In our first article, we explored P&C insurers' frustrations with their current claims systems and capabilities and their plans to invest an average of $17.5 million on claims improvements. In this article, we explore our survey findings in more detail and discuss different approaches to investment in the three key claims areas of systems: modernization, analytics and people.
As we saw in our survey, insurers with core claims systems more than 5 years old – who represented more than half of the survey sample -- saw themselves as much less able to deal with the problems of responding to changes in business processes, addressing consumers' evolving needs, integrating with other systems and allowing changes in systems behavior and business processes without IT intervention. Nearly half (48 percent) of insurers with core claims systems more than 5 years old said their system was not at all able to allow such changes without IT intervention, for example.
Furthermore, more than three-quarters (78 percent) of respondents see the need for investment to enable their claims organization to manage new forms and levels of risk such as cyber crime, terrorism, and the increased frequency and severity of natural catastrophes. An equally large percentage of respondents said that consistency in claims handling could be improved in order to handle loss costs. On average, insurers with net premiums written above $500 million are planning to invest more -- $20.2 million – versus $14.8 million for insurers with net premiums written below $500 million, with a total of approximately $2 billion in planned spending on claims functions over the next three years.
We believe that insurers looking at possible investments in claims systems should keep three basic principles in mind:
- Simplicity. Two out of five or 40% of respondents answered "not at all" when asked if their claims management system was modern and flexible enough to allow change in systems behavior and business processes without intervention from the IT department, and another 43% said the system was able to do so only to some extent. Only 17% of respondents said their systems could allow such change "to a great extent". We know from client experience, however, that insurers need to be able to make upgrades and improvements without disrupting claims processing or affecting customer service. This argues for a "componentized" approach with key elements added on a plug and play basis.
- Cost Efficiency. In addition to avoiding losses by avoiding disruption, insurers need to make important decisions about owning key claims components or essentially renting them through a term license. The cost/benefit comparison should be conducted over a multi-year period as lower initial costs for the rental framework may give way to higher overall costs as such costs continue year after year.
- Flexibility. Systems should be configured to accept and process vast new quantities of data from a variety of sources ranging from third party databases to social media to GPS tracking. In addition, upgraded or replacement systems should have the capacity to handle a greater volume of mobile transactions ranging from on-site claims investigations to first notice of loss (FNOL) reports. Insurers should keep in mind, as well, the extent to which increasing consumer expectations for better service and quick resolution will drive system capabilities. In our survey, only 15% of respondents rated their systems as ready to a great extent to meet consumers' evolving needs.
Finally, insurers need to establish and maintain a clear focus on the quality and professionalism of their claims workforce. This workforce was the target of some of the extensive cost cutting which took place in response to the financial crisis of 2008. While insurers were reducing their claims workforces, many of their most experienced claims professionals are also at or near retirement age. As a result, increasing the size as well as enhancing the skills of the claims workforce is a top priority for P&C insurers, according to our survey.
Claims professionals armed with ready access to relevant information can play a central part in meeting customers' expectations for rapid resolution and a positive overall experience. While many insurers have ambitious investment programs planned, isolated system and process improvements will not get the job done. The entire claims operating model, including technologies, processes and people, must work together in support of the company's business objectives.
About the author: Michael A. Costonis is a managing director in Accenture Property and Casualty Insurance Services.