2007 Claims Opportunities: Predictive Analytics to the Rescue

U.S. insurance industry results in 2006 may have claims managers convinced that all their fondest wishes have come true simply because the hurricane patterns of 2004 and 2005 were not repeated. However, their good fortune will continue in 2007 as maturing technology for claims drives further into operations, improving results. Over the past several years, innovations in technology focused largely on improving results in underwriting. With personal and commercial lines generally on a technology path, claims is now on deck to reap benefits. Several avenues of opportunity for technology impact are now open, but predictive analytics is one of the most compelling.

Predictive analytics, which has been the cornerstone of many personal lines success stories, has broad application for claims and will be a focus for industry leaders. Modeling has a meaningful impact for claims in the areas of fraud management, salvage and subrogation, service provider management, and adjuster deployment, as well as custom solutions, to address individual carriers' needs.

It's All About the Data

Predictive models are born from data. In 2007, it will be imperative for claims departments and their IT counterparts to establish claims data management initiatives so that they can undertake predictive projects. It is both a curse and a blessing that claims operations have as much data as they have. The curse is that managing this data manually is a seemingly insurmountable task. Fortunately, some excellent technology solutions in the marketplace are available to help. The blessing of the vast amount of claims data is that the models generated from the data are robust. The continual flow of data keeps the models current and allows skilled business analysts to react to changes in the claims environment.

Succeeding in data and predictive modeling projects is not easy. Once a project is done, however, the financial results are highly compelling. Predictive models can separate the routine, fast-track claims from those that require expert attention. For example, finding the relatively small number of fraudulent cases hiding among the legitimate claims and getting them to the Special Investigations Unit for swift handling will have an immediate, positive financial benefit. Likewise, finding service providers that are presenting fraudulent bills is another area in which models can have a major impact.

The Baby Boomer Effect

A frequently voiced concern in claims operations is that many of the most experienced claims adjusters are baby boomers who will soon be retiring from organizations and taking all their knowledge with them. In 2007, claims departments must have active plans for harvesting that expertise.

Predictive models can institutionalize best practices for reserving and for salvage and subrogation. Standardizing file handling not only allows adjusters to cost effectively focus on those claims that truly require individual expertise but also will dramatically shorten training time for new adjusters. Error ratios will be reduced, and loss results will improve. Additionally, routine tasks are handled through automated solutions, allowing the adjuster to focus on challenging, value-added activities.

The 2007 Agenda

The technology challenges and solutions for claims operations are coming to the forefront of initiatives in 2007. Traditional imperatives for cost containment continue to be on the list of 2007 objectives, but the technologies to address them, most specifically the predictive technologies, are new and evolving. Predictive analytics will ride to the rescue, delivering institutionalized best practices and improved job satisfaction.