Insurance claims transformation is arguably overdue. As long ago as 2016 we threw the spotlight on the claims process with a couple of blogs, What can you claim about your claims systems? followed by No, seriously, what can you claim about your claims systems?. These articles questioned if an effective claims management system could be a way to get ahead of the competition. There is now increasing evidence that improving the claims service is moving up the insurance market agenda.
The most recent example of a focus on the importance of the claims process comes from the MGA market. A new MGA, Qlaims, launched on 25th November 2019. This company places huge importance on providing a premier claims service. In the Insurance Age article Ex-One Commercial boss Mike Keating launches MGA, Keating is quoted saying “Claims is the shop window for insurance, and by offering their clients a premier claims service brokers can really demonstrate where they add value.”
The challenge of the claims model
Effective claims management can be a market differentiator in the present highly competitive and economically challenging environment. However, changing the historic approach with legacy systems and operational constraints is a challenge.
The reality is that Insurers want to deliver on their promises. They are in the market of selling ‘peace of mind’. This means that customers need to trust the security offered by insurance cover. This is not just philanthropic, it also makes sound business sense. A negative customer experience reaches well beyond a complaint to a few neighbours these days. Social Media takes care of that!
Although it is certainly in the Insurers’ best interests to get the claims process right, they have a couple of big challenges. They need to reduce costs AND maximise customer satisfaction
So, arguably, Insurers face a conflict of interest when it comes to claims settlement. On the one hand, they want to reduce the cost of claim settlement, on the other hand the insured aims to get the largest settlement they can. This is the source of the trust issue. Claim management functions have a direct impact on an insurer’s expense and combined ratio; they must balance costs against service carefully and still deliver every time. The good news is there are plenty of options to do both.
All insurance contracts start with effective underwriting and correct pricing. Insurers have to fully understand the risk they are taking on. They must then apply appropriate pricing to ensure they can uphold their ‘promise to pay’ in the event of a claim. In a market focused on price, it becomes important to make sure customers understand value. Lower premiums are not sustainable if they do not reflect the risk. Equally Insurers need to help consumers understand exactly what they are buying. Terms and conditions need to be completely transparent.
Increasingly, predictive models can help with data-driven decisions. With modern technology, internal data can be easily augmented with external data-sets. This rich data helps develop more effective underwriting rules and sophisticated pricing models. However, there is an important caveat. Data by itself does nothing. There also needs to be internal skills to build, develop and understand predictive models. Interestingly, Gallagher, the international sales and marketing company, have recently released research revealing Only one in five UK firms have a Chief Risk Officer. This lack of expertise has been deemed a risk “vacuum”
Alongside getting the risk and pricing model right, the claims sector has the ability to dramatically reduce costs. Modern technology supports operating models that can minimise claim costs as well as eliminate the unnecessary expenses associated with claims handling.
One option is to apply best core business practices across all products. Many insurers have distinct claim operations. Personnel and units focus on the products (non-life and life) rather than the customer. This model often results in unnecessary siloed claim management. There are actually many similarities with the claims process across all insurance product lines. First notice of loss (FNOL), segmentation and assignment, adjudication, investigation, subrogation and so on are very similar when you break them down to their core processes. It is only the final execution of the process that may need to be highly customised. Taking a centralised approach allows the Claims functions to focus on the specialised layers only, rather than having to build the whole process from scratch every time. A centralised claims function introduces economies of scale, thereby reducing expenses and dramatically improving time to market.
In addition to operational improvements, technology introduces exciting opportunities to radically change and improve the insurance claims landscape. There are multiple examples of new innovations in the market.
- Business Model innovation: Lemonade started the trend for completely changing the traditional insurance model. Lemonade keeps a transparent flat % fee of a customer’s premium while setting aside the remainder to pay claims and purchase reinsurance. Unclaimed premiums go to charity on an annual basis. In a similar vein, Laka have completely re-invented the insurance model. Their new approach is outlined in the article Persistency pays off. Basically the company handles claims first, then total up the costs at the end of the month and split the fees amongst its members retroactively. According to the article, customer feedback is outstanding with Laka achieving 4.9/5 on Google Reviews. Customers obviously like them.
- Process innovation: One such company demonstrating process innovation is the new MGA Qlaims mentioned at the head of this article. They have introduced video streaming technology as part of the claims service solution. This is also one of the innovations used by Pen Underwriting during a comprehensive overhaul of their claims process. In fact the article What could save the insurance industry almost £100 million a year reports that the combined expertise of Pen and their 3rd party Claims Administrator Davies Group together with new technology has resulted in a 15% reduction on spend and a 46% reduction in the average claim life-cycle. Impressive stats.
Prevention – Reduce the number of claims
In addition to the importance of making fair claims settlements quickly, there has been a marked increase from the insurance sector in helping clients prevent the number and severity of claims in the first place. Neos are at the front of this approach, incorporating their smart cam with their home insurance package. Their objective is to make preventative devices and home protection accessible to all. This proactive approach to prevention has attracted headlines such as Neos SmartCam Distupts UK SmartHome Market. Indeed, with sales of over 75.000 SmartCams for the half of the year after the January 2019 launch, this model certainly seems popular.
This conclusion from a recent blog by Rick Huckstep, How IoT shows prevention is better than cure for Insurers, sums up the potential of the prevention model:
“There is no doubt that InsurTech and IoT gives insurers much greater insights into customer behaviour. Which creates greater levels of granularity in risk models and shifts insurers closer towards personalisation. It also gives insurers the ability to massively reduce cost and exposure to risk through proactive monitoring and assessment.”
A claims revolution appears to be gaining momentum. As a result, this insurance claims transformation should bring only positive outcomes for insurance customers.