CLAIMS MANAGEMENT IN MICROINSURANCE

Transcription

1 MICROINSURANCE PAPER No. 28 January 2014 THE MOMENT OF TRUTH: CLAIMS MANAGEMENT IN MICROINSURANCE Kelly Rendek, Jeanna Holtz, Camyla Fonseca i

2 MICROINSURANCE PAPER No. 28 Copyright International Labour Organization 2014 First published 2014 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by pubdroit@ilo.org. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit to find the reproduction rights organization in your country. ILO Cataloguing in Publication Data Kelly Rendek, Jeanna Holtz, Camyla Fonseca The moment of truth: Claims Management in Microinsurance; International Labour Office - Geneva: ILO, p. (Microinsurance Paper; no. 28) ISBN: (web pdf) International Labour Office microinsurance /claims management ILO Cataloguing in Publication Data The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications and electronic products can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address, or by pubvente@ilo.org Visit our website: ii

3 MICROINSURANCE PAPER No. 28 CONTENTS Contents... iii executive summary... iv Acknowledgements... vi ABBREVIATIONS AND ACRONYMS... vii 1 > Introduction > METHODOLOGY ANALYTICAL FRAMEWORK PRODUCT AND PROGRAMME DESIGN > EMERGING THEMES THEME 1: COMMUNITY-BASED CLAIMS PRACTICES THEME 2: CLAIMS SETTLEMENT TIME THEME 3: SIMPLICITY THEME 4: TRANSPARENCY OF CLAIMS PROCESS > SPECIFIC FACTORS THAT IMPACT CLAIMS MANAGEMENT PRODUCT DESIGN CHARACTERISTICS THIRD PARTY ROLES IN CLAIMS MANAGEMENT ORGANIZATIONAL PHILOSOPHY > INTERNAL PROCEDURES AND WORKFLOW > TECHNOLOGY SOLUTIONS Use of technology Challenges of developing and implementing new technology Making the decision to invest in technology Data collection and analysis > VERSUS BUSINESS VIABILITY Potential trade-offs Fraud management Costs and benefits of decentralized processes > CONCLUSION Some guiding principles REFERENCES iii

4 MICROINSURANCE PAPER No. 28 EXECUTIVE SUMMARY Claims management is a key challenge for microinsurance providers, who must deliver similar products and services as mainstream insurers, while working with smaller margins. At the same time, client satisfaction in the microinsurance market hinges critically on receiving the insured benefit or service, as a settled claim offers tangible evidence of the value of an insurance policy. Furthermore, low-income households have limited resources and rely on timely receipt of insurance benefits to recover from a loss. In this paper, the experience of 12 microinsurance providers across various product types and regional contexts is explored in order to identify some guiding principles that apply uniquely to claims management in microinsurance. Common underlying drivers that affect the claims process are identified, including product design variables, such as expected volume of claims, type of benefit and loss assessment method. Programme design considerations, such as distribution channels, third party service providers and other partners, are evaluated for their potential impact on the claims function. Four primary themes emerge from the analysis: community-based claims practices; claims settlement time; degree of simplicity in product design, client requirements and internal procedures; and the transparency of the claims process. Community-based claims practices cover a wide range of interventions, but community involvement in the claims process is present to some degree in almost all the case studies, regardless of business model or product type. This community involvement is linked to the distribution and design of the microinsurance programme, the underlying characteristics of the specific insured population, and to the level of existing social networks within the culture and region. While there are many potential benefits of a community approach to claims management for microinsurance clients, there are also some drawbacks. These can include lack of control by the insurer over the claims process and a greater potential for fraudulent claims or collusion, although conversely, in some cases, community peer pressure can be leveraged to reduce fraud. Claims settlement times may be affected either positively or negatively. In some programmes, the community process improves turnaround time. In others, inefficient processes for transferring data and authorizations between the community and head office result in longer settlement times. Claims turnaround time can also be affected by other variables, including claims submission procedures and documentation requirements, and may vary significantly depending on the type of product, type of benefit (cashless, reimbursement or replacement), and payment method, as well as the organization s philosophy. Claims settlement time was identified as a key element of client satisfaction with microinsurance products, and published service standards assist in holding providers accountable for providing timely benefits to their clients. The total settlement time, from date of loss to receipt of benefit, is rarely monitored, but could be a more effective measure of client satisfaction with the claims process. Simplified product design emerges as a useful strategy in the microinsurance market to aid client acceptance and understanding, and also to streamline the claims management function. Important elements in achieving reduced settlement times include fixed benefits and minimal restrictions. Similarly, simplifying claims submission procedures and minimizing documentation requirements have positive impacts on efficiency and accuracy. Transparency in the claims context means that claims activities are conducted in an open way so that stakeholders, including clients, can be confident that they are fair and honest. Transparency was identified as a key element in gaining the trust of microinsurance clients, and community-based claims processes can be leveraged to improve transparency. Focused client communications, including mechanisms for resolving complaints and disputes, are elements that can be incorporated to enhance the transparency of claims processes. Standard procedures and claims coding, as well as efficient internal procedures, are key components in effective claims management, particularly for microinsurance providers, given the often limited resources available. Workflow analysis, including the development of clear process maps, can aid in identifying bottlenecks and help to create more efficient processes. Claims decision flowcharts or assessment protocols are also useful tools for streamlining the process, as well as for improving the consistency of results. iv

5 MICROINSURANCE PAPER No. 28 Workflow analysis serves as a helpful precursor to the development of effective technology solutions to manage the claims function. The benefits of a good information technology system can include increased efficiency, more accurate and/or automated client verification, and the ability to provide cashless benefits and/or real-time access to data within the organization. A well-designed system can also serve to collect and integrate enrolment and claims data, which can be leveraged for better analysis of the programme as a whole. These benefits are further multiplied if third party partners are involved. However, the development and implementation of new technology can be complicated by challenges along the way. Given limited resources, microinsurance providers need to perform a careful and thorough cost-benefit analysis prior to making the investment. A significant concern in the insurance claims process is the management of fraud. Typical approaches include controls on identity verification and coverage eligibility, automated system checks, physical verification of loss or services provided, and requirements for additional supporting evidence. These measures can be time consuming and costly, therefore microinsurance providers need to evaluate the potential trade-offs between stricter fraud controls and considerations such as turnaround time and simplicity in claims procedures and documentation. One effective approach to fraud control for microinsurance is to minimize the sources of fraud through better product design, rather than implementing more checks and controls after the event. In conclusion, eight guiding principles were recommended by the case study participants to aid microinsurance practitioners with their claims management functions: Leverage existing social capital and distribution channels. Ensure that the claims notification and submission process is simple and easily understood by clients, claims managers and intermediaries. Balance claims documentation requirements; requirements should be sufficient to minimize fraud, but not excessive. Pay attention to turnaround time and remember that from the client s perspective, it is not the internal processing speed that matters as much as the total time from loss to payment. Implement efficient and streamlined workflow processes and evaluate them regularly. Remember that a loss event is a difficult time for the client, and the process should be fast and simple and address the client s needs. Maintain control over data and processes. Ensure investments in technology are well thought out and will result in the desired improvements. Balance business and client perspectives and set clear management perspectives in order to focus the claims operations. v

6 MICROINSURANCE PAPER No. 28 ACKNOWLEDGEMENTS Sincere thanks are extended to all of the practitioners featured in this study for sharing information about their microinsurance schemes and for contributing their time and insights. The authors appreciate the detailed comments on drafts provided by a number of reviewers, including Lisa Beichl, Michal Matul, Roland Steinmann and Julia Teerling. vi

7 ABBREVIATIONS AND ACRONYMS MICROINSURANCE PAPER No. 28 AIC CDSS CIMA DHAN Foundation DRG FFS GPRS HCHP HMI IFAD ILO IP IT MFI MIC MILK OP PACE RSBY SR TAT TPA VAS VHC AR Alternative Insurance Company Clinical Decision Support System Conférence Interafricaine des Marchés d'assurances Development of Humane Action Foundation Diagnosis Related Group Fee For Service General Packet Radio Service Hygeia Community Health Plan Health Microinsurance International Fund for Agricultural Development International Labour Office Inpatient Information Technology Microfinance Institution Mutual Insurance Committee Microinsurance Learning and Knowledge Outpatient Product, Access, Cost, Experience Rashtriya Swastya Bima Yojana Sales Representative Turnaround Time Third Party Administrator Value Added Services Village Health Champion South African Rand vii

8 1 > INTRODUCTION Claims management is a key challenge and opportunity for all types of insurers, as their reputation and financial stability depend on their ability to pay claims efficiently and transparently. Efficiency in claims administration is a particular challenge for microinsurance providers, who must deliver services similar to those of mainstream insurers, yet with smaller margins (based on smaller premiums) to work with. Large microinsurance programmes may serve many thousands of clients, who are often hard to reach through conventional methods. Identification of clients and beneficiaries is a challenge, as is finding claims management solutions that allow high volumes to be handled in an efficient way. Fraud management needs to be balanced with cost-effective processes. Effective data management systems are crucial for leveraging claims data in order to improve products and service. Insurance companies that are used to administering mainstream insurance may not always be equipped to handle the demands of microinsurance, especially if it involves investing in new technology with reduced profit margins to pay for it. Insurance is usually an intangible product for clients until they receive a payment for an insured loss. The claims experience can therefore significantly influence the client s understanding of and satisfaction with insurance. A positive claims experience may result in a long-term client and champion of the insurance programme. A negative experience, on the other hand, can lead to mistrust and policy termination. Claims management is therefore an integral part of an insurer s efforts to provide good customer service and to retain clients. The speed at which claims are processed may hold even greater importance for low-income households, since they have limited resources to cover expenses. If clients do not receive payouts quickly, they may need to sell assets or borrow funds, sometimes from moneylenders and often with impoverishing effects. Consequently, the client value of many microinsurance products, and trust in the principle of insurance itself, is often reinforced or diminished based on how a claim is managed. This paper explores claims management practices in microinsurance in order to identify strategies for claims processes and systems that can maximize efficiency and client value. A useful and comprehensive set of best practices for insurance claims handling was published by AIRMIC 1 in 2009, and is listed in Box 1. Microinsurance should follow similar principles of best practice, although their application may be different due to the unique features of microinsurance programmes. The paper considers issues in claims management that may impact the application of best practices for microinsurance in ways that differ from those suited to mainstream insurers. Influencing factors include organizational philosophy, client needs, product design and the distribution value chain. The methodology for this study included a structured review of 12 microinsurance providers that have implemented innovative claims management practices. Qualitative investigations were conducted through detailed telephone interviews and desk research, following the analytical framework presented in Section 2. Case studies were selected based on their ability to represent a sufficiently broad diversity of programmes that highlight unique strategies or approaches to claims management, and which provide useful insights for microinsurance practitioners. Table 1 summarizes the examples used in the analysis. Most of these case studies are grantees of the ILO s Microinsurance Innovation Facility, and additional insights and more detailed programme descriptions are available from its website 2. Due to the wide variety of programme designs and claims practices in health insurance products, the study includes a larger percentage of health microinsurance (HMI) programmes than other product types, although many of the insights are equally applicable to all microinsurance products. 1 AIRMIC Ltd. is a UK-based association for insurance and risk management professionals. It provides training and guidance notes on various issues within the global insurance industry, including promoting best practices

9 The analysis of the case studies was conducted across various product types, programme designs and regional contexts, in order to identify some guiding principles or themes that can be applied uniquely to microinsurance claims management. Section 3 describes the themes that emerged, while Section 4 explores in more detail the impact of various product and programme design considerations on the claims function. Given the more limited resources of microinsurance programmes, trade-offs are often required, such as reducing claims settlement times at the cost of transparency or fraud control. Technology solutions are important strategies for improving claims processes and managing the need for trade-offs, and these are addressed in Section 6. The pros and cons of potential trade-offs are discussed in Section 7. Box 1: Best practices in insurance claims handling (AIRMIC Ltd, 2009) 1. Culture and Philosophy Culture of excellent client service and a philosophy of clientfocused claims management that represents best practice and is fully documented 2. Communications Arrangements for effective, efficient and transparent communication with the insured and all other relevant stakeholders 3. People Suitable and sufficient number and range of skilled, qualified and experienced personnel, with emphasis on development, training and supervision 4. Infrastructure IT and other non-people resources sufficient to handle the number, value, nature and complexity of claims and communications with all stakeholders 5. Claims Procedures Client-focused procedures designed and implemented to support and enhance the claims handling processes and activities 6. Data Management Structured protocols for the secure management and analysis of all relevant data in compliance with legal and regulatory requirements 7. Operations Handling of claims in a consistent, yet flexible and fair manner that is transparent, accurate and timely, as well as secure and compliant 8. Monitoring and Review Arrangements for routine review of claims performance, capabilities and procedures, including evaluation of client satisfaction 2

10 Table 1: Summary of case studies Case study Region Product type Distribution Start date Old Mutual South Africa Funeral insurance AIC Haiti Voluntary funeral insurance ICICI Prudential India Life insurance with savings* Fonkoze Haiti Catastrophe property product plus index-based reinsurance** Hollard SAJIDA South Africa Banglad esh Property insurance Bundled product: health, life/loan, education, disaster Hygeia Nigeria IP and OP medical services; network of providers CARE Foundation ICICI Lombard India India Health: nonemergency OP IP benefits through RSBY; supplementar y OP product Uplift India IP benefits bundled with VAS DHAN Foundation/ People Mutuals India Rainfall indexbased crop insurance Group product sold through agents to funeral parlours and burial societies Commercial banks, MFIs and funeral homes Sold through tea estates in rural Assam Mandatory for microloan clients Sold on a retail basis in partnership with Jet Stores Compulsory for microcredit borrowers Local enrolment kiosks and sales agents, community networks Direct sales at local level by VHCs Enrolment camps for RSBY; for rural OP product, sales agents target local groups/clusters Distributed through cooperatives and selfhelp groups; bundled with credit + voluntary options Through DHAN member federations of self-help groups May 2003 April 2009 Dece mber 2009 Janua ry 2011 Augus t 2009 Members principal members (as of 2011) policies (as of 2013) policies (as of 2011) loan clients (as of 2012) policies (as of 2011) policies (as of 2012) beneficiari es (as of 2012) Octo ber 2010 June 2011 (OP produ ct) policies (as of 2013) household s (as of June 2012) beneficiari es (as of 2012) Nove mber beneficiari es (as of 2012) Claims processes Burial society/funeral parlour provides the funeral service on a cashless basis and submits claim to insurer; local agents assist with claims process Funeral service is provided on a cashless basis through a network of authorized funeral parlours Local sales representatives help with claims forms and submit claims to branch office; branch office scans and submits claims electronically to head office Local village chiefs assess property damage and submit claims forms to central office; payment made through loan account Claims reported by telephone; loss assessor required for large claims; third party claims administrator; repair, replace or reimbursement options Decentralized process: claims reported at local level; branch managers can approve most claims; online claims protocol Cashless benefits to policyholders; service providers receive capitation payment up front, submit monthly claims report for FFS reimbursements; biometric identification cards OP services provided directly on a cashless basis by VHC and network clinics; supported by handheld device to standardize treatment protocol and enable access to remote doctor Cashless benefits in-network, reimbursement for out-of-network; providers required to submit electronic claims for reimbursement; provider payments based on case rates; biometric identification card that tracks eligibility and services provided Clients file claims through local branch office, but claims are settled through community-based decision process and paid via local organization; Excel-based claims decision tool with clear rules Index data collected through automatic rainfall gauges; claims determination automatic at end of season; payment through local mutual insurance committees 3

11 Case study Region Product type Distribution Start date UAP*** Kenya Rainfall indexbased crop insurance Sold with purchase of crop inputs through network of retailers Janua ry 2010 Members 630 policies (as of 2011) Claims processes Claims determination automatic at end of season; payment is automated through claims platform integrated with mobile banking service (M-PESA); automated rain gauges upload data in real-time 4

12 2 > METHODOLOGY 2.1 ANALYTICAL FRAMEWORK The analytical framework used for the study places claims management processes claims procedures, client communications, workflow operations, and data management and monitoring within a structure that considers how these processes are impacted by the perspectives of client value and business viability, as well as by influencing factors such as product type and organizational philosophy (Figure 1). This framework is used to evaluate specific tools, solutions or strategies that have been implemented to optimize claims management processes by the case study participants. Analysis from the client value perspective refers to the PACE client value assessment tool, which analyzes client value across four categories: Product, Access, Cost and Experience (Matul, Tatin- Jaleran, & Kelly, 2011). It incorporates an assessment of client satisfaction with specific claims processes and customer services. Specific elements within the context of the client perspective include the relationship between client understanding and client satisfaction, the need for fast access to funds, and achieving a balance between the claims documentation requirements of the insurer and the timeliness of the claims payment process. Figure 1: Analytical framework The business viability perspective addresses profitability drivers, such as aggregate claims costs and expenses, including claims administration and adjudication expenses. Product type, product design and benefit type influence the complexity of the claims process, and may indicate a need for specific procedures, or warrant a particular solution that is more effective or efficient. The term product type is used in the paper to describe the type of insurance product or covered risk, for example, life, health, property, etc. Product design refers more specifically to the unique benefits and features of a given product, while benefit type reflects the basis on which the benefit is made, for example, reimbursement, cashless or repair. An analysis of effective claims practices must also consider factors of organizational culture and philosophy. An orientation towards client focused claims management, or an emphasis on innovation and finding strategies that work for clients, will have a different impact than a strong emphasis on profitability. Claims procedures refer to the specific tasks or events that must take place in order for a claim to be paid. Each of these tasks may be viewed through the client or business perspectives, and each step may be considered as a potential opportunity to apply a specific strategy or technology solution. Workflow or operations refers to how the claims procedures are applied in practice, as well as the movement from one task to the next, and includes considerations such as efficiency, accuracy and speed. Evaluating the operations aspect from end to end may point to effective solutions to minimize process breakdowns, or specific bottlenecks that need to be addressed. 5

13 Effective, efficient and transparent client communication may improve client value and satisfaction, particularly when delays or errors occur, and even in cases where claims are not approved. Communication regarding organizational processes to handle complaints and resolve disputes may significantly impact client satisfaction. Data management, monitoring and review are important components of the claims process, and may include a number of additional elements, such as ensuring compliance with legal and regulatory requirements, calculating key performance indicators and evaluating client satisfaction. An analysis of a data management system would also include evaluating the ability of the organization to leverage its claims data in the underwriting and product review processes, as well as enabling workflow process improvement. 2.2 PRODUCT AND PROGRAMME DESIGN The study investigated the underlying drivers of claims management in order to identify specific strategies or processes that contribute to effective claims management in microinsurance. While it is more common to evaluate microinsurance programmes by product type, for example, life or health insurance, the analytical framework for this study considers product type as only one of a number of influencing factors. Taking a slightly broader view allows microinsurance practitioners to benefit from the experiences and innovations employed in contexts that they might not otherwise consider. Insurance products covering similar risks (death, property loss, illness) often have similar benefits and features, but the underlying product design variables may fall along a continuum from less to more complex, as shown in Figure 2. A specific product will include a unique combination of these variables, regardless of the underlying covered risk. For example, a funeral insurance product might offer fixed benefits on a cashless basis, or benefits tied to a loan payment schedule on a reimbursement basis, or vice versa, and it is the combination of features that determines the complexity of the procedures required for claims. Each of the product design elements may have an impact on the claims process, sometimes with conflicting results. Similarly, programme design can be considered to incorporate all the different partners and relationships in a microinsurance programme, including distribution channels, local organizations or volunteers, third party service providers, government bodies and external funders. The organizational structure of the programme will significantly impact the procedures and workflow required for the claims process. Again, the possibilities fall along a continuum that ranges from basic partner-agent models to fully integrated models covering both service provision and financing. HMI is often singled out as a special case, and with good reason. The design of health insurance programmes frequently comprises complex underlying components. Viewed as a service product more than a protection product, health insurance programmes also generally involve a requirement to manage the quality of service delivery to clients, ranging from monitoring independent service providers to setting in place fully integrated managed care networks. The potential complexity of the product design, as well as different approaches to service delivery, raise questions of ensuring access to quality care and proactive management of programme costs, including fee schedules. While relevant to the management of claims, and in some cases applicable to other product types as discussed further in Section 4, many of these issues are beyond the scope of this paper. A recently published guide to good practices for HMI (Chandani & Garand, 2013) discusses in more detail some of these considerations for different health insurance programme designs, while another (Le Roy & Holtz, 2011) addresses issues specific to third party payment mechanisms in HMI. 6

14 Figure 2: Product design variables 7

15 3 > EMERGING THEMES An analysis of the selected case studies revealed four overarching themes related to microinsurance claims management: community-based practices; claims settlement times; degree of simplicity in product design, client requirements and internal procedures; and transparency of the claims process. These themes apply in almost all of the cases studied, through different approaches or specific strategies. As might be expected, these four themes are interlinked in many ways, and each may have an impact on how the components of best practices in claims management apply in the microinsurance context. Key messages that emerged from the case studies within each theme are highlighted below. 3.1 THEME 1: COMMUNITY-BASED CLAIMS PRACTICES Community-based claims practices observed in the case studies range from a full community-level claims committee, that approves and finalizes all claims payments (Uplift), to ensuring that the data for index-based benefit calculations are made available through local partners at the community level, even though individual claims are paid automatically (Kilimo Salama). Community involvement in the claims process is present to some degree in almost all the case studies, regardless of business model. This aspect provides an intriguing insight into how or why claims management for microinsurance programmes may be significantly different from that for mainstream insurance WHAT DRIVES THE COMMUNITY APPROACH? Community involvement in the claims process appears to be linked to both the distribution and design of the microinsurance programme, as well as to the underlying characteristics of the specific insured population. In terms of programme design, the logistics of reaching a potentially large group of clients in a less accessible area poses particular challenges in terms of timeliness and cost effectiveness: Microinsurance programmes often operate in remote or rural areas, which may be less accessible, in terms not only of physical access but also of infrastructure, such as electricity, mobile phone connectivity and Internet availability. Different distribution channels are often used to reach this market, and cost-effective, alternative approaches to distribution are frequently cited as an important consideration in the viability of microinsurance programmes (Angove & Tande, 2011). In particular, intermediaries are more likely to be part of the microinsurance claims process than in the case of conventional insurance. Low levels of literacy and financial education among microinsurance clients may demand higher levels of personal interaction, not only during the sales process, but also as part of the claims process. In addition to programme design and location, existing social networks have been found to play an important role in the success of microinsurance programmes, as described in Box 2. While research has focused primarily on demand, and indicates that leveraging social networks is crucial in that context, it stands to reason that the same principles will apply when considering how to make the claims process more effective. This suggests that the community-based approach to claims management observed in the case studies may well be a key factor that distinguishes effective claims management in microinsurance. 8

16 Box 2: Leveraging social capital in microinsurance The concept of social capital is useful in evaluating the relationship of microinsurance to existing networks of social support within low-income communities. The existence of certain types of social capital, in the form of strong community ties and inter-community ties, can be an important predictor of the success of microinsurance in a given setting (Mladovsky & Mossialos, 2006). Social networks are the primary resources of the poor for managing risk and vulnerability (Woolcock & Narayan, 2000). Microinsurance and social support networks have been found to be complementary sources of protection for low-income individuals (Poulton, Magnoni, & Zimmerman, 2013), and microinsurance providers can use existing social networks to design more relevant products and processes for their clients. In considering microinsurance from a social protection perspective, important conditions for success include transparency about benefits and payments. The microinsurance provider should also be located close to clients in order to obtain information, build confidence and be receptive to client needs (Siegel, Alwang, & Canagarajah, 2001). Siegel also concludes that microinsurance is often a group enterprise and financial literacy can be facilitated through group involvement in management decisions. Trust, a component of social capital, is seen as a critical element in the success of microinsurance initiatives. Recent studies have focused on the relationship between social capital and community-based health insurance schemes in particular, and have found evidence of a correlation between social capital and the demand for insurance, including willingness to pay (Donfouet & Mahieu, 2012); (Dror, 2007). Although HMI programmes may be more likely to be community-based than other insurance programmes, involving the community in the claims process is not unique to the HMI sector. Among the case studies observed were life, property and crop insurance programmes which used some form of community approach in managing claims, such as those illustrated in Box 3. For many of the reasons mentioned above, a decentralized process may be adopted, involving local assistance with any or all elements of claims submission, loss assessment or claims payment. 9

17 Box 3: Community-based claims practices for property, life and index-based microinsurance Fonkoze: Fonkoze s Kore-W is a mandatory microinsurance product for microloan clients. It covers property damage due to catastrophic weather events for homes and small businesses. Insured clients receive a fixed cash payout if their home is uninhabitable or they have lost over 50 per cent of their merchandise. They also have their current loan cancelled and access to a new loan if needed. Loans are disbursed through 46 branches to almost 60,000 clients. Loan groups of 5-6 women are organized into approximately 1500 regional centres, each with clients. Each centre elects a centre chief and centre meetings are held on a biweekly basis. In its initial phase, Kore-W part-time staff served as facilitators in the claims process. A facilitator would attend a centre meeting at the request of the centre chief and submit claims to the nearest branch. When Hurricane Sandy occurred in October 2012, the volume of claims rose to almost 15,000, and the previous method did not allow claims to be paid quickly enough. Fonkoze reacted by adapting the process so that centre chiefs would assess property damage for all affected clients and fill out a single claim form for the entire centre, submitting it to the local branch. The claim forms were simplified, with less room for interpretation, making them easier for the centre chiefs to complete. The new process relies entirely on the centre chiefs for loss assessment and reporting. Old Mutual: Old Mutual s funeral microinsurance is sold by sales agents under group policies issued to funeral parlours and burial societies. Claims are reported by clients to the group s administrator, who assists them to obtain the necessary documentation, completes the claim form, and submits the claim to the regional Old Mutual agent. The agent meets with the burial society in person to collect the documents, before forwarding the claim to head office for processing. The funeral benefits may be provided in kind by the funeral parlour, or in cash, depending on the option of the burial society. In either case, the burial society collects the insurance benefit from Old Mutual. The group mechanism facilitates premium and claim payments for clients who do not themselves have bank accounts, which is frequently the case for this market in South Africa. The use of regional agents to collect, verify and courier claims to head office speeds up the overall processing time for the insurer. DHAN Foundation: In 2010, DHAN launched a rainfall index-based product for crop insurance through its insurance arm, People Mutuals. In consultation with local self-help groups and agriculture federations, mutual insurance committees (MICs) decide which crops and risks to cover, as well as the design of the insurance trigger and payout. The role of People Mutuals has since changed from risk bearer to distribution channel, but the community is still heavily involved in the product design, administration, and claims payment process. Rainfall data is captured by 159 automated rain gauges installed 5-10 kilometres apart and is consolidated daily in a central database. At the end of the policy term, the MICs analyze the data to determine if a claim has been triggered and calculate any payouts due to farmers. The insurer disburses an aggregate claim payment to DHAN, which transfers the money to the agriculture federations. In turn, the funds are transferred to the bank accounts of the self-help groups, who pay the beneficiaries in cash directly at monthly meetings. According to DHAN, the strength of the claims management process is that it is based on existing social capital and takes place in the community and for the community POTENTIAL BENEFITS OF A COMMUNITY APPROACH TO CLAIMS MANAGEMENT A community-based approach to claims management can leverage the impact of existing social networks through the proximity of the microinsurance provider to the client, whether this is provided directly or through local village representatives. As the example of ICICI Prudential illustrates (Box 4), claims notification made through a local contact, 10

18 often in person and by someone with whom they are already familiar, allows the beneficiary to receive emotional support in times of stress, as well as assistance with the claims submission. It provides more convenient access for claims processes and can save clients time and money. Box 4: ICICI Prudential: community level assistance with claims submission ICICI Prudential offers two rural products, one of which, Amnol Nivesh, was designed in partnership with tea company McLeod Russell India Limited (MRIL) to provide a unit-linked savings product with life insurance benefits to workers employed in MRIL s tea gardens in Assam state. Service centres are set up in the tea estates, and staffed by sales representatives (SRs) hired from among the educated youths in the local tea worker tribes. The SRs are closely involved in the programme, particularly the enrolment process, and are known in the community. In the event of the death of an insured person, the SR is notified by members of the family. The SR explains the process to the family and assists with collecting the necessary documents and filling out the required forms, in some cases also paying for documents such as the death certificate. The SR submits the completed claim by post to the nearest branch office of ICICI Prudential. This claims facilitation process provides local and immediate assistance to beneficiaries through a trusted intermediary, and improves both the accuracy and timeliness of claims submission. It minimizes the costs to the beneficiary of making a claim, such as paying postage or taking time off from work to deliver a claim to the branch in person. If managed well, local claims support has the ability to improve overall processing time. Notification may be faster and local assistance to obtain and complete claims documentation improves accuracy and reduces the need for follow-up investigations from the insurer. A community claims process may potentially reduce fraud through the peer pressure of the community, as demonstrated in the case of Uplift (Box 5). A community approach increases the visibility of the claims process other policyholders and even non-insured community members are more likely to know when someone receives a claims payment. Since the actual payment or benefit is the most tangible demonstration of the value of insurance, increasing the visibility of the claims process can improve understanding and awareness of the value of the insurance programme in the community as a whole. This in turn may have an impact on demand and programme viability. While the perceived benefits reflect an organizational philosophy centred on client value, there are also potential cost savings. Claims expenses may be minimized by hiring personnel at local level rather than recruiting full-time claims staff at head office and having them travel to microinsurance sites. A community representative may be used in place of a professional loss assessor, which may be more cost-effective as well as reduce the time needed for loss assessment. 11

19 Box 5: Uplift India: a community approach to claim management for health microinsurance The Uplift India Association (UIA) facilitates the operation of community-owned health insurance mutuals through its programme Uplift Mutuals. This programme provides third party administrator services, as well as technical support, for partner organizations working within the community. The product covers inpatient (IP) hospital expenses and provides additional value-added services, such as discounts on prescriptions and diagnostic services. Claims are paid on a reimbursement basis. The member is required to submit claims documentation within 15 days of discharge. Employees at the branch office of the mutual organization collect the documents, check them, and assist the member with completing the claims forms. Claims assessment then follows a two-stage process: the claim is first sent to Uplift for validation against the policy rules, including verifying the claims document and encoding the claim in Uplift s software. Uplift then prepares a monthly claims summary, using an Excel tool that allows communities to understand and make claims decisions based on prudent rules for financial sustainability. A claims meeting is held every month by the community representatives. With the assistance of the Excel-based claims decision tool, which summarizes information on approved claims, rejected claims and the amount available in the claims fund for that month, the claims committee makes the final decisions. This committee has the ability to reduce payments even for approved claims if the funds available in the pool are insufficient. It may also reject claims on grounds not part of Uplift s standard rules and apply those criteria in the future. Claimants are reimbursed by cheque by the local organization, following the final decision. The involvement of the community in the claims process not only assists with management of potential fraud, but creates awareness of the reasons and costs for member claims, and encourages efforts to adopt preventative measures. Additional source/reference: CIRM report, June POTENTIAL DRAWBACKS The community-based approach is not without its drawbacks, which require careful consideration in programme and process design. In particular, lack of control by the insurer over the claims CLIENT submission VALUE process and the collection and verification of identity and claims documentation can lead to higher potential for fraudulent claims or collusion between community members. Claims TAT may actually increase. For example, if the process requires the local representative to meet with the client or beneficiary in person to review the claim, the timeliness of this step will depend on the availability of the local representative and may slow the process. The process of submitting the claim from the local representative to the head office may be inefficient, particularly if the method requires multiple handoffs, re-verification of manually completed documents or the use of external services such as a postal service that may not be reliable. As an example, a process that involves sending a claim from the local village to the nearest agent by runner, then from an agent to a regional branch by fax or courier, and then from a branch to head office by , has the potential for loss of data, loss of accuracy and increased processing time. Such processes may be the best option given the circumstances and technology available, so it is important to evaluate the value of the community presence compared to the possible inefficiencies or other drawbacks. As described in Box 3, Fonkoze changed its claims reporting and assessment process due to the sheer number of claims after Hurricane Sandy. The redesign of the claims assessment process included streamlining the reporting requirements and delegating more authority to the local village centre chiefs. While this solution enabled faster processing of claims in order to better meet client needs, it resulted in less control over the accuracy of claims submitted, and increased the risk of fraud and conflicts of interest. And while the changes speeded up the process to 12

20 some degree, at an average of 43 days, claims settlement times continue to be much longer than those found in other microinsurance programmes. Both Uplift and DHAN believe strongly in the value of community involvement in their microinsurance programmes and the transparency that results from the use of MICs in the claims process. However, one of the consequences of this approach is a fairly long settlement period. Under the DHAN programme, farmers receive their claims payments on average 45 days after the end of the policy term. Given that no claims need to be filed, and that the payment amount is strictly determined by the formula and the index value, a more automated payment system could significantly reduce the average settlement time. With Uplift, the average settlement time is days after the claims notification is made. While previous changes in the claims decision-making process have reduced settlement time considerably, Uplift is developing new software to improve data transfer and quality and reduce processing time. In summary, while there are clear benefits to community-based claims management, it is definitely not a one size fits all solution. The diversity of options presented in this section leads to the conclusion that many approaches are possible. It is critical to estimate the implementation and ongoing operating costs of various options for claims management, and evaluate them in conjunction with the design of distribution strategies and overall programme operations. Assessments of existing social structures and community organizations for their ability to be effective third party partners for sales and enrolment functions should include an analysis of whether or not they can also be effective for claims management. It may make sense in the short term to choose a higher cost approach that is offset by better client value, retention and client understanding, because ultimately these factors should translate into longterm business viability. 3.2 THEME 2: CLAIMS SETTLEMENT TIME Not surprisingly, claims settlement time emerged as one of the most important considerations in claims management. All the case study participants measured claims settlement time in some way, although not consistently, and all of them also identified improving claims TAT as a management objective for their microinsurance programme. The length of time it takes to complete the entire claims process from notification of loss to payment or receipt of benefit has an impact on client satisfaction, and it is important for microinsurers to recognize that from the client s perspective, TAT is measured from the time of loss. The need for fast access to funds or insurance benefits is often highlighted as a distinguishing characteristic of the low-income market, recognizing that this population frequently has limited savings or other financial resources to turn to in the period immediately following a loss. Many microinsurance programmes seek to provide cashless or in-kind benefits in order to alleviate this financial burden, although this approach comes with its own complications and trade-offs. Settlement time can also impact an organization s profitability, either positively or negatively, depending on the circumstances. A longer TAT may indicate inefficiency and hence higher costs than may be desirable, but this approach may also be less costly overall than adopting a high tech solution to make payments more quickly. Long settlement times may help a microinsurer to manage its cash flow and liquidity requirements, but can result in client dissatisfaction that may negatively impact demand for the product. Almost every aspect of the claims process can affect the claims processing time, so the issue is closely linked to the other themes and discussions in this paper. This section presents some key insights on the topic and highlights some aspects that impact TAT in general. Box 8 provides some additional insights into the impact of claims settlement time on microinsurance clients, based on MILK Client Math studies 3. 3 Microinsurance Learning and Knowledge (MILK) is a project of the Microinsurance Centre that is working collaboratively with the Microinsurance Innovation Facility to understand client value and business case in microinsurance. More information can be found at 13

21 3.2.1 SETTLEMENT TIME VARIES DEPENDING ON PRODUCT AND FORM OF BENEFIT Results from the case studies indicate considerable variation in average settlement times, even within the same product category, as illustrated in Table 2. However, in general, life and funeral benefits seem to be paid more quickly than other types of benefits, with the exception of cashless health benefits. This suggests that death claims are easier and faster to verify than other types of losses, which would often be the case. Faster payment also supports the client s needs for timeliness with respect to the actual costs incurred as a result of death. With life and funeral insurance, the need for funds is usually urgent, and similarly with health insurance, there is usually a need for more immediate funds. However, if the insurance is used to indemnify a farmer for crop losses, whether to provide income or funds for agriculture inputs for the next growing season, or to pay off a loan in order to have access to a new loan for the next season, the requirement for timeliness will be different. As noted in Box 6, the various benefits provided under SAJIDA s bundled product require different amounts of time for processing, generally due to varying levels of claim validation required. Box 6: SAJIDA: improving claims settlement time for a composite product SAJIDA s microinsurance product addresses multiple life-cycle risks in a bundled product with fixed benefit amounts. The product includes benefits for IP health care, loan and life insurance, fire insurance and education scholarships, as well as legal aid and other value added services. Claims are paid in cash on a reimbursement basis. Claims may be submitted directly at the local branch, by informing a field officer at the mandatory weekly centre meetings, or by contacting one of the programme s community health workers (Bondhus). The claim is initially reviewed by the branch manager, who has authority to approve simple claims using a standard protocol. More complex claims are adjudicated by the in-house medical doctor or area coordinator. In 2012, SAJIDA analyzed its business model using the PACE tool, and implemented a number of changes to streamline workflow and improve claims submission and decision-making procedures. These included decentralizing the process, re-engineering workflow and simplifying the claims documentation required. On average, the claims settlement time has been reduced from 25 days to 10 days, although it varies according to the covered risk. For fire/disaster coverage, the claim is usually settled in 24 hours, whereas health claims take longer. Table 2: Average claims settlement times Case study Type of organization Product Average claims settlement time Old Mutual Commercial insurer Funeral 20 days in total; 48 hours TAT at head office AIC Commercial insurer Funeral 24 hours for initial financial assistance; 8-10 days for funeral service; days to settle claim with funeral home ICICI Prudential Commercial insurer Life insurance + savings Target is 5 days from time claim is received at branch; may take additional week for beneficiary to receive payment in rural area Fonkoze MFI Property Varies depending on volume of claims; up to 43 days from date of event to receipt of cash benefit; longer for reimbursement adjustments Hollard Commercial insurer Property Average is 10 days from notification (for cash reimbursement), but highly variable SAJIDA Self-help group Health, life/loan, education, disaster 10 days on average, but varies by type of benefit 14

22 Case study Type of organization Product Average claims settlement time Hygeia Not-for-profit Health Real time to clients; days after end of month for service provider reimbursements CARE Foundation Not-for-profit Health Insured services are delivered in real time ICICI Lombard Commercial insurer Health Real time benefits to clients; days for OP service providers; 25 days for RSBY reimbursements Uplift DHAN Foundation/ People Mutuals Community-based health care Mutual groups + government agricultural insurer Health Index-based crop insurance UAP Commercial insurer Index-based crop insurance * Information on average claims settlement period not provided 45 days 45 days after end of policy coverage term Payments are made automatically through M-PESA at end of policy coverage term* In terms of client value, client satisfaction with settlement time also appears to depend as much or more on client expectations as on absolute measures of TAT. This includes the client s experience with other forms of insurance coverage, whether formal or informal. For example, in South Africa, service provided by burial societies typically includes fast TAT in order to meet the need for a funeral service. Therefore, any insurance product needs to meet or exceed those expectations (Box 7). Conversely, the community assessment process that is part of the Uplift and DHAN programmes results in a much longer TAT. This longer time for claim settlement may be partly offset by the fact that the clients know what the expected timeframes are and may accept the trade-off in timeliness for transparency and ownership of the claims process. In either case, it is important for microinsurers to evaluate the financial impact on clients of claims settlement time within their local circumstances and expectations, and to collect adequate feedback on client satisfaction. Box 7: Old Mutual: measuring turnaround time from the client`s perspective Old Mutual s internal standard for claims turnaround time is 48 hours from the time complete claims documentation is sent to head office from the local agent. Old Mutual meets this standard 98 percent of the time. However, this standard does not reflect a client s view of claims settlement time, which includes the entire period from the date of death to the receipt of benefits from the insurer. Although the claim reporting period may be beyond the control of the insurer, tracking this information can be useful in order to determine how well clients understand the product benefits and how to make a claim, including the procedures to follow and the documentation requirements. In recognition of this, Old Mutual has now started recording additional claims data in its system, such as date of death, date of initial notification of death to the local agent, date of claims submission to the local agent and date of payment to the burial society. Based on these data, the average time from date of death to claim payment is 20 days, which includes an average of 15 days before the local agent is notified, and 5 days of total processing time. The most commonly reported reason for claims processing delays is lack of updated enrolment data within the administration system. Claims may occur before new clients have been added to the administration system or before the first premiums have been paid. Since Old Mutual s claims system is integrated with the enrolment administration system, as well as with the automated payment system, ensuring accurate and up-to-date enrolment data was identified as the most important element in improving total turnaround time. 15

23 3.2.2 CLAIMS SUBMISSION PROCEDURES AND DOCUMENTATION REQUIREMENTS The procedures and documentation required for claims submission can have a significant impact on the overall claims processing time. Simplified and streamlined procedures for claims notification and submission will help to ensure that the claim enters the insurer s processing system more quickly. Reducing or simplifying the documentation requirements can shorten the period needed for submitting the claim, as well as minimize the need for follow up. The use of standard claim forms, including fixed options for responses to claims questions (for example, yes or no questions or standard codes), can not only shorten the time required to complete and submit claims, but also improve the speed and accuracy of data entry and claims processing. Long TATs are frequently driven by challenges in the claims submission process, rather than by processing time once the claim has been submitted. This may happen for several reasons. The beneficiary may not be aware of the coverage afforded by the policy. Documentation requirements or notification procedures may be time consuming or costly. The process for claims submission, including the transfer from field to head office, may be inefficient. Some approaches that have been implemented to address these challenges include: Providing multiple avenues for claims notification, such as those offered by SAJIDA; Integrated claims and enrolment systems that eliminate the need for the beneficiary to provide physical proof of insurance coverage; Use of a third party administrator or local agent, with access to enrolment data, to minimize the need for additional documentation; For life benefits, in the case of a policy lapse, checking to determine if the policyholder has actually died instead of lapsing, and if so, following up by contacting the beneficiary directly instead of waiting for a claim to be filed; In the case of health insurance, implementing an integrated system that includes previous claims history data, as well as enrolment data, which allows for automated checks on eligibility, exclusions and limitations; Permitting alternative methods of verification (e.g. validation of loss by village chief in lieu of a formal death certificate or loss assessment report); Implementing clear and standard procedures that are well communicated to clients; Using call centres for remote notification, for example, setting up a toll-free claims hotline for clients to notify the insurer immediately in the event of a loss. This also enables the insurer to explain and clarify the subsequent procedures to be followed by the client in submitting CLIENT claims VALUE documentation PAYMENT PROCESSES Microinsurance providers use a number of different methods to make claims payments, either to clients or service providers, which may affect TAT. In many cases, logistical problems, such as remote locations, lack of bank accounts and technology limitations, may make it necessary to make alternative arrangements to ensure that the benefit reaches the beneficiary in a reasonable amount of time. Providers need to find an appropriate balance between meeting client needs and working within the existing limitations. Some approaches used in the case studies illustrate the trade-offs involved: Payments may be made by cheque directly to the beneficiary. This is less common in areas where beneficiaries do not have bank accounts and may increase overall settlement time if cheques need to be delivered by post, especially to rural areas. Payments may be made through electronic fund transfer directly to a beneficiary s bank account. This may effectively reduce settlement times, especially in the case of remote areas or large numbers of claims, but it requires the appropriate technology infrastructure and that each beneficiary has a bank account. 16

24 Payments made through mobile phone transfers directly to beneficiaries can eliminate the need for the beneficiary to have a bank account, but requires the technology and mobile money services to be available. In cases where beneficiaries are in remote locations, without access to technology solutions or bank accounts, payments may be made through a third party who distributes them in cash or in kind to the beneficiary. In this case, payment can be made by cheque or electronic fund transfer to the third party who does have a bank account as in the case of ICICI Prudential. Some schemes prefer to use an approach where payment is made in cash or by cheque in a group or community setting. Both Uplift and DHAN use this approach, which can reinforce the tangible experience of settling a claim for the group as a whole, and increase awareness of the value of insurance coverage. Benefits that are cashless to the beneficiary, such as those provided by many health schemes, still require a payment to be made to the service provider, on a fee for service, per capita or other basis. Any of the above approaches may be used in practice, with a corresponding impact on settlement time from the point of view of the service provider. Bulk payments covering multiple claims and/or clients may be more cost effective for the insurer to process SERVICE STANDARDS Not all microinsurance providers have specific service standards for claims settlement times, although many do. In some cases, they have both an internal standard for processing time, and an external service standard that is communicated to clients. External service standards are often published by the insurer or disclosed in their consumer protection policies. Some jurisdictions prescribe maximum claims settlement periods, and many regulators are moving towards specific microinsurance regulations that include such provisions 4. Insurers that have service standards appear to monitor them on a regular basis, and compliance with settlement time standards is reported as a key performance indicator. In most cases, the settlement time that is monitored and reported is the time from the notification of a claim to the time of benefit payment, rather than the entire period starting from the date of the loss. Yet, from the client s perspective, monitoring the entire settlement period is more relevant. In particular, significant delays in reporting claims may indicate a problem with client understanding of benefits or the claims process, and this should be addressed. Both payment speed and reliability of response are important to microinsurance clients. Uncertainty about the timing and amount of the benefit may cause more anxiety than the length of time itself. Uncertainty may also increase costs due to the need for alternative financing during the period from loss to payment, as less effective approaches may be adopted when the timing of the benefit is unknown. Service standards that are well communicated, and adhered to, can help provide comfort to clients. Specific payment windows, such as those that occur with many index-based products, or claims payments made at regularly scheduled community meetings, can also help. Greater certainty about the timing and amount of an expected claims payment enables the client to make necessary plans, and may also facilitate short-term financing. 4 For example: Philippines (10 working days); CIMA (10 days); Peru (10 days); microinsurance regulations in other countries are under development. In general, these regulations refer only to the settlement period following receipt of full claims documentation. 17

25 Box 8: How important is claims settlement time? Common wisdom suggests that timely claims settlement is an important factor in whether or not microinsurance improves the ability of clients to respond to unexpected financial shocks. As part of its Client Math methodology, the MILK project considers the impact of delays in claims payments on the financial coping mechanisms of insured microinsurance clients (Morsink & Geurts, 2011). The findings support a general conclusion that long payment delays do affect client behaviour and therefore the value of the microinsurance product. The impact of timing of claim settlement depends on the intended use of the insurance benefit, and in some cases may improve value. In the Philippines (MILK Brief #13: "Doing the Math" - Funeral and Life Microinsurance in the Philippines), an analysis of the impact of claims processing delays on a combined funeral and life insurance product indicates that delays affect the perceived value of the funeral benefit, as the funds are required to meet an immediate need and a payment delay forces the beneficiary to seek interim funding from alternative sources. However, such delays reduce pressure to hold a more expensive funeral, and may enable beneficiaries to use the funds more effectively to replace lost income and help families recover from the financial consequences of the loss. For a microinsurance programme in Mexico (MILK Brief #16: "Doing the Math" - Life Microinsurance in Mexico), life insurance benefits paid on average within 8 days allow beneficiaries to rely on short-term, interest-free loans from family to cover funeral costs and to repay such loans quickly, providing effective relief and reducing reliance on formal borrowing. Several MILK studies focus on the client value offered through property and catastrophe products and identify long payment delays as a significant factor requiring beneficiaries to seek alternative financing for interim needs (MILK Brief #10: "Doing the Math" with Property Insurance in Ghana), (MILK Brief #17: "Doing the Math" - Calamity Microinsurance in the Philippines), (MILK Brief #18: "Doing the Math" - Property Microinsurance in Coastal Colombia). Settlement periods in excess of 40 days force insured clients to turn to informal or formal loans and reduce consumption in order to meet living expenses, in addition to rebuilding damaged property or restocking their businesses. While external financial support may be more accessible due to the expectation of an insurance payout, clients may over-finance in an inefficient manner through a patchwork of approaches, and may take longer to re-establish themselves. A Client Math analysis of Fonkoze s Kore-W product identifies CLIENT a number VALUE of issues related to the length of the claims settlement period. MILK Brief #15: "Doing the Math" - Catastrophe Insurance in Haiti, quantifies the average cost to clients as a result of payment delays, including lost wages and profits. The study found that clients needed to rely on alternative sources of funding in the interim, including the sale of assets. However, the study concluded that insured clients were able to limit selling assets by reducing consumption in the short term while waiting for the insurance payout, which enabled them to recover faster than uninsured people. 3.3 THEME 3: SIMPLICITY Simplicity emerges as a theme for microinsurance claims management with respect to product design, client requirements and internal procedures and workflow. Product design impacts the claims process in a number of ways, including frequency of claims, loss assessment requirements and calculation of benefits, all of which have knock-on effects for the client. As mentioned earlier, simplicity in claims submission procedures and document requirements can have a significant impact on the overall claims settlement time. Effective third party arrangements can simplify the process for beneficiaries, such as that described for AIC in Box

26 Closely linked to the concept of simplicity is that of standardization, which can be particularly important for microinsurance programmes with significant volumes of claims. The use of standard claims forms, standard coding for loss events or insured services, and standard procedures to handle both regular claims and exceptions, are key components in an efficient claims process. Simplified internal procedures and streamlined workflow can significantly increase the efficiency of claims processes, improving timeliness and potentially reducing cost. Workflow analysis is such an important component in improving the claims process that it is treated separately in Section PRODUCT DESIGN Simplicity is often mentioned as a key objective in microinsurance product design for a number of reasons, among them client acceptance and understanding. Microinsurance products are not typically intended nor expected to provide the same range of benefits as mainstream insurance products, and benefit exclusions or limitations are implemented in a more straightforward manner. Lower benefit amounts per claim suggest that, if microinsurance programmes are to be viable, the effort per claim employed in claims management should be correspondingly lower. Simple product design has advantages for claims management, as it may make it possible to have a more streamlined and efficient process. Clear and understandable product design and contract wording also facilitate more effective claims adjudication. For example, fixed benefit amounts, such as those typically used for life insurance products, or defined benefit schedules, such as those described in Box 9 for ICICI Lombard and SAJIDA, eliminate the need for subjective loss assessments, facilitate automation and result in fewer errors. Minimizing exclusions, such as pre-existing conditions most common in health and life products reduces the need for additional eligibility validation or verification of cause of claim. Index-based insurance products are another example where benefit calculations are based on a specific and predetermined formula. Determination that the loss event has been triggered and calculation of individual payouts can be easily automated and do not require additional assessment. An important element in product design is assessing which elements might be subject to abuse and will need to be monitored. These might include utilization rates, benefit type or the average cost of claims. The design, as well as the claims process, needs to incorporate and manage the defining elements in such a way as to appropriately control overall claims costs. A product that pays benefits up to a certain amount regardless of benefit type (e.g. diagnostic procedures or medical consultations), may be easier to manage when it comes to claims processing, but requires efforts in order to control utilization creep. It is worth pointing out that there are other disadvantages to fixed benefit schedules and fixed pricing in health insurance, such as a potential increase in the risk of moral hazard5. These issues may not affect claims processing per se, but will impact the overall costs of the programme. Many of the case study respondents identified simple product design as a key driver of efficient and effective claims management procedures. Designing simpler products can also minimize sources of fraudulent claims, thereby reducing the need for extensive checks and controls at the time of claim. 5 Moral hazard refers to the risk to the insurer due to lack of honesty or prudence on the part of policyholders or service providers. For example, unnecessary procedures may be performed by health care service providers in order to claim benefits from insurance policies. 19

27 Box 9: Simple product design: fixed benefit schedules ICICI Lombard has piloted outpatient (OP) benefits bundled with the national IP insurance provided through Rashtriya Swastya Bima Yojana (RSBY), for which ICICI Lombard is an approved insurer. Both OP and IP benefits are administered on the RSBY technology platform and smart card. RSBY empanelled hospitals are paid negotiated rates per case treated. IP cases are paid based on the diagnosis related group (DRG) that matches the diagnosis associated with that case. The payment package will include all the necessary services: medicine, tests, bed charges, etc., related to the case. This per-case payment eliminates the need for the insurer to verify that each service was actually provided, nor does it require assessing the appropriateness of the services provided or the length of stay. The only validation required is that hospitalization occurred for the diagnosis claimed. While this payment methodology will have other implications for overall programme costs, it does serve to simplify the process for claims assessment and reduce settlement times. SAJIDA s Nirapotta bundled product includes the following schedule of benefits: Loan and life insurance: outstanding loan amount waived, up to a maximum of USD 487, plus a cash benefit of USD 50; Health insurance: fixed cash benefits for listed IP treatments only, ranging from USD 6.25 to USD 37.50; additional value added services (VAS) including OP consultations and discounts; Fire insurance: cash benefit of USD 125; Education scholarship: up to USD 6.25 per month CLIENT REQUIREMENTS Introducing simpler requirements for microinsurance claims also reflects a philosophy that respects client characteristics and needs. Often, microinsurance clients have little experience with insurance, and need assistance in understanding the claims process and completing or submitting claims. The time and costs involved in acquiring documentation and making a claim, especially if it involves travel or taking time off from work, can often outweigh the expected benefit. For products with small claim amounts and low frequency, the cost of requiring additional or extensive documentation often outweighs the value of additional control. Simplifying requirements for clients to claim can improve the accuracy of claims submissions and minimize the number of claims requiring follow up or individual assessment. This in turn improves efficiency and controls claims assessment costs. Improving access to the claims process for beneficiaries, and making it easier for clients to make the initial notification, can speed up the entire timeline from event to payment. AIC s approach illustrates how the service provider can assume some of the documentation burden for the client (Box 10). ICICI Prudential has modified its claims procedures to allow more flexible means of identification and validation for microinsurance clients (Box 11). SAJIDA s experience, described earlier, indicates that simplifying claims documentation for clients can help to reduce claims settlement times. For most index-based insurance products there is no need for the client to submit a claim or any supporting documentation. The determination of whether an insured loss event has occurred is based on the index trigger, and the benefit amount is calculated using a formula based on the index and the insurance coverage purchased. Kilimo Salama provides a uniquely streamlined example: the client provides identification and a mobile phone number at enrolment and applicable benefit payments are generated automatically at the end of the policy term, using a mobile money platform. The claims process does not require any action from the client, other than to accept the payment. 20

28 Box 10: A streamlined process lessens the burden on clients and increases efficiency and accuracy The claims submission process for AIC s microinsurance products is simple and straightforward for beneficiaries. Although the documentation requirements are greater than for many other microinsurance products, the process is streamlined so that most of the documentation is automated or provided by third parties. In particular, the death certificate can be produced by the funeral home when authorized by the beneficiary, with a standard form provided by the funeral home, eliminating the need for the beneficiary to obtain a death certificate from another source. The beneficiary does not have to complete a claims form: she or he notifies AIC in person or by telephone, and the AIC claims agent receives the information verbally and enters the claim directly online into AIC s system. The system generates a unique claims number and a declaration form, which the beneficiary is required to sign using an electronic tablet at the nearest branch office. The funeral home checks the identity of the deceased using his or her insurance card and confirms eligibility for benefits with AIC. The AIC claims agent has access to an online, integrated system that includes enrolment and premium data, so that approval for funeral benefits can be provided in real time. The beneficiary must provide a copy of one of four approved forms of government-issued identification, and must also sign a document to confirm that funeral services were provided. The funeral home collects all the documents and submits them to the insurance company for reimbursement. Box 11: ICICI Prudential: modified claims submission requirements The microinsurance team at ICICI Prudential feels that a key strength in its claims process is having simplified requirements for claims documentation as well as more liberal guidelines that allow alternative sources of validation for the low-income market. These modified procedures include: A redesigned claims form for rural clients, simplified and reduced from three pages to just over one page; Village elders are permitted to provide a declaration of death, replacing a formal death certificate; A community declaration of good health for the deceased is permitted in lieu of an attestation from a hospital (only clients in good health at the time of enrolment are eligible for coverage: a good health declaration at the time of claim is easier and less costly than requiring medical underwriting at the time of issue); Alternative forms of beneficiary identification are accepted, such as a ration card or voter ID card; Illiterate beneficiaries may sign documents with an x, accompanied by a signature from a witness. 3.4 THEME 4: TRANSPARENCY OF CLAIMS PROCESS The final significant theme that emerged from the analysis of the case studies was that of transparency. Transparency in this context means that claims activities are conducted openly, so that people can be confident that they are fair and honest. Given the characteristics of the microinsurance market, including lack of financial literacy and trust in existing insurance providers, transparent processes are extremely important. For many microinsurance clients, the experience of insurance is either new or negative. There may also be a cultural belief that insurance is not for them. Demand side analysis (Matul, Dalal, De Bock, & Gelade, 2013) documents the 21

29 challenges to convince clients to purchase microinsurance and to part with scarce financial resources for an intangible benefit. A positive experience with a claims settlement, where the process is clear and transparent, and the benefits are received in a timely manner, can reinforce the value of insurance to both the beneficiary and the community. Understanding the policy provisions and the benefits provided, as well as the steps that the insurer takes to validate the claim, promotes trust and confidence in the fairness of the process. Negative experiences with insurance and the claims process can easily destroy trust, particularly if it is already fragile. In many ways, this theme is linked to the first one on community-based claims practices, as one of the key benefits of a community process is the transparency that it provides to clients. One example is Hygeia, which ensures that community representatives have a place on the board of its community health organization, so as to promote transparency for the programme. Similarly, the community claims process followed by Uplift is valued for the transparency that it offers to members, demonstrating one of Uplift s core values. Members are considered as coowners rather than just clients, and are involved in all processes, including product design, product review, setting up the health care provider network, claims decisions and fund management. Both claims approvals and claims rejections are communicated, together with clear reasons for the decision. The mutual insurance committees that participate in the People Mutuals programme of DHAN Foundation are a key part of the programme, ensuring that members have access to information about how the scheme works and how payments are made. A cornerstone of the approach taken by DHAN is that the rainfall gauge data are made available directly to the insured community members on a daily basis throughout the policy term. The data are consolidated centrally and also sent to the agriculture federations and village information centres. These are grassroots level centres that serve five or six villages. This procedure enables clients to track rainfall data throughout the season, and to validate individually whether the determination of the claims event and the benefit payments received are consistent with the data. Transparency also benefits the insurer, by providing internal clarity on actions taken. A benefit of simple and consistent products is that the way they work becomes transparent to the people who assess claims and make subjective judgements. The more clearly they understand how these decisions are made, the better they can perform those tasks CLIENT COMMUNICATIONS Client communications, including collecting feedback and instituting appropriate dispute mechanisms, are important components of transparent processes. Regular client communication contributes to client awareness: clients are aware they have insurance and are more likely to use it if it becomes necessary. Use of mobile phone technology to initiate regular customer contact throughout the policy, as well as for claims notifications, has become more common. Client contact can demonstrate commitment and concern on the part of the insurer. For example, after the earthquake in Haiti, AIC called each client individually more than 3,000 people to check on them and offer claims assistance if necessary. Appropriate disclosure at the time of sale and on policy documents such as how to make a claim, what documentation is needed and who to contact is often specified in consumer protection regulations. Some case study participants identified providing claims information at enrolment as a key factor in improving their claims experience. For example, a detailed explanation of the product benefits, exclusions and validation procedures for a HMI programme may be most effective if given at the time a health insurance card is issued to clients, rather than when they are ill and arrive at the hospital. Ongoing efforts through promotional or advertising campaigns can also help to ensure that clients are aware of their insurance coverage, and what they should expect in terms of benefits and claims procedures. 22

30 Access to advice and assistance during the claims process, including multiple points of contact such as local branches, call centres and online claims applications, is increasingly important for microinsurance clients. Experience with call centres for microinsurance clients has been mixed, and may depend on infrastructure. Benefits that are cashless to the client, such as those provided by Hygeia, do not generate many calls, whereas Fonkoze has found the call centre to be a useful method through which to interact with clients and receive feedback. One challenge with life microinsurance is to identify beneficiaries, as in some cultures there is a stigma associated with discussing death and clients do not always tell family members that they are covered in the event of their death. This may be easier to manage through community-based processes, particularly local distribution channels, where clients may be known personally. However, regular communication with clients may also help, such as following up on lapsed policies or sending SMS messages to clients, urging them to explain their coverage to their beneficiaries. Communication with respect to claims payments, including denied claims, is clearly important to clients. Uncertainty surrounding claims payments can cause anxiety and result in unnecessary use of interim financing, as noted earlier. Claims rejections need to be communicated carefully, in order to maintain trust in the process, and rejections must be fully justified based on clear policy terms. Good product design and appropriate marketing and sales processes are important to ensure that clients understand the policy terms. This has the effect of minimizing claims rejections due to client misunderstanding. The distribution channel has an important role to play in ensuring that appropriate disclosure is made to clients at the time of enrolment, as well as follow-up communication at the time of claims or other policy inquiries. For many microinsurance programmes, the distribution channel plays a larger role than a traditional agent would. As noted earlier, the distribution partner may provide direct assistance throughout the claims process, including the payment transfer. Local and direct contact is often a preferred approach for microinsurance clients, even though other avenues may be available COMPLAINTS AND DISPUTE RESOLUTION Important elements for transparency include appropriate processes to make complaints and resolve claims disputes. These key consumer protection principles, and guidelines for microinsurance practitioners, are outlined in two new publications (Zimmerman, Magnoni, & Camargo, 2013); (SMART campaign & Microinsurance Network, 2013). The case studies demonstrate a range of approaches, although little information was provided on actual results. Hollard s policy includes detailed information on how to make a complaint to the insurer, as well as how to contact the Insurance Ombudsman, as required by South African regulations. India s insurance regulations stipulate that grievances can be forwarded to the local government for resolution, providing an incentive for ICICI Lombard to act on complaints promptly and properly. In SAJIDA s community-based approach, complaints may be made through a field officer, the claims committee, or a dispute resolution committee. DHAN has a Complaints Resolution Committee, but it rarely gets involved in the indexbased microinsurance product, unless there are disputes over the operation of the rainfall gauges. Hygeia has a formal policy for submitting and responding to client complaints related to both administrative issues and provision of services, including internal reporting of the number and type of complaints COLLECTING CLIENT FEEDBACK Both formal and informal client feedback provides useful information for a microinsurer, which it can use to improve its claims procedures. This feedback can be combined with data gathering for other functions, such as marketing or 23

31 product design. Only a few of the programmes included in the case studies explicitly collect formal feedback from their clients on the claims process: ICICI Lombard conducts explicit audits with beneficiaries on a periodic basis; Fonkoze collects specific data from centres and centre chiefs and changes its benefits and claims process accordingly; The claims protocol process followed by CARE Foundation through its handheld device includes a specific final step to collect feedback from the beneficiary on the level of satisfaction with the service; Uplift has a formal feedback mechanism and conducts direct interviews with members annually, and also collects informal feedback through weekly community meetings FLEXIBILITY FOR EX GRATIA PAYMENTS Transparency in the claims process is also demonstrated by the ability and/or willingness of the insurer to make ex gratia payments in the case of extenuating circumstances. This may happen in situations where the normal process or documentation requirements cannot be met or in cases of natural disaster where some restrictions may be lifted in order to provide more relief for beneficiaries. In more subjective situations, such as those created by mis-selling, or if a client needs more time to collect claims documentation, the insurer might be legally justified in denying a claim, but may feel this would not be entirely fair. The organizational culture will heavily influence whether or not such payments are made, and appropriate flexibility can be a significant factor in promoting client value. As an example, AIC made a number of exceptions in the claims process for its funeral insurance in the immediate aftermath of the Haiti earthquake in Under the policy conditions, AIC was only obligated to pay for the funeral service, or, in some cases, the funeral plus additional benefits. Due to the catastrophe, some insured individuals had been dead for several days, or had already been buried, before the claim could be made. In some cases, the bodies were never found. In addition, funeral parlours were overloaded and burials could not be held on a timely basis. AIC handled these claims case by case, and in a number of situations, paid cash benefits in lieu of providing a funeral service, or reimbursed the premiums paid. Many claims were made several months after the event, and were accepted as long as adequate documentation was available. While products should be designed carefully to anticipate most circumstances, it may not be possible to include all potential adverse situations in a simple microinsurance contract. It may also CLIENT be VALUE preferable to designate such ex gratia payments as donations to the community, rather than as claims payments. In either case, it is important for the insurer to implement a formal policy and approval process for ex gratia benefits, in order to measure the impact and ensure accountability for such payments. 24

32 4 > SPECIFIC FACTORS THAT IMPACT CLAIMS MANAGEMENT In addition to the overarching themes that emerged from the case study analysis, there are a number of factors that can and do impact the claims management function. As noted earlier in Section 2, these include product design characteristics, and the level of complexity associated with each underlying variable for the given product. Other factors include the use of third party service providers or claims administrators, as well as the overall philosophy of the organization as it relates to microinsurance and claims in particular. 4.1 PRODUCT DESIGN CHARACTERISTICS BENEFIT CALCULATION Fixed benefit products require fewer resources to calculate and validate the benefit amount, and are easier to automate. Variable benefits often require someone to calculate the benefit amount and/or validate that the amount claimed is permissible under the terms of the policy. A variable benefit may require validation against acceptable standards or a physical assessment, and may provide more opportunities for moral hazard and fraud which then need to be managed. As a result, fixed benefits are generally easier and faster to settle. In the case of microinsurance, they are also sometimes easier for clients to understand and accept, and are generally easier to price. On the other hand, fixed benefit amounts may not always correspond to the loss suffered by the client, and may only provide partial assistance in the event of a loss. This is particularly true for index-based products. As noted earlier, there may be other disadvantages to fixed benefits for health insurance products, including a greater possibility of moral hazard or fraud. The type of benefit provided is not necessarily product specific. Health benefits can be fixed via a schedule of payments, such as those offered by SAJIDA. Life benefits can be variable, although this is not common in the case of microinsurance. An exception is when benefits include waiving an outstanding loan balance; although variable, the calculated benefit always equals the balance of the loan. Property insurance can also involve fixed amounts (either standard for all policies, or fixed at purchase by the policyholder), or variable benefits that are based on replacement value at the time of loss TYPE OF BENEFIT There are significant differences in the processes involved for cashless benefits, benefits in kind and reimbursement benefits. The type of benefit provided is therefore a key component of the way a microinsurance programme is structured and the resulting claims processes that must be put in place. In general, cashless benefits require a third party mechanism or service provider, which involves a unique set of considerations, as discussed in more detail in Section 4.2. Cashless benefits are more common in HMI, such as the Hygeia Community Health Plan (HCHP) programme described in Box 12, but are also found with funeral benefits and some property coverage. If the claim is to cover the costs of a particular service (for example, health care or a funeral), providing a cashless benefit may serve to shift the burden of timeliness of claim settlement from the client to a third party, which can be particularly useful for microinsurance clients. It can be an effective balance of the trade-off between efficiency and timeliness to pay a service provider in bulk once a month, whereas waiting a month or more might be less well tolerated by an individual client. Another potential benefit of cashless or in kind services is that insurers may be able to negotiate a discount with service providers in exchange for anticipated volume, thereby providing greater benefits and/or reduced premiums to the client. 25

33 Box 12: Hygeia Community Health Plan The Hygeia Community Health Plan (HCHP) provides IP and OP benefits to clients under both capitation (i.e., a fixed rate paid per insured member per period) and fee for service (FFS) payment arrangements with an existing network of service providers. Under HCHP, approximately 80 percent of covered services are paid under capitation; other covered services are paid on a FFS basis. FFS benefits must receive authorization from HCHP before services are provided, and FFS claims are submitted for reimbursement by the service provider (not the client). Medical expenses that are not covered are paid for directly by the client. Under this arrangement, services are provided on a cashless basis to the client, who does not have direct contact with the insurer. The service provider verifies eligibility and coverage at the time of admission, and the client does not need to submit additional documentation. HCHP pays the capitation amounts at the beginning of every month, once enrolment has been verified. At the end of the month, each service provider submits a claims report to HCHP for validation and FFS payments. In effect, HCHP considers the service provider to be its direct client, as HCHP interacts directly with service providers for both claims submissions and claims payments. Payments are made in bulk to the service provider, and turnaround time is measured with respect to when this bulk payment is made. Property or asset insurance is unique in that benefits can often be provided in different ways. Examples include paying a service provider to repair or replace a damaged or lost item, rather than reimbursing the client directly. Even within a given policy, the insurance may cover different types of assets, loss events or amounts of damage differently, all of which can affect the average time to settle claims. It is often more cost effective for insurers to pay a service provider for repair or replacement, as they have more control over the cost and process. However, the cost/benefit analysis for the client is less clear. The process may require more time and effort from the client, such as obtaining multiple estimates for the insurer to approve, but it also removes the need for the client to pay cash up front for repairs or purchases. Hollard provides an interesting example of this approach (Box 13). Box 13: Hollard: in-kind benefits for property microinsurance In the case of Hollard s property microinsurance product, claims notification is carried out by phone and the claim is recorded directly into the system by the agent. No claim form is required. Alternatively, clients can go to the Jet Store where they purchased the policy to report the claim, and the staff at the store will call the claims administrator on their behalf. Clients are required to submit supporting documentation, which may be done by fax, or post, using facilities at the Jet Store where they purchased the policy, or by delivering documents to the claims administrator in person. Claims are handled by a third party claims administrator on behalf of Hollard. Clients can choose different options to receive benefits. For replacement benefits, they are given a debit card that is pre-loaded with the benefit value. Use of the card can be restricted to certain stores and can also be tracked to see where the funds are spent. For repairs, clients may choose their own repair company, but Hollard prefers to use its own contracted repair companies in order to ensure quality and reduce costs through volume discounts. Clients also have the option of making their own repairs, and receiving the benefit in cash to cover the cost of materials. 26

34 4.1.3 CLAIMS PER POLICY AND CAUSES OF LOSS The number and diversity of claims that can be made on an individual policy will govern the volume of claims overall, as well as the type and amount of data that is required to process the claim. Policies that only allow a single claim, such as life insurance, simply require that eligibility and identity be verified. Policies that only allow one claim to be made during the policy term, such as most index-based products, may only require that eligibility be validated and that no previous claim has been paid. Limiting coverage of property insurance to specified risks, such as fire or theft, will limit the frequency of claims, as well as the amount and type of claim validation and assessment that might be required. Policies that cover multiple risks, or which permit multiple claims within a period, such as health insurance, require more complex systems to validate eligibility, verify loss events and ensure that maximums or exclusions are applied correctly. This requires that cumulative claims history for the period be available, in addition to enrolment data and supporting data for the current claim. Covering more than one unit per policy (such as family members or insured assets) adds additional complexity to the required procedures LOSS ASSESSMENT REQUIREMENTS The need for a subjective loss assessment increases both the time and cost involved in claims processing. Claims that can be assessed automatically, such as many index-based products, require the least amount of intervention. An innovative approach to assess losses using a pre and post assessment of all assets insured was piloted by Hollard for a property microinsurance product launched in South Africa (Box 14). Box 14: Hollard: evaluating the cost of loss assessments As part of the pilot for its Jet Home Protect property microinsurance product, Hollard investigated the use of a preassessment process using a low-cost runner model. Developed as a collaboration between Hollard and Mobile Solutions, using Google Earth mapping, the idea was that local runners equipped with innovative mobile and mapping technology would visit each insured home to capture the location, content and state of the property. The data would be used at the time of a claim to validate the reported damage, as well as to assess the overall risk of the insured portfolio. While the pilot collected useful data, there were a number of challenges in assessing a large enough proportion of the portfolio at a reasonable cost. The average cost of ZAR 500 (USD 46) per policy for pre- and post-inspection compared favourably with the average cost of ZAR 2500 (USD 232) per claim using the traditional loss assessment process in which each claim required dispatching a claims assessor to perform an on-site assessment of the loss. However, the aggregate cost of conducting pre-assessments on all insured properties was higher than the aggregate costs of post-assessment only at the time of claim. Hollard s cost/benefit analysis indicated that the preassessment approach would only become cost effective with sufficient volume and claims frequency, possibly if other insurers in South Africa adopted the runner model to help achieve economies of scale. Claims that can be simply supported by documentation obtained from an independent source, such as a death certificate or a discharge form from a hospital, require clear procedures and guidelines as to what constitutes an acceptable source and/or document. Claims that require a physical loss assessment, such as property damage, may be subject to additional delays for settlement and invite fraud. A related aspect of loss assessment is when the insurer becomes involved in authorizing services provided with insurance, something that is most commonly seen in managed HMI programmes. Pre-authorizations for provision of 27

35 specific benefits can be considered as an extension of the loss assessment process, where the assessment of the need for and level of service is performed in advance. Similarly, speciality centres can be designated for complex cases and an effective pre-authorization process includes directing the client to the right centre. Proactive service management in advance of service delivery can enhance quality of care and delivery of appropriate care, as well as manage programme costs. However, this approach adds complexity to the claims management process VOLUME OF CLAIMS AND COVARIANT RISKS The expected volume of claims depends on the expected frequency of insured events and the size of the portfolio, and can vary significantly depending on the volatility of the frequency assumption. If the volume of claims is quite low, manual procedures may be sufficient, if well managed. If the expected volume of claims is large, claims processing should ideally be automated or decentralized, in order to improve efficiency and settlement times. The expected timing of claims is also material. If claims are spread uniformly throughout the policy period, then resources can be allocated evenly for claims processing. However, for many microinsurance products, claims may come in peak periods or occur simultaneously, such as at the end of the policy term for index-based products, after a regional health epidemic or following a natural disaster. As described earlier, Fonkoze needed to streamline its claims process due to the very high number of claims after Hurricane Sandy. While it was able to do so, it is worth noting that any programme that offers some form of catastrophe coverage, or could anticipate a large number of correlated claims occurring at the same time, should have a contingency plan in place to deal with extreme events. Fonkoze s flexible staffing system allowed it to manage most of the variability in its claims frequency, but it was insufficient to deal with the number of individual loss assessments required for such an extreme event. As the product design at client level required individual loss assessments for property damage, even a fully automated and integrated system would not have solved this particular challenge. 4.2 THIRD PARTY ROLES IN CLAIMS MANAGEMENT A notable variable that affects the claims process is the involvement of third parties, other than sales agents, in the delivery or claims management of the microinsurance programme. This is frequently a factor in the case of HMI, since health services are usually provided by third parties that are separate entities from the insurance provider, even though they are sometimes related organizations or part of a contracted network. Group insurance programmes also have this feature, as do programmes that involve a third party administrator (TPA), and some innovative microinsurance partnership structures. For example, microinsurance intermediaries such as MicroEnsure also manage claims, but are more involved in programme design and set-up than a typical TPA. Third party involvement often coincides with products that have cashless benefits, though other types of products and benefits may also involve TPAs. In these types of arrangements, the beneficiary does not usually have direct contact with the insurer during the claims process, and from the insurer s point of view, the client is the third party, rather than the beneficiary THIRD PARTY SERVICE PROVIDERS A third party service provider is an organization that provides some or all the insured benefits to the beneficiaries, usually under contract with the insurer. With cashless benefits, third party providers typically are responsible for verifying identity and eligibility for coverage prior to providing services or benefits. Most common in health insurance programmes (Le Roy & Holtz, 2011), third parties can also be contracted to provide services for other products, such as the network of funeral parlours that provide funeral services under the AIC microinsurance programme (Box 15). 28

36 Many of the case studies involve a third party service provider, and experience suggests that insurers focus their measurement of client services and communication on their interactions with the third party, rather than with the actual beneficiaries. This focus reflects a business-centred perspective rather than a client value perspective. For example, claims settlement time is most frequently measured from the time the claims data is received from the third party, rather than from the time of service delivery or loss to the client. Communication is between the insurer and third party, and beneficiaries may not receive any direct notification of claims paid or services provided. This may be a missed opportunity to reinforce the value of insurance and encourage renewals among clients who have received a tangible benefit and are satisfied. Box 15: AIC: use of third party funeral service providers in Haiti The Protecta products under AIC s microinsurance programme provide cashless funeral benefits through a network of approved funeral parlours. AIC selects providers on the basis of the quality of service, which in some cases limits the range of product distribution in areas where there might not be a suitable provider. Although there are no set criteria to select service providers, they are benchmarked against good practices for levels of service, efficiency and trust. AIC also surveyed its target client segments to assess which funeral homes they recommended. AIC monitors the service quality of its providers regularly, and in some cases agents will attend funerals in order to monitor whether the quality of service meets the desired standard THIRD PARTY CLAIMS ADMINISTRATION Third party claims administration involves a slightly different structure, as the contracted party manages the claims process but does not directly provide the insured services. For example, in the case of Hollard s property insurance, a TPA, Exiliti, processes claims on behalf of Hollard. Exiliti uses Hollard s panel of contracted loss assessors, as well as two internal loss assessors. The TPA is responsible for the claims process from start to finish: notification, documentation, assessment and payment (via a dedicated bank account), although claims rejections must be presented to Hollard for a final decision. In this situation, a service contract sets forth the arrangement between the two parties, including service standards and reporting. For insurance companies that have existing arrangements in place for third party claims administration of mainstream insurance, a reasonable business case may be made for including microinsurance in the arrangement, since much of the administrative overhead is already covered. For a dedicated or new microinsurance programme, the benefits of contracted TPA services will need to be weighed against the costs. Contracting external loss assessors is a common practice in mainstream non-life insurance, particularly when the volume of claims is high and the cost of contracting is less than the cost of hiring, training and compensating internal loss assessment specialists. However, loss assessment for individual claims can be time and cost intensive, and the lower margins that are typical of microinsurance may make it infeasible. Given the lower risk profile of many microinsurance products, it may make good business sense to conduct direct or on-site loss assessment only when claims are over a certain threshold, as in Hollard s case, or when fraud is suspected. A regular review of loss assessment expenses relative to savings on fraudulent claims can be a useful tool to analyze the effectiveness of physical loss assessment functions GROUP INSURANCE POLICIES Group insurance policies, such as the funeral products offered by Old Mutual, are another example where microinsurance programmes may include a third party in addition to the beneficiary and the insurer. Group insurance can have many advantages, including lower distribution costs and some protection against anti-selection. With respect to claims processes, the beneficiary usually notifies the group policyholder, who contacts the insurer, submits the claim on behalf of the beneficiary, and often makes the corresponding benefit payment to the beneficiary on behalf of the 29

37 insurer. From the perspective of the insurer, the client is in fact the group policyholder, not the individual beneficiary, a factor that affects the type and manner of client communications and interactions MANAGING THIRD PARTY PARTNERS A consequence of any third party role in a microinsurance programme is that the insurer must add new processes to manage the quality, integrity and accuracy of the services provided by the third party. This may involve setting and monitoring service standards, as well as imposing penalties for failure to meet them. As an example, ICICI Lombard initially used TPAs to manage the claims process for all its health insurance business, including HMI products. In addition to communication challenges and unacceptably long TATs, there was significant benefit leakage that the TPAs did not control well, primarily due to manual processing. ICICI Lombard decided to move the claims administration in-house and automate the systems involved. Not only did this reduce claims processing times and costs, it also allowed ICICI Lombard to collect comparative data on OP clinics, such as claims costs and number of claims. When the in-house system was initially implemented, the data revealed a number of problems with approximately OP clinics. These clinics were subsequently eliminated from the programme, and replaced with new clinics. Anomalies in the OP clinic data are currently referred to a team that investigates problems through field officer visits, and recommends dis-empanelling if necessary. 4.3 ORGANIZATIONAL PHILOSOPHY Microinsurance organizations utilize different business models on a continuum ranging from not-for-profit social protection schemes to full commercial operations. This has an impact on how claims processes are perceived and managed within the organization. The organization s philosophy and business orientation will dictate the relative importance of cost management and client communications. The distribution strategy, including structure and sales force development, is also influenced by the organization s culture and philosophy, and has a significant impact on claims. A fully commercial insurer must manage its costs, including total claims as well as claims expenses, in a more efficient manner than an organization that is partly or wholly subsidized. One aspect that emerges from the case studies is that commercial insurers appear to have shorter claims settlement times, while member-based mutual organizations make greater efforts to increase transparency and provide community level contact. Other elements of programmes that are affected by organizational philosophy include training initiatives and decision-making for investments in technology ORGANIZATIONAL PHILOSOPHY AFFECTS CLAIMS SETTLEMENT TIMES Among the case study participants, client satisfaction with timeliness was viewed as being important in the sense that timeliness affects renewals and ultimately, the sustainability of the insurance programme, and appears to be a reflection of organizational philosophy. Providers do not appear to measure the direct impact of client satisfaction on renewals; this would entail follow up with clients who did not renew, in order to determine the cause, as well as collecting and analyzing relevant statistics to determine a correlation between claims settlement time and renewal rates. On a qualitative basis, providers with a strong focus on minimizing or improving claims settlement times indicated that the reason for doing so was client satisfaction, for example: When Old Mutual started monitoring the full claims settlement period, from when the claims event death occurs, it identified areas for improvement. This may reflect several factors. The client, from Old Mutual s point of view, is the burial society (a group policyholder), and group funeral insurance is a highly competitive 30

38 business in South Africa. Dissatisfaction with administration and claims processes affects retention, and client turnover can be high. From a business perspective, it is crucial to maintain high service standards (in addition to competitive premium rates) in order to retain clients. Retention is key to profitability, and business growth is a significant management objective. Old Mutual s claims philosophy is summed up by the statement we want to pay the claim, not decline the claim. AIC identified timely provision of funeral services as a key priority for beneficiaries, even though final settlement of the claim with the funeral parlour may happen afterwards. AIC measures timeliness in authorizing benefits for the funeral after notification of a client s death. AIC s service standard is to authorize funeral benefits within 24 hours of being notified. DHAN indicates that the community-based claims process is a key strength of its crop insurance programme and that using MICs to manage the claims process actually speeds up the procedure, since they have the interests of the farmers in mind. While the average settlement period of 45 days seems long for an indexbased product, it does not appear to cause client dissatisfaction. Box 16: CARE Foundation: innovative access to outpatient health care in India The organizational philosophy and mission of CARE Foundation very much governs the way the microinsurance programme is designed and delivered, including the way claims are managed. As a not-for-profit organization with a strong community focus, the form of benefit (cashless services), the training of health care workers to deliver effective health services, and the development of supporting technology, are all done with the needs of clients in mind. Service delivery includes a specific component for soliciting client feedback. The Clinical Decision Support System (CDSS), software which supports the Village Health Champion (VHC) with diagnostic algorithms used during service delivery, concludes with specific questions on client satisfaction with the service. This information is collected along with the other claims data and consolidated in the central Management Information System (MIS), and used to evaluate the programme and areas needing improvement. Based on client and provider feedback, as well as claims utilization data, CARE Foundation has introduced both product and process changes. The approach of CARE Foundation and its partners has been one of experimenting with different and innovative solutions in order to improve the lives of rural clients. It has demonstrated CLIENT a willingness VALUE to take risks in order to learn from experience and share lessons and challenges with others. The programme has deviated from traditional health insurance models so as to investigate the feasibility of providing cost-effective outpatient care in a more accessible way. The evidence suggests that this approach, particularly if bundled with IP insurance, may lead to earlier identification of illnesses and more timely referrals to hospitals, resulting in earlier treatment and lower overall hospital costs (Mahal, Krishnaswamy, Ruchismita, & Babu, 2013) TRAINING INITIATIVES Organizational culture affects a microinsurer s initiatives to provide sufficient and well trained staff to support claims administration. This includes support and training for distribution channels, branch offices, claims staff and clients. Having properly trained staff to assist clients in filling out claims forms and collecting documentation improves accuracy and completeness of claims submissions. In turn, this can minimize follow ups and claims rejections due to incomplete data. Conversely, implementing new claims procedures without providing appropriate training can result in miscommunication and delays in settlement. 31

39 The distribution strategy in place will affect the need for training in claims processes of branch staff and field agents. As alternative distribution strategies are adopted, whereby claims functions become part of a one-stop processing centre for clients, different training needs emerge. In particular, training third party service providers or TPAs can require different approaches than training internal staff. Uplift s community health mutual model includes an array of training and education initiatives for both staff and clients about claims. Information is provided to clients on multiple occasions, including during promotion, orientation, enrolment, claims committee meetings, health camps and via a 24-hour helpline. Governance training is provided to the elected representatives who manage the programme and health fund for the community. Training of both clients and service providers is an important factor in minimizing claims settlement time for AIC s funeral insurance products. Clients receive training at the time of enrolment on the importance of informing their families about the coverage and instructions that can be shared with beneficiaries on how to make a claim. This training is crucial to ensure that notification of a claim is made on a timely basis. Network service providers also receive clear instructions on procedures and claims documentation required, in order to standardize services and promote timely settlement. 32

40 5 > INTERNAL PROCEDURES AND WORKFLOW Internal procedures and workflow analysis are key components of effective claims management. This is especially true for microinsurance, given the often limited resources available. Internal procedures refer to the insurer s procedures for processing and paying a claim once notification has been received. Workflow analysis evaluates not each step in the process, but the movement from one step to the next. Together, these steps can be viewed as the operations side of the organization. For decentralized processes, such as those that are common in the community-based approach, operational simplicity is required. In addition to considerations such as efficiency, accuracy and speed, internal procedures and workflow should be designed to ensure traceability and accountability for claims transactions, especially in environments where compliance with client protection regulations is monitored. Standard processes and claims coding, as well as a claims decision hierarchy, are especially important considerations for products that generate high volumes of complex claims, as is the case with many HMI programmes. Workflow analysis and process maps can help to identify areas where increased standardization may improve operations. Programme structure and third party partners should be included in the workflow analysis. Workflow analysis is not so much about the technology that is used, as about how the process all fits together. For example, claims data may need to be reviewed by different people during the process: an agent who receives the claim from the client, a claims officer who enters the data into a system, a claims assessor who evaluates the claim for validity and determines the benefits payable, a manager who approves the claim, etc. As the number of review points rises, the complexity of the process increases, and often, settlement times become longer. If the data are transferred manually, or entered into different systems more than once along the way, the potential for error increases, and again, timeliness suffers. Claims procedures follow roughly the same steps, although different levels of review or complexity may be warranted in given situations. Figure 3 illustrates a typical claims process for reimbursement benefits, and Figure 4 illustrates the process used by ICICI Lombard for cashless outpatient services. Figure 3: Illustrative claims workflow Loss Event Occurs Loss is communicated to claims agent Client collects claims documentation Claim documents are submitted to claim agent Claim checked by claims agent Eligibility and identity verified Documentation complete Claim forwarded to head office Claim assessed at head office Claim referred for investigation Claim investigated Claim rejection letter is sent Claim approved? NO Claim payment is made YES 33

41 Figure 4: OP Claims - ICICI Lombard Good information systems and well-designed technology solutions can improve internal procedures and workflow. Integrated systems, whereby enrolment, eligibility, coverage, claims utilization and payment data are all recorded in the same system, can automate many procedures. Straight-through processing, where claims data are entered only once into a system that is accessible for all subsequent procedures, has multiple benefits: Manual input, as well as duplicate data entry, are limited, improving accuracy; Some eligibility checks and controls can be automated, providing more efficient fraud control; Transparency and client communication is improved if field officers can see the status of claims being processed at head office; A direct linkage to the payment system eliminates the need for separate data entry for payment processing. An important caveat is that technology in itself cannot fix a cumbersome process. For new programmes, it is often preferable to pilot using a manual process to gain a thorough understanding of the workflow requirements before automating the system. Once a system is in place, it is much more difficult (and costly) to change it afterwards if the workflow needs to be re-engineered. Similarly, new microinsurance products may need to be adjusted frequently in the initial or pilot stages, requiring more flexibility in enrolment and claims administration processes than is typically available in established information systems. A graduated approach to systems development may be more suitable. Workflow process maps can help to identify any bottlenecks that impede the claims process and necessary actions to resolve issues. For a microinsurance provider, focusing on the greatest limiting factor can produce a major payoff in terms of overall efficiency. For example, if a lack of skilled claims staff is the factor that increases claims settlement time the most, then addressing this issue will have the greatest impact on reducing settlement times, even though other factors may also be at play. The workflow process itself should also be reviewed periodically. Key performance indicators, such as claims settlement time, can be used to observe trends and benchmarks against other providers, and may indicate when a process review might be in order. PACE analysis is one tool that can be used. The process mapping toolkit, developed by the Microinsurance Centre in conjunction with IFAD (Steinmann, 2012), also provides an excellent reference for developing process maps for microinsurance organizations. An example of process maps developed for the credit life microinsurance activities of Microfund for Women, another grantee of the Microinsurance Innovation Facility, is 34