Implementation of Lean in Insurance Industry

Insurance is a very dynamic business with multiple intricate interlinked processes. Insurance companies are in a constant struggle to optimize costs and maintain desired levels of productivity while keeping their customers satisfied with their service. A complex regulatory framework, an overwhelming amount of paperwork, and high service levels expected by customers often make it a challenging task for insurance companies to maintain the planned level of efficiency. Despite the availability of advanced technologies, the majority of the tasks in insurance processes are still handled manually adding to the woes of insurance businesses in the form of high attrition rates, uneven workloads, manual errors leading to rework, and a constant need for employee training and engagement.

In such a scenario, to stay relevant in a competitive business environment it has become vital for insurance businesses to constantly assess and improve the inefficiencies in their systems and processes. However, going for quick fixes might not be the solution, any methods that the businesses use must be sustainable and enable them to identify and eliminate the root causes that lead to the inefficiencies in the processes. Lean is one such methodology. A Japanese philosophy that was earlier applied in manufacturing and is now being actively implemented in all the areas of business including insurance.

To gain a better understanding of how insurance businesses can implement Lean, instead of focusing on the end-to-end process, in this article we have narrowed our explanation to the Insurance Claims Process specific to Medical Insurance which is one of the crucial processes which directly impacts the performance of any insurance business.

Insurance Claims Process

The below infographic depicts the flow of the Medical Insurance Claims Process. While the claims process may vary from company to company, we have considered a process flow that is followed by a majority of medical insurance companies.

First Level Process

The First Level Process is initiated as soon as a medical claim is received, it consists of three sub-processes Pre-Authorization, Interim Enhancement, and Enhancement.

In Pre-Authorization the medical insurance company validates whether or not the medical procedure, medicines, and services requested by the claimant are covered as a part of their medical insurance policy.

In Interim Enhancement, during the treatment the medical insurance company checks for any additional benefits such as no claim bonus or insurance top-up which could be availed by the claimant for which they have signed up during the purchase of their medical insurance policy to readjust the claim amount based on the estimated cost for the treatment.

While Interim Enhancement is carried out during the treatment, Enhancement happens after the claimant has availed the treatment and submitted the bills. Any deviations are duly noted and the total claim amount may be readjusted by considering any add-on benefits that the claimant might have opted. Though Interim Enhancement and Enhancement are handled as separate processes, the teams handling these processes might still be the same.

The efficiency of this process depends on how many employees are actively engaged in receiving the claims and how soon are they able to move to complete the pre-authorization. Improper pre-authorization processes and systems increase the time taken per claim considerably.

Claim Analysis

Reimbursement Approval is a part of Claim Analysis, where a detailed study of the entire policy including the pre-existing conditions, claims history, policy limits, and required documentation is carried out and the final numbers are sent to the claims settlement team.

The time taken per claim in this process depends on the claim value, size of the client document, and the experience of the employees who are handling the claims. Additionally, system redundancies and manual errors hinder the overall performance of this process.

Claim Settlement

This process consists of Billing and Final Approval. The sequence in which these processes are carried out may vary from company to company. In this process, the full and final amount of the claim approved by the company is settled against the claim and final documentation is completed.

Processing errors in this stage reroute the claim to the claim analysis stage, which directly impacts the time taken per claim and hurts customer satisfaction.

Current Issues in Insurance Claims Process

It is evident that the entire claim settlement process is very complicated and there is a high probability of errors at any stage of this process. The main issues concerning this process are shown in the below infographic.

Non-Standardized Processes

The majority of the claims settlement process is manual which makes the whole process prone to a lot of errors. Systems checks might be one way to prevent these errors. However, system checks cannot be implemented throughout the process if the process itself varies from person to person. Non-standardized processes result in rework and negatively impact the quality of service.

System Errors

Systems (software and hardware) used in the claim settlement process should augment the human effort but not add to the complexity of existing processes. Having obsolete and broken systems increase the redundancies in the process and impact its overall performance.

Unevenness in Claim Allocation

The rate at which the claims are processed should ideally match with the rate at which new claims are being made. However, this is far from reality. This occurs due to the unevenness in the claim allocation and faulty rerouting mechanisms that exist in the process. This affects the morale of the employees and the overall time taken to settle the claim.

Organization Culture

The whole idea of process improvement takes a considerable amount of time to yield positive results. Constant communication, training, and guidance should be provided by the management to take advantage of any new idea that comes in their way to improving the processes. An organization culture that is built on quick fixes and archaic methods will never be able to thrive in the competitive business world.

Lean Implementation in Insurance Claims Process

  • Build robust pre-authorization mechanisms – Since this is the first step in the claims process and the subsequent processes function based on the input from this process, it is critical to get the process done ‘quick and right’. As a part of this step, the whole pre-authorization process should be carefully studied and bottlenecks should be identified and exploited. Proper system checks should be put in place to smoothen the whole process. This is vital for medical insurance companies because it not only helps them to provide a better service but also aids in the early detection of fraud.
  • Augment Resource Allocation – This can be done by assessing the ideal number of employees required to handle the estimated volume of claims by taking into account the average time taken per claim. This will help to bring evenness to the number of claims being allocated to the employees.
  • Standardize the processes – In medical insurance the information that is required for the claims process often remains the same irrespective of the type of the claims. Hence, standardization can begin with the creation of templates and checklists to enter this information. This ensures that irrespective of the years of experience and complexity of the claim all the information is entered accurately. Further, repetitive manual tasks can be identified and automated to eliminate manual errors and rework. 
  • Fix redundancies in the system – Redundancies are caused by faulty system designs. For example, in case of claim rejection, a claim which has been initiated by one employee might be rerouted to a different employee. This will result in the rework as the new employee might have to validate the claim document from scratch. Ideally, the claims should be rerouted to the same employee who has initiated it. This only one of the many examples where systems can cause redundancies. As a part of this step, companies should identify all the known system errors, rectify those errors, and constantly monitor the system to identify the scope for further improvement.
  • Focus on continuous improvement – Employee ideas and feedback are critical for process improvement. Incremental improvements based on small changes should be encouraged. Such changes are not only inexpensive and productive but also enhance the employee experience.
  •  Combine Lean with Big Data Analytics – Insurance companies have a huge pile of data generated on daily basis. Transforming this data into useful information with the help of Big Data Analytics solutions can help insurance companies to gain actionable insights. Tasks such as risk analysis, claim prediction, fraud detection, churn prediction, and claim optimization can be effectively handled by applying Machine Learning and Artificial Intelligence to this data. Though these efforts are still in infancy, the partnership of Lean and Big Data Analytics powered by ML/AI is headed for a promising future.

How to start and not stop at the end of this article piece?

I would recommend starting simply by just taking this approach, which has negligible risk, simple and yet an amazingly effective positive step towards our goal of a proactive strategy

A) Take pen -paper or manual method (start now)

Start implementing the recommended strategy using your existing technology resources for a known and low-risk segment of customers within your business to find out what works and what doesn’t. Indeed, this causes efforts, but this will pave the way for better clarity around unknown risks.

B) Take help from technology

Work towards making it unattended, assisted by using Super-fast digital solution such that it works autonomously without losing its efficacy by engaging a solid, affordable Business and Technology solution partner.

If you are a CEO/COO/CIO/Managing Director/General Manager who is spending more time in reactive/preventive mode than future-facing, please reach out for an exploratory conversation.

Our Contact details

Balasubramanian (Mentor and Director Teams Group)

Sundar Narayanan (Mentor and Director Teams Group)

Pradeep Mishra (Director and Co-founder)

Ashok Mulchandani (Partner – Business Success and Strategic Transformation)

Amit Bhagat (Director – Business Strategy)

Please feel free to leave your suggestions and thoughts in the comment box below!

Related posts