Modern Insurance Magazine


Insurance Claims Transformation


Insurance Claims Transformation

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Insurance claims transformation is moving up the insurance market agenda. Indeed, there is growing agreement that an efficient and supportive claims management process is an effective way to get ahead of the competition.

When ex One Commercial Boss Mike Keating launched the MGA Qlaims in November 2019, he said

Claims is the shop window for insurance, and by offering their clients a premier claims service brokers can really demonstrate where they add value.”

Given the subsequent unprecedented challenge of the pandemic, those words have proved especially prophetic.

The challenge of insurance claims transformation

That effective claims management can be a market differentiator in the present highly competitive and economically challenging environment is a given. However, changing the historic approach with legacy systems and operational constraints is not easy.

The reality is that Insurers are in the market of selling ‘peace of mind’. They want their customers to be able to trust them. 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, arguably they 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. The good news is there are plenty of options to do both.

Effective underwriting

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 to quantify risks and develop more effective underwriting rules and sophisticated pricing models. However, there is an important caveat. Data by itself does nothing. Insurers also need internal skills to understand the data and translate the results into effective strategies.

Perhaps unsurprisingly, the Management Consultancy firm, McKinsey and Company, reported that the insurance industry’s returns to shareholders last year were down by 19 percent at the end of October 2020. They suggest this is A unique time for chief risk insurance officers in insurance. Their article concludes, “The pandemic has certainly elevated the risk function’s strategic role. CROs now have a unique opportunity to seize the moment.”

Promote efficiency

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 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. A centralised claims function introduces economies of scale, thereby reducing expenses and dramatically improving time to market.

Introduce innovation

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. 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.
  • Process innovation: The new MGA, Qlaims, mentioned at the head of this article are just one of many companies using technology for process efficiency. In their case, they have introduced video streaming technology as part of the claims service solution.


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 reducing the number and severity of claims in the first place.

One such initiative is focussed on fraud prevention. Kennedys examined this subject in detail earlier this year in their thought leadership piece, deterring fraudulent claims

Alongside avoiding fraudulent claims however, insurers recognise the potential to help customers to prevent insurable incidents. One way is by using data from connected devices, or the Internet-of-Things. For example, Zurich Smart, first introduced in Spain, is a water detector sensor that sends an alarm to the customer if it detects water on the floor of a building. The objective is to alert the customer to enable them to take action that could prevent extensive flood damage.

A claims revolution appears to be gaining momentum. As a result, this insurance claims transformation should bring only positive outcomes for insurance customers.

Content has been prepared exclusively by Total Systems plc, a specialist insurance technology provider.