance bar to match the capabilities of this new technology. We are seeing the advent of automated payment and reserve processing, workflow, document management, imaging, and now the use of the Internet to support greater claims functionality.

A survey by Risk & Insurance and Deloitte & Touche LLP in Hartford, Conn., shows that vendors of workers’ compensation claims administration systems understand the challenges that lie ahead. More than 90 percent of companies responding have user groups whose feedback can provide valuable insights to system developers. And these providers are listening. The demands for more interfaces, enhanced browser-based Web and remote access capabilities, EDI reporting, and disability integration are calls for the risk management information systems (RMIS) community to continue to address the core needs of the risk management industry well into the next millennium.

The 1999 Risk & Insurance/Deloitte & Touche survey of workers’ comp claims administration systems focused on systems that allow data entry, reserve setting, and payment processing for the unique requirements of workers’ comp. The survey responses reflect a wide variety of systems, from those geared toward large insurance companies to those intended for smaller self-insured and self-administered organizations.

Despite these seemingly large differences, most survey respondents have three significant functional features in common: the ability to track comprehensive amounts of data to support the claims administration process, the ability to track adjuster diaries and notes, and the ability to process payments through the system. Additionally, most of the systems support state form generation.

What follows are highlights of the similarities and differences among the survey respondents, along with some general conclusions. (See chart on page 40 for a comparison of the vendors who responded to the survey.)

Vendor Size

Vendor size is measured in many ways—number of employees, smallest and largest installation, number of customers, annual revenue, and, to a lesser extent, number of offices. While the survey collected information on all of these categories, our analysis focused on the number of employees, installation size, and annual revenue as the most relevant and available statistics. The number of employees ranges from 8 to 6,000, skewing the average to 397.

The smallest vendor surveyed, Mountain View Software Corp. in Layton, Utah, focuses on the niche area of claims tracking, electronic data interchange (EDI) of state first reports, and return-to-work tracking, which may require a smaller staff and less overhead. The two largest vendors surveyed, Corporate Systems Inc. in Amarillo, Texas, and Policy Management Systems Corp. in Blythewood, S.C., have large on-line offerings that require more staff. Therefore, while the number of employees is a good indicator of the staffing resources available to a vendor, it should be evaluated with respect to the functionality and type of service required.

The average number given for the smallest installation (based on number of users) was two, indicating that no customer may be too small for the vendors to service. As might be expected given the diversity of the respondents, the largest installation ranged from four to 4,000, with an average of 711. Those vendors focused on insurance company customers had the most installations. Mountain View, however, reported its largest installation of 3,000 due to its focus on EDI first reports and its work with the State of Utah workers’ compensation fund.

We analyzed annual revenue in conjunction with the number of customers. Dividing the annual revenue by the number of customers enabled us to reflect on the average cost of a system and the cost to develop, market, implement, or service the vendor’s system and customer base. Mountain View reported the lowest ratio of revenue to customers ($91), again reflecting its niche focus. Delphi Technology Inc. in Cambridge, Mass., reported the highest, at $546,667, reflecting its place as a strong technological enabler in the mid- to high-end of the market. These numbers show that, while size does matter when evaluating a system, analyzing the relationships between the variables and ability can provide more insight into the resources available to the vendor. The degree of user configurability is also a factor. An off-the-shelf product requires less implementation work.

System Pricing

Base system pricing often depends on the number of users, simultaneous users, installed workstations, or, in the case of large installations, an enterprise-wide site license. Hourly rates are often charged for modifications. Most survey respondents base their pricing on a blend of these methods, which indicates flexibility in pricing to suit their customers’ needs.

Pricing based on the number of installed workstations slightly edged out the others as the most popular method of pricing a base system. Among the survey respondents, base system prices ranged from $500 to as high as $1 million. Most vendors reported an hourly rate for modifications such as programming, report and form development, conversion, and interfaces. This rate ranged from $85 to $225 and may depend on the type of programming involved, the technology level of the system, and other factors.

Key Industries Served

The RMIS marketplace has traditionally focused on the needs of insurance companies and larger self-insured organizations. With the advent of more niche systems, this trend is widening to include virtually any organization, public or private, that needs to track and manage its risk profile.

The survey responses reflect this trend, with no single industry receiving a significantly larger portion of representation. Insurance companies slightly edged out the other industry groups, which also included the public sector, manufacturing, retail, third-party administrators (TPAs), and health care. Utilities and the telecommunications sector were included in the responses.

System Functionality

Payment processing is supported by all but one vendor, but not all vendors support check writing within their base system functionality. Some vendors may offer this as an add-on, while others may prefer to interface with third-party check-writing software. This is important to understand since laser check-printing, IRS reporting (1099 issuance), cost allocation, and bank reconciliation may all depend on this software. Electronic fund transfer may someday replace the need for paper checks.

Adjuster activity tracking is another key feature. More and more RMIS customers expect their systems to automate the claims administration process rather than simply storing information. Automating the process may require a higher level of technology but can pay long-term dividends by freeing the adjusters to manage claims rather than making them focus on administrative matters.

Envision Technology Solutions LLC in Midvale, Utah, and Delphi Technology are two vendors that provide customer-defined work flows and checklists to help automate the claims processes. Risk Sciences Group in Schaumburg, Ill., is one example of a vendor that offers customer-generated on-line data entry forms, another growing trend in the industry.

Even if an organization administers its own claims, it may have a need to track policies. This may be to document coverage for specially financed facilities (like bond-indentured premises for public entities), to allocate losses to “insured” departments, or to support certificate of insurance issuance.

More than half of the respondents provide a policy tracking function. Proformance Technology in St. Louis (formerly JW Software) provides policy tracking but also interfaces with third-party policy administration/tracking software. It is important to understand your policy tracking needs before making the system decision, since a third-party interface may be preferable if you need to perform underwriting functions or issue paper.

Management reporting is another key area. Access to user-friendly, accurate, and customer-defined management reports is often identified as a weakness when evaluating customers’ current systems. Most survey respondents have built-in management reporting capabilities, including standard reports as well as user-defined ad-hoc reporting functions. Graphing is also a critical need.

Reporting, however, is not just about software tools. When dealing with legacy data and multiple data sources, it is important to assess the vendor’s conversion methodology and the ability to create custom conversion/interface scripts to ensure data integrity.

For this reason, it may make sense to outsource the conversion and data consolidation to a specialist in this area. Risk Laboratories LLC, based in Marietta, Ga., offers a system geared toward claims policy exposure tracking and management reporting that can be “bolted on” to a claims administration system to help ensure better quality reports and allocations.

Most respondents reported that they currently interface with more than one third-party reporting tool. Access to Web-based tools will certainly change how reports are distributed.

Medical case management and disability management are hot topics in today’s cost-cutting environment. As more risk managers become responsible for managing the total costs of their disability and medical programs, more RMIS providers will begin developing their systems to suit these needs. Most survey respondents already provide some functionality in the area of medical case management and disability management. But since there are few industry-wide standards and best practices, it is important to assess the needs of your specific disability and case management program to ensure a proper fit.

State Jurisdictional Functions

Unlike property and liability programs, workers’ compensation claims administration programs must satisfy numerous jurisdictional rules or face potentially serious fines. State forms, utilization review, and medical bill review are just a few of these rules. This is why software developers from other parts of the world have been slow to enter the U.S. workers’ compensation claims administration market.

The situation is even more difficult for multi-state programs. Fortunately, most survey respondents already provide some functionality to support state form generation and medical bill review/repricing. But some vendors may prefer to interface with a third-party software provider for these functions rather than develop them internally. This is especially the case if a state requires EDI transmissions rather than paper forms. Slightly more than half the respondents reported that they support EDI currently.

Further, while many systems support medical bill review against the state fee schedules, more comprehensive medical management such as utilization review is more difficult to program due to the complexities of the medical treatment and diagnosis coding.

System Interfaces

A RMIS should not be a stand-alone system. Claims managers and risk management professionals can obtain more automation, work flow enhancement, and analytical benefits by interfacing the RMIS with a financial, human resources, or other third-party system. Based on the survey responses, there is still much work to be accomplished in this area.

Less than half of the respondents currently have an interface to Index Bureau, which can assist adjusters in obtaining information electronically on possible fraudulent cases. Only four of the respondents have created an interface to popular enterprise resource planning (ERP) software such as SAP, Peoplesoft, or BAAN.

Also, roughly half of the respondents currently interface with imaging/document management solutions. Not until these numbers increase can the risk management community obtain the greatest possible advantage from an integrated enterprise risk management solution.

System Technology

Microsoft Windows became the industry standard graphical user interface (GUI) at the beginning of the 1990s. Since then, most vendors have converted their systems to this user-friendly interface. Progressive Data Solutions in Orlando, Fla., DAVID Corp. in San Francisco, and GenSource Corp. in Cocoa Beach, Fla., are just entering the “gooey” world after a successful history in text-based systems. Likewise, systems that use 32-bit processing and client/server networking are widely available, providing more powerful processing and multi-tasking capabilities. Microsoft NT and Novel NetWare are the prime networking platforms, with IBM OS/400 and Unix also represented.

Finally, the growth of relational database management systems has enabled RMIS providers to use a variety of back-end databases for data storage and retrieval. Microsoft SQL Server, Oracle, and Sybase are prominent databases used in the RMIS community, as are Microsoft Access and IBM DB2 (called Universal DataBase in its newest form).

Henry J. Padilla is RMIS/lab manager for Deloitte & Touche LLP in Hartford, Conn. David P. Duden is national RMIS practice leader for Deloitte & Touche.