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Montlake's Experience Proves There's Still
No "Free Lunch" 
By Brian S. Moskal
Using a hand-me-down claims administration system proved
very costly for Montlake Holdings LLC. But after Montlake
selected an ASP applications, it has been rewarded with cost-savings
and eficienties.
Most everyone is familiar with the old
adage that says, ‘What you get for free is
usually worth every cent of it.’ Well, Montlake Holdings LLC now knows
this lesson in spades — with one catch— there
is a happy ending.
When the Bellevue, Washington-based
Montlake began as a start-up in 1999, the
workers’ compensation underwriter and claims
manager had access to a zero-cost, proprietary
claims administration system operated by a
now defunct investment partner.
“Free is good but that’s about the only thing
that was good about the system. It was just a
receptacle for data. All it did was store
information,” says Carrie Angle,Vice President
of Information Technology for Montlake.
“The system didn’t have anything
automated. It couldn’t print checks, or create
form letters for correspondence and we had to
institute a series of business processes just to
catch data-entry errors that occurred 50% of
the time,”Angle explains. “I spent a lot of time
sending out weekly reports to our (former)
partner pointing out all of the errors.”
The AS 400-based
proprietary system used outdated technology. “It had modifications
that were unique to our partner but they
didn’t work for us,” Angle says. The
application lacked automated interfaces with
bill-review companies, banks or fraud-review
bureaus. Moreover it couldn’t perform EDI
functions with business partners.
Montlake used the “free” information
technology system for about three years — all
the while looking for a replacement.When it
became clear that Montlake’s partner was
going out of business, Montlake accelerated
the search for a new system.
Fortunately, Montlake went live with
an ASP version of a new claims management
software solution — just two days before its
partner closed down and pulled the plug on
the “free” system. Developed by Valley Oak
Systems Inc. of Alamo, Calif., the system
commenced operations on June 18, 2002.
How close to disaster did
Montlake tread?“
It wouldn’t have been a catastrophe because
we had the data but we would have had to
really scramble. It was a good thing that we
had just converted to the new system,” Angle
says. Montlake selected Valley Oak’s system
in March 2002 and by June Valley Oak had
converted 5,000 claims. The conversion time
took one month.
Significant Upgrade
For Montlake, Valley Oak’s system is more
user-friendly because it is a Windows-based
client server that can be accessed via the Internet
using Citrix Systems Inc.’s NFuse Classic. “It’s
easy to navigate and training time for users is
dramatically reduced because the system is
very intuitive and makes sense,” says Angle.
Montlake chose
the ASP version because it allows an underwriting specialist
with a
$100-million-dollar book of business in gross
written premiums to use the same state-ofthe-
art technology enjoyed by the well-heeled
heavyweights of the insurance industry.“
The ASP version was perfect for us
because it is scaleable and we avoided the
initial outlay for a server, software, firewall
and the access system for remotely located
staff members,” says Angle. “That’s all very
expensive and we weren’t prepared to do
that,” she adds. Montlake did pay some
upfront conversion fees.
The Valley Oak System uses the latest
technology to increase productivity, automate
administrative tasks, and achieve an end-toend
automated claims process that saves
time, money and information technology
department resources.
Unlike the old system that didn’t
track or store changes in a claims history, the Valley
Oak ASP is transactional and keeps a record
of all changes that occur during a claim’s
life span. The system creates an audit trail
and all changes in a claim’s reserve levels can
be seen.
With Montlake’s previous system, if a
reserve request exceeded the authority of the
claims handler, they couldn’t process the
claim. Now a diary is sent to their supervisor
to approve multiple claims at a time so that
claims handlers now don’t have to ask approval
from their supervisors for each claim.
The inherent business rules
of the system can be controlled and customized by
Montlake and that helps manage workflow.
The rules can be set up to notify users when
a risk reaches a critical point or when an
incident requires a decision from a supervisor.
In the past, Montlake
lacked the technology to access the right information at
the right time. As a result claims managers
were not always aware of problem areas and
supervisors were forced to “fly blind” when
managing their departments. Valley Oak’s
risk management reporting system identifies
areas that require remediation. The system
offers more than 80 risk management reports
that can help reduce uncertainty and expense.
The system also
produces automated form letters that help to fulfill the myriad
of
state-reporting requirements.
Montlake’s
Selection Process
Before Montlake
Holdings LLC began its search for a new claims management system,
it created an Excel spreadsheet listing of major mandatory
requirements.
“ That’s a big plus because workers
compensation is heavily regulated and there
are all kinds of forms to fill out and they vary
depending on what state the claim is made
in,” points out Angle.The application
automatically fills out the claimant’s name
and number and inserts the examiner’s
signature in the document. The information
can be stored and viewed without making a
hard copy.
Another important feature is check
printing. “We can issue laser-printed checks
complete with the bank’s magnetic micro-line
preprinted and an explanation of benefits
(EOB) printed right on the check stub,” Angle notes.
With
the old system, “We preprinted the
checks on stock and then we had to match
the corresponding EOB with each check,” states
Angle. “That was very time consuming
because the EOB’s were stacked about onefoot
high anda clerical assistant had to match
them with the proper check one at a time.
It took all day and half of the next day to
get the checks sent out and the situation
worsened as we grew and had more claims,” explains Angle.
The
Valley Oak System can process 200 to 400 checks in about one
hour vs. the old
system that took more than a day to process
100 checks.
Prior to the Valley Oak ASP, Montlake
couldn’t electronically exchange data with any
business partner. “Now we can export files to
banks for positive pay (in which Montlake
sends the bank a list of checks and the bank
verifies which check have cleared as a fraud
prevention measure) and to the Insurance
Services Office (ISO) Index Bureau to check
for claimant fraud,” adds Angle. In the past
the adjuster had to manually send out claims
to the ISO.
Cost Efficiencies
The new system has created “substantial” cost efficiencies for Montlake. The “free” system
requireda staff of 40 internal and third party administrator
(TPA) users.
Today just 11 Montlake employees and 11
TPA employees are required to use the
Valley Oak System.
“
We’ve been able to reduce internal staff
and third-party administrators by 50% even
while our business has grown,” stresses Angle.
Today there is one senior claims’ examiner
and one assistant who together handle the
workload of six Montlake employees required
for the “free” system.
The Valley Oak software also
allows all users—
including third-party administrators — to
build uniform templates for claims processing.“
That’s really necessary when you are using
TPA’s because they report to people outside
your organization and handle different
claims for many different client companies.
This way we can make sure they are doing
it our way and it is uniform,” adds Angle.
Today, Montlake
pays claims faster than ever — typically within two weeks.
The quality of claims management has improved
because of the automated business rules.“ The rules help
examiners keep track of people working for them and the system
makes the supervisors job much easier than
before,” adds Angle.
The list included preprinted bank
magnetic micro-lines, an explanation of
benefits on each check, the ability to track
notes and documents, and a diary function to
automate work flows. It also was essential for
the new system have four levels of payment
security, the ability to produce form letters,
multi-state jurisdictions, and of course the
ability to handle claims submitted by
longshoremen and maritime workers.
Before all was said and done, Montlake
reviewed 20 information technology
systems. Vendor’s systems were eliminated
if the software couldn’t process workers’ compensation
claims, if they operated on mainframes, or if they couldn’t
handle multiple-state jurisdictions.
The formal system review
process lasted
five months — from October 2001 to March
2002 — when Montlake decided on the
Valley Oak System ASP version.
“ It came down to three software
companies and Valley Oak’s system was the
most user friendly and had the most bells
and whistles,” says Carrie Angle, vice
president of information technology for
Montlake Holdings LLC, Bellevue, Wash.“ I wanted to get
the system that made the most sense for the claims department
and
price was not much of an issue,” adds Angle.
Valley Oak
Systems Inc. is a nine-yearold, privately-held corporation
based in
Alamo, Calif. It designs claims management
software systems for multiple lines insurance
carriers and general underwriters and was
listed by Inc. Magazine in 2002 as the
398th fastest-growing private company in
the United States with a growth rate of
600% in five years.
“
What we had before was “free” but it cost
us a lot in terms of our time, extra staff and all
the hours that we spent pointing out and
fixing errors,” says Angle. “Had we continued
to use that old system, we would have had to
double our staff to handle the number of
claims we have today (6,500). Instead we
have been able to reduce our staff by half.” Montlake’s
two-person IT department is still just two people. “We
didn’t want a
system in-house that required all kinds of
baby-sitting,” says Angle. Montlake pays a
fixed monthly fee for the ASP version and is
committed to a five-year contract. The fee is
based on the number of users and there are
no maintenance or system upgrading fees.
What’s the biggest
difference between the old system and the new system? “When
I call Valley Oak for support, I actually get it.
Before I got nothing. With the old system,
they forgot we were even here and if the
old system was going down for maintenance,
I wouldn’t know until the last minute,” says Angle.
Reprinted with permission from
Thomson Media
One State Street Plaza • 26th Fl. • New York, NY
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Reprinted from Sponsored Advertising
Supplement to Insurance Networking News — Transforming Claims and
Increasing Efficiencies.
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Kevin Confetti