Transformative Time

Ask those in the property and casualty insurance industry if there is a need for claims transformation, and the answer invariably is “yes.”

Rocco Neglia, vice president of claims for Economical Insurance, says the claims process is now a relatively linear, sequential one, but it appears that the industry is at the beginning of the end of that process. “Because of the way technology is exponentially evolving, particularly in the area of automobile,” Neglia points out, claims organizations will need to reinvent themselves to be able to respond to the technological change currently unfolding.

Facing a highly fragmented and highly competitive environment, Daniel Shum, partner and national insurance leader for Deloitte in Canada, notes that this is creating pressure on p&c insurers to lower their expenses. That being the case, most insurers have been looking at claims in some way to determine how they can reduce indemnity costs and stem the flow of fraud, Shum reports.

Insurers launch transformation projects, perhaps when they are looking at a technology change or there is a new component they want to incorporate in their process, says Louis Régimbal, partner, advisory services at KPMG in Canada, who also leads the insurance practice for Quebec. Régimbal advises, however, that claims transformation is best viewed not as a project, but as an ongoing need.

When it comes to claims, part of that need will, no doubt, relate to customers wants and demands. “Society is moving towards huge changes in personal habits and an increased use and dependency on technology,” says Patti Kernaghan, president and chief executive officer of Kernaghan Adjusters. “Claimants expect to be communicated with any time of day, and to have their claims resolved faster and faster. As an industry, our ability to communicate quickly and effectively is critical; timelines for completing the claims process are fast becoming the obvious service standard that sets competitors apart,” Kernaghan contends.

Some say meeting that standard demands preserving current key contact points. “There are a lot of points today where the broker can become less relevant,” notes Jeff Purdy, senior vice president of international operations for Applied Systems. “There is a need for the broker to remain relevant when their client needs them most, and their client really needs them the most when they’re having a claim.”

GATHERING SPEED

“The race for technology changed the process for all facets of the industry,” suggests Bruce Martin, vice president of account management at Cunningham Lindsey (Canada). “Technology has driven a lot of those expectations specific to information turnaround, management reports, KPI (key performance indicators) measurements, accountabilities and expense control,” Martin says.

Notes Pat Van Bakel, president and chief executive officer of Crawford & Company (Canada), “Speed of service and claim resolution are taking greater precedence in the value chain – a trend that will likely not subside.”

In concert with efforts to meet customer demands for speed, though, must be measures to foster individual customer experience. As an industry, the tendency is to look upon and treat customers as a homogenous group, Van Bakel notes, but adds it is necessary for the industry “to identify and design products that cater to the various customer segments. This involves being able to identify the desired experiences and needs of our customers from an individual perspective, as opposed to a broad group.”

Michael Costonis, managing director of Accenture Property and Casualty Insurance Services, says customers have become used to high-quality, personalized service from online giants such as Amazon.com. “The claims process, which is sometimes unnecessarily cumbersome and overly reliant on manual activities, can seem out of date in a digital environment,” Costonis maintains.

“Investment in IT needs to continue if we are to take full advantage of the availability of data and the availability of responding more appropriately to that customer as an individual,” Neglia says.

“Brokers need to take advantage of tools and capabilities that exist today to have their services represented when their clients need them, to have their brand recognized at that point of need,” says Purdy. There should be a retentive effect if a broker can provide good, quality, consistent experience regardless of insurer, he says.

An individualized response – regardless of which claims partner is targeting and which is targeted – is all meant to enhance communication and improve relationships, some of which can certainly use some work.

“There are challenges in the relationship between consumers and insurance companies. We believe that companies will transform several aspects of their operations in order to improve that relationship,” says Marc-Andre Giguere, partner and national insurance leader for Ernst & Young LLP (EY) in Canada.

Insurers and others are investing in systems to answer those needs. That said, “the insurance industry, and especially in Canada, is still in the early stages of the transformation effort, but it is now being discussed at the senior levels of almost all companies,” Giguere reports.

FINDING A NATURAL FIT

Claims is naturally an area that attracts transformation attention and effort. “With claims being the largest drain on insurer dollars, and with premium income stifled by market conditions, reining in claims-related outflow, for both indemnity and expense, is a natural consequence,” says Fred Plant, president of Plant Hope Adjusters Ltd.

“Anything that can be done to bring down these costs – by reducing the incidence of fraud, by helping customers manage risks and preventing reportable events, or by making claims operations more efficient – will have an immediate bottom line impact,” says Costonis. “Claims is the ‘moment of truth’ when insurers deliver on their promise to customers,” he points out.

James Colaço, senior manager of Monitor Deloitte, and senior sector specialist for insurance at Deloitte, would likely agree. “Insurers have quickly come to recognize that the claims experience is a moment of truth in the overall customer life cycle in insurers. It’s a moment that matters; it’s a moment that insurers should care about.”

Accenture research “shows the very act of filing a claim makes customers twice as likely to switch insurers. This indicates that the claims process is not the kind of experience that customers want to go through if they can help it,” Costonis reports.

In general, Colaço says research reveals four common themes with regard to what customers need when it comes to claims: responsiveness at first notice of loss (FNOL); speed of settlement; fairness of settlement; and interaction with the insurance company over the course of the claim. “Insurance companies need to address these four big buckets around the customer experience to really think about how they approach their claims transformation,” he advises.

DRIVING FORWARD

While objectives of individual organizations will undoubtedly vary, says Giguere, there are some common drivers:

• a desire to improve customer interactions by expanding communication channels (web, mobile, email) and provide more responsive service (including faster response times);

• a need to reduce operating costs;

• aging legacy claims systems with decreasing resources available to support older technology;

• the push to reduce claims leakage and operational costs; and

• all of the above are impediments to staying competitive and maintaining agility in comparison to competitors.

Costonis’s view is that clai
ms transformation takes place on three levels:

• first, there is the move to full automation, freeing up claims professionals to concentrate on value-added activities rather than routine processing;

• second, there is the move to a digital experience, where customers can report and track claims via the channels of their choosing, whether online, mobile app or direct phone contact; and

• third, there is the change in mindset from processing claims as they occur to thinking about claims before they happen. This involves the use of telematics in automobiles and connected devices in the home, along with better customer education and involvement through social media and other channels.

MOVING FROM OLD TO NEW

Addressing customer needs can likely only be advanced (perhaps, only achieved) through enhanced use of technology and data. “Most legacy systems that are currently out there are fairly limited in respect to being conducive to real-time needs, both from a claims process standpoint, as well as from a data standpoint,” says Neglia.

A recently released KPMG report notes that, globally, some insurers are focusing on rolling out seamless, integrated multi-channel options for claims reporting, mirroring their efforts to integrate other points along the customer sales and service chain. Others are concentrating on accelerating the speed of claims handling, information gathering, investigation and payment for a number of product classes, the report notes.

KPMG further found insurers in some markets are experimenting with sentiment analysis tools to improve overall service quality offered by call centre staff. Through automated analysis of voice recordings of customer conversations against key words, phrases and business rules, they can monitor handlers and compare claims data, to determine whether positive or negative sentiment scripts impact settlement costs, it found.

The report makes recommendations for those looking to advance claims transformation, including the following.

• pilot radical initiatives in a controlled environment across a sample number of claims to test, learn and refine how to embed the innovation, and more important, have a clear vision of what needs to be put in place to execute before making significant investments; and

• introduce fresh thinking from outside the insurance sector by looking to industries – such as fast-moving consumer goods, gaming and telecommunications – that are adopting innovation as matter of course.

MAKING A BUSINESS CASE

A company’s business case for claims transformation should include immediate and measurable benefits, as well as a plan to realize longer-term goals, says Giguere. “In many ways, claims transformation can be a catalyst for transformation across the business, including policy administration, underwriting, billing, and business intelligence,” he says.

However, any efforts around claims transformation must include both technology and business components, he advises.

“Doing one without the other increases the risk of failure and can end up negating many of the benefits desired,” he points out. “For example, replacing an aging legacy claims system, but retaining the old business processes, won’t provide anywhere near the same level of benefit as tackling both at the same time.”

Shum notes Deloitte research indicates the business case for claims transformation is compelling. “You get expense ratio benefits in the single digits; if you’re lucky, you get loss ratio benefits in the single digits as well, which actually makes up for millions of dollars in savings depending on how big your premium size is,” he reports.

Costonis, for his part, does not regard cost as a stumbling block to claims transformation, pointing out that companies appear willing to invest in these initiatives. “It’s not really about cost, but about investing the money where the (return on investment) is both significant and measurable,” he explains.

“With modern claim systems, there’s often immediate benefits from reduced claims leakage, better data capture that yields improved claims adjusting and enhanced fraud detection,” Giguere says.

“Leakage is usually associated with delays in getting the reparation done. So any delay in getting the car repaired or getting the basement repaired or whatever is both an aggravation to the policyholder and an extra cost for the insurance company,” says Régimbal.

As insurance companies “become more sophisticated with data analytics around things that are not analyzing risk, but are analyzing data in general, they’ll probably enhance their ability to do claims segmentation, and make sure that a given event is receiving the appropriate level of attention,” he says.

Colaço also cites claims segmentation – simply defined as treating certain claims differently because they can be processed more quickly, like a windshield repair – as a key theme in claims transformation. “A lot of insurers in Canada are looking to find ways to settle those claims at first notice of loss.”

Giguere agrees that there are specific types of claims and procedures that can benefit from almost immediate processing times. Citing windshield damage only claims – claims that can be processed with minimal handling – these would benefit by connecting a customer to a preferred vendor for repair or remediation, in many cases in a completely automated fashion, he says.

As well, measures meant to answer customer wants and needs are being seen in how insurance companies are creating networks around their vendors, Colaço says. This includes certifying the vendors in a way that is consistent with how the insurance company wants its customers to be treated, and setting standards around service level agreements, he reports.

Shum notes that there is also now more movement toward insurers creating digital portals. “We can see in the future that what can happen is when a consumer does an FNOL, it goes into the system, the consumer can actually go into the portal and then potentially select preferred vendors, and direct where they want to have their repairs made or where they want their claims settled.”

Asked where this would leave brokers, Shum says the broker would continue to play a valuable role as an advisor and intermediary. Also, it is not “unfeasible to say the insurer could also offer this technology to their brokers,”he adds.

Plant says that he would agree certain types of claims could be “processed.”

However, he emphasizes that “not all claim situations are the same; not all customers are the same. Empower well-trained claim professionals to make decisions and move matters along rather than forcing everything into a tightly defined process.”

APPLYING THE HUMAN TOUCH

Sources emphasize the need to guard against having human response doused by the technology wave. “I believe that of the three things insurers want from adjusters – faster, better and cheaper – it is possible to only ever deliver on two of those at a time,” Plant contends.

He argues that those insurers driving claims transformation for the true benefit of customers, as opposed to for meeting short-term financial goals, “will meet the financial goals this year, next year and every year.”

Adds Van Bakel, “We cannot expect technology to replace the empathetic counsel that policyholders require after suffering a traumatic loss.” Any discussion about transformation, “should also encompass the transformation of people and corporate culture, through training, development and finding ways to continue to attract leading talent to our industry by providing rewarding career opportunities,” he emphasizes.

“Shedding legacy systems, former programs and processes will also requi
re us, as an industry, to shed ‘legacy thinking’ in order to fully optimize the benefits that these new advancements in technology can deliver,” Van Bakel says.

“One of the biggest stumbling blocks is the claims workforce, which is skilled and professional, but is also aging,” says Costonis. “As companies invest in technology, they also have to invest in training to develop a claims workforce that is comfortable with new technologies and is focused not just on processing claims, but on interacting in positive ways with the customer,” he emphasizes.

DATA TROVE

That comfort is likely to be key in light of the data wave that has formed and will only grow larger over time.

Advancements in technology are the catalyst that will enable the industry to move forward swiftly, believes Van Bakel. “Such developments are resulting in an increased ability to collect and analyze loss data, and assist in the interaction between various programs used by carriers, brokers and independent adjusting firms. New application tools are enabling us to collect on-scene scope of loss, and prepare and transmit reports and information with greater ease.”

Beyond ease, though, is the promise of everything from identifying fraud to preventing claims. “It all comes down to numbers. Data,” says Plant. “With more data comes the ability to make better predictions, which leads to more efficient management and processes,” he says.

“The amount of data that brokers have at their disposal is kind of incredible,” Purdy says, but adds that many brokers do not leverage the data to make better decisions around risk selection.

“If you think about analyzing your books of business and analyzing your claims results as a broker, you can then make sure that when your sales people are selling and your producers are selling, that they’re selling to the risks that you want to sell to, so almost get in front of the claim by more loss prevention work within the brokerage,” he says.

Costonis notes that there are huge quantities of data, both structured (from internal sources) and unstructured (from outside sources like social media and third-party databases) that can be used to identify claims that do not fit within normal ranges of experience.

“Aggregating and organizing this data and using it for mapping and modelling can yield very significant returns,” he explains. “For example, analytics can be used to spot crime rings using the same garages or the same medical groups to submit fraudulent claims.”

The KPMG report notes, for example, that “data analytics of structured data can improve fraud scoring, text and voice analytics of unstructured data from client interviews, and external source and social media analytics can result in better fraud detection rules, workflows and accurate high-risk flags.”

Data may also help with improving the accuracy of damage estimates, Neglia says. Citing automobiles, connectivity – vehicle to infrastructure, vehicle to vehicle and vehicle to everything else – will be greatly enhanced in the not-so-distant future, perhaps five years or so, he contends.

“You will have the increased intensification of connected vehicles as well as the start of the next phase, which is going to be connected and autonomous vehicles,” Neglia says. This will change the dynamics of today’s linear process, even to the point where the vehicle itself is reporting a claim, he notes.

“This will happen real time and simultaneously, not in a linear way, but it’s going to happen in a much more multi-faceted way,” Neglia says. “The claims process is going to have to adapt to that multi-faceted, real-time environment.”

Add to this the telematics devices likely to be embedded in most vehicles. “What that will do, eventually, is that data will form part of the analytics that’s going to be used to analyze the crash data resulting from motor vehicle accidents,” Neglia says. With all of the technology and the connectivity built into vehicles, “you’re going to probably end up with a fairly accurate assessment of damagability, almost at point of impact, and then with certain programs and components in place, that will lead to an agreed indemnity process as well.”

And what is happening with telematics in auto is certainly also possible on the property side, says Neglia.

Through smart home technology – monitoring basic safety components, like fire, carbon monoxide and burglar alarms and expanding those – this “could help mitigate some of the circumstances that are plaguing home ownership today from an insurance standpoint,” he says, such as water damage.

“If you follow the logic that’s occurring on the automobile side, it’s quite conceivable, in fact, it’s quite likely, that a similar occurrence is going to happen on the property side,” Neglia adds.

With regard to prevention, KPMG notes in a recent press release that emerging technologies potentially offer value with respect to helping insurers better respond to catastrophes, including more-frequent weather and natural disaster-related losses.

“Pre-disaster, better event forecasting systems and prediction models can help insurers analyze probable policyholder impact and prepare strategies for loss minimization,” it notes. Such tools could help insurers rapidly mobilize adjusters and other resources for post-event claims handling and customer support.

Suggests Régimbal, “From the insurance company’s point of view, down the road, there may be an opportunity to have an automated signal that an event has occurred and allow them to either plan for it, or reach out and try and help the claimant deal with it, and/or depending on the nature of the message, maybe even prevent something from happening.”

Giguere points out that improved catastrophe identification would allow insurers to reach out to customers who may be affected by a catastrophe event.

LOOKING AHEAD

“We are using technology effectively in the field,” Kernaghan suggests. “Where we fall down is the time it takes to move information back and forth, and the length of time it takes to make decisions. We need a more effective way to communicate the information,” she argues.

“Technology can change that process if we all used ‘like’ platforms with real-time sharing of pertinent information, i.e. change the model of communication and the methods,” Kernaghan says.

Purdy, for his part, suggests there must be collaboration among the insured, the broker and the insurer. For example, an insured would report a claim via his or her phone; both the broker and the insurer would be notified; whenever the claim status changed, that information would be sent by the insurer to the broker electronically; and information would be automatically passed to a portal where the consumer could access it, he says.

“Are we at claims nirvana where customers get great service and insurers are satisfied they are paying all that needs to be paid (indemnity and allocated loss adjustment expense)?” Plant asks. “No,” he says, answering his own question.

One issue to watch for on the technology front, Régimbal notes, is that there appears to be a distinction emerging between Tier 1 and the Tier 2 players in the insurance space.

“One of the clear delineators between the Tier 1 and the Tier 2 is the ability to invest in technology, the capability in terms of having access to funds and capital,” he says. “Tier 2 players may find it challenging going forward to invest,” Régimbal says, suggesting that this is “true elsewhere in the organization, but true on the claims side as well.”

Over time, “especially as the digital and the web components start to become more and more intrinsic in how some of these processes are thought of or handled, that will become a challenge for some of the smaller, mo
re modest organization,” he contends.

In the MarketScope report issued in 2013 – which considered the overall market for p&c claims management modules in North America – research and analysis firm Gartner noted that while overall demand for new claims management modules is strong, vendors moving toward suite offerings are poised for more new customer wins than those without such offerings.

“Packaged software has emerged in the marketplace where it makes installing new claims systems substantially easier than before and allow for a great deal more flexibility, and also improves the data that is coming in and out of the system,” Shum says.

The view a few years ago may have been that only very large insurance companies could afford to move forward with transforming their claims systems. But with packaged-based systems – so-called out of the box – coupled with different business models to make it more accessible, there is now the same sort of movement downstream, he says.

Régimbal, for his part, suggests that smaller businesses looking to keep pace may consider co-operating with a third party around some of the technology capabilities or outsourcing some processes or requirements in a bid to get access to more modern processes. “I think more and more players are looking at that (outsourcing),” he reports.

Of course, other challenges lie ahead. Citing data that is (and could be) available through telematics in vehicles, Neglia says that regulators are currently limiting “the useability of the data derived from telematics for purposes of pricing and discounting,” meaning that insurers are unable to use the data to its full potential.

“At some point, regulators are going to have to come up to speed and tap into the full potential of data availability in regards to automobiles,” he argues.

Emphasizing there will always be a push to deliver “faster, better and cheaper,” continual tweaking will be required to get all three in balance, says Plant.

“If the management of files is such that files get the investigation and assessment they need and the processes are focused on the proper handling of claims rather than meeting prescribed objectives, the files will not be open any longer than necessary. The tail has started wagging the dog,” he maintains.

“When claims transformation projects are initiated for positive reasons – because there’s a new capability or a new technology that we want to incorporate and we want to take a step forward – it’s always a more attractive scenario,” Régimbal says. “The increased capabilities that are available to insurance companies on the digital side and the opportunity to perform data analytics at a higher level is really a positive reason to launch into a claims transformation project.”

It would be Shum’s recommendation that steps be taken to capitalize on technology advancement.

“Those who have not done anything probably, down the road, could be at a competitive disadvantage because now most of your competitors have transformed their organizations,” he says.