Many P&C insurers are under severe cost pressure. Although combined ratios are improving, the investment yield is still below target – putting significant pressure on carriers to continue to drive profitability. And of course, claims is the largest source of costs for the industry.
Claims impacts more than just the cost structure of a carrier. The quality of the claims service impacts the customers' view of the carrier. The data obtained during the claims process fills a strategic role for a carrier. The data is crucial for honing pricing models, refining underwriting guidelines, and for identifying potential new product opportunities.
Given the strategic importance of claims, it's not a surprise that this is an area given tremendous attention by carriers and an area that is benefiting from a great deal of innovation by vendors.
In addition to the specific economic and financial trends facing carriers, there are additional looming mega-trends such as data, location based services, gamification, social media and collaboration, object recognition, the Internet of Things, and changing customer expectations. These disruptive trends are transforming carriers across all functions. These trends impact the economy, society and business, and thereby define the future of insurance and its increasing pace of change. Those who can adapt to these major transformative forces have great opportunities to prosper.
Few carriers are doing nothing when it comes to claims. More than half are planning some level of replacement of their claims system this year. The reasons for such activity are plentiful. Claims systems are aging, which means that they are expensive to maintain. Older systems generally are much less flexible than modern systems. Business rules are regularly embedded in code which reduces a carrier's agility in making changes rapidly. They often are decoupled from policy or customer systems so accessing and aggregating data across these systems can be difficult. They were initially designed to focus on managing the financial aspects of claims not the customer service aspects of claims. It's also getting harder to find resources that can or want to work on older technology.
While a tremendous amount of activity is occurring in the replacement and modification of core admin systems, there is also considerable activity occurring all across the value chain of a claim that is not necessarily limited to the claims admin system.
The process map below highlights the areas of highest importance for property casualty carriers when it comes to claims activities. Some activities are enabled by the implementation of a modern claims administration system. But many activities are stand-alone solutions, process solutions, or simply new ways of approaching a traditional task.
Many activities are stand-alone solutions, process solutions, or simply new ways of approaching a traditional task. Advancements are found in all aspects of the value chain – from location based services being provided at the point of first notice of loss, to photo recognition tools being used in estimatics; from 3D imaging to social and collaboration; from predictive analytics to robust vendor management. Carriers are moving forward in a variety of areas and generating significant results from the advancements.
Generally carriers are focusing their investments in improving the customer experience, improving process efficiency, and improving decision making.
Areas for investment in the FNOL process include building multiple intake channels - web, phone and mobile with direct integration of intake solutions to the claims admin system. Carriers are developing scripted CSR responses during FNOL to provide a consistent customer experience. Advances in analytics and modelling are enabling carriers to score claims at the time of FNOL to assess complexity and drive a different set of questions or workflow. Many carriers are now providing location based services at the time of FNOL – scheduling appointments, dispatching repair services, or providing guidance as to where additional resources can be found.
We're seeing significant innovation occurring in the world of estimatics. Increasingly sophisticated tools such as satellite imagery, laser measuring devices and 3D diagramming tools improve the accuracy of the valuation. Collaboration tools bring both claimants and vendors into the process. And photo and video estimating tools that transmit data and video real time to claimants, vendors or management allow for faster responses and reduced costs.
As a growing number of companies start to understand the value of their data as a key business enabler, they are focus their efforts on implementing reporting tools, analytic tools, and repositories -- with all the tools that go with them. Simple things like on demand and scheduled standard and ad hoc reports are still areas where carriers are investing. Robust analytic tools are being used to gain more sophisticated insights. Carriers are investing in data warehouses, data marts, operational data stores and other data repository initiatives. But the hottest area in claims analytics is predictive analytics. Carriers are creating or purchasing predictive models in a variety of areas but generally are focused on trying to identify complex claims as quickly as possible.
There are significant returns to be gained in a wide variety of the claims process by deploying leading techniques. Claims is one of the areas we see the most innovation occurring. Staying on top of the changes is going to continue to be a challenge as new technologies continue to proliferate. Building agility and flexibility into the culture will continue to be a competitive advantage for carriers who can then pilot and deploy innovations quickly.
About the author: Karlyn Carnahan is a Research Director in Celent’s insurance practice, focused on property/casualty underwriting, claims, distribution management, and insurance strategy.