Innovations in insurance are coming at lightning speed. New technology and startups are emerging. We’re all aware of digitalization.
The question is, do we understand its magnitude in insurance?
The future will have winners and losers. And to win the race, companies need to act now.
Customers are more digital than ever. Everywhere you look, data plays a part. Vacuum cleaners connect to smart hubs and connected cars can self-drive. People expect smooth, digital experiences; if traditional insurance companies don’t adapt, someone else will.
This article will show how you can stay competitive as the insurance industry gets digital, why claims should have top priority, and how legacy system-driven companies can overcome common digitalization challenges.
Embracing the new digital age
Some companies in the insurance industry have embraced the new digital, like Lemonade in the United States and Nexible in Europe. Both enhance the customer experience with chatbots, making policy purchasing and filing claims a quick, smooth, and satisfying process.
At the same time, little is happening in traditional insurance. Processes are manual and often tedious. For example, it’s common for insurance companies to hold risky email conversations with medical advisors, sending patient data back and forth. Many even rely on paper mail.
Advanced technologies like artificial intelligence, big data, analytics, blockchain, and the Internet of Things are here, and many new insurtech vendors are taking advantage. Customers expect a smooth, digital experience as the world becomes increasingly digital. Yes, even in insurance.
Insurance companies know it’s now or never
This fact is especially true for the younger generation. These people grew up tech-savvy and now expect a smooth digital experience for the companies they support. And if they have a choice between an insurance provider stuck in the past and a modern one, guess which company they will support.
Are insurers aware of the industry changes? Yes, they are. The Gartner Insurance Industry Digital Innovation Update shows that insurers are increasing their investment in technology, focusing on Artificial Intelligence, Machine Learning, and customer experience technologies.
And another report from KPMG states that “within the next five to 10 years, many claims’ functions are likely to digitize and automate, enabling some claims to be reported and settled with no human intervention.”
Now is the perfect opportunity to stay on the frontline of insurance leadership and success. But insurance companies need to tackle digitalization wisely.
Three reasons why claims should have top priority
Claims are the largest cost-driver for most insurers. But it's also an opportunity to work for the customer and offer real value. Insurers rely on an aging team of claims handlers to manually handle this critical operation. That’s where digitalization will have the greatest impact.
That's because you can suddenly process more claims with higher accuracy from fewer claims handlers. As a result, many insurers will realize their biggest competitive advantage.
1. Claims is the perfect opportunity to deliver a positive customer experience
Your chance to shine is when your clients file a claim. They expect more, including empathy for their situation and accurate, fair assessments. For you as an insurer, the claims process is the best opportunity to deliver a great customer experience. Furthermore, it’s where you can build a loyal customer relationship and collect valuable data for further improvements.
According to Gartner, 61% of insurance customers who submit a claim are likely to take no action or a negative relationship action with their providers after the claim's submission interaction. By using new technologies with or as an extension of your claims management modules, you can further improve operational efficiency and responsiveness.
2. Focusing on Claims will reduce high costs for maximal impact
Insurance companies pay out grand sums of money in claims costs. According to The new claims organization report from KPMG, US property and casualty insurers paid out $428 billion in losses and loss adjustment expenses in 2018.
With such high payouts, even fractional reductions in paid losses and associated expenses can greatly impact carriers' profitability.
KPMG also reviewed LAE costs across multi-peril commercial lines to understand which claims process steps drive expenditures across losses. And in this line of business, 85 percent of all LAE costs were associated with four stages:
- Litigation (55%)
- Investigation (10%)
- Evaluation (10%)
- Reserving (10%)
It’s easy to see that reducing litigation instances can mean millions saved for insurance companies. But it’s a fine line to balance.
Usually, insurers make a trade-off between customer experience and claims costs. Customer-focused carriers often get higher losses and more leakage, but with happier customers and lower LAE from claim investigation and litigation cost savings.
More money spent on claim investigation and litigation costs supports lower and more accurate loss payments but results in unhappier customers.
But from our experience, using digital tools that help your ability to make accurate decisions and create transparency can reduce litigations and create happier customers. Win-win.
3. Claims data is a strategic asset
Today’s claims landscape is incredibly competitive. But your customers may hold the key to getting an advantage. According to KPMG, you can unlock new value in claims by transforming claims into a strategic asset and informing new products and services – helping drive new experiences and cost efficiencies.
You probably sit on a lot of valuable data. Use it to transform your claims function as a strategic partner in your organization, helping you enhance your customer experience and stop losses. Your clients have new needs and expectations, with new risks your claims teams must meet and exceed.
You can also integrate decision support analytics into your claims management system. Help your claims adjusters predict the best course of action and next steps and trigger automated workflows if the system predicts an undesirable outcome, like litigations.
Personal injury claims are especially important
For your customers, personal injury claims can be incredibly traumatic. They may have experienced horrible situations, painful rehabilitation, or not received the proper care from their medical provider. Personal injury claims is your area to shine because your customers need your best help.
Injuries in personal claims are some of the most complex, and complex claims need great technical support. Here’s what you can do to improve the personal injury claims experience you deliver.
Automate claims where possible
It will be much harder to recruit claims handlers in the future. Therefore, you must prepare to rely on fewer handlers to settle more claims. A way to do this is to remove the manual and time-consuming steps of your claims process, allowing your handlers to focus on the customers and the most complex claims.
You’re managing the biggest operation of your company. Always strive to improve – your competition is around the corner, and they are ready to surpass your next steps. Set up key performance indicators and develop a habit of always looking for team and business improvements.
Take advantage of data
A Decision Support System, DSS, can help you augment claims handler capabilities which help them make more accurate and transparent decisions. Letting your system analyze previous decisions from thousands of previous claims can give your claims handlers suggestions on the results.
Furthermore, you can use claims data to improve other areas like underwriting, pricing, and business development. And big data is becoming increasingly useful and relevant.
Getting insights into customer behaviors and identifying risks allows you to optimize operations while reducing fraud and boosting payout accuracy.
Digitalization challenge: The impossible legacy problems
Going digital is a pivot insurance companies must make sooner rather than later. But it's more complex than flicking a switch and transforming your manual processes. You need to rethink everything and truly understand technology's impact on your operations.
Along with problems recruiting tech talent, the main thing holding traditional insurers back in their digitalization goals are old systems. While emerging insurtech companies have been able to adapt and innovate quickly to new needs, many traditional insurance companies need help.
Greater efficiency plays perfectly into insurance customer expectations. Your clients today expect a transparent process with quick handling and abilities to self-serve. New technologies can support and improve each part. But it's important to find and fix your claims process bottlenecks.
How insurance companies waste resources
The bottlenecks of legacy processes are seen across the entire claims process and are often manual. And a common problem when mixing manual and digital processes without the right support, for example, when moving information, is that claims handlers add disparate systems.
This effort is noble but makes an already complex process even more complex, wastes resources, and can be incredibly risky for compliance.
Furthermore, valuable data is often rendered useless in the process.
The solution is a better-focused architecture and relevant key performance indicators. Insurance leaders must enable claims handlers to focus on creating value rather than trying to fix broken claims processes.
As you can see, a complete revamp of digital infrastructure and processes to suit the new status quo is a grand project. Companies have built upon their legacy systems for years, and many of their processes depend on them. It’s also where they store their data.
But outside the undeniable business efficiencies of digitalization, KPMG argues that insurers must change their culture to attract the future of tech talent. The problem is that insurers have a legacy and size, making it hard to become truly innovative.
With years of reputation and billions spent on marketing to be known as a stable industry rock who's always there when customers need it, turning that around to become a technical, innovative company is, in many ways, impossible.
The benefits of forming strategical partnerships
There’s a simpler solution for traditional insurance companies: to form strategic partnerships with insurtech companies that can transform their operations.
Insurtechs can take two forms, the disruptors and the collaborators. The disruptors offer new and groundbreaking solutions that upset the industry status quo. Conversely, the collaborators use technology to help companies modernize their products and improve operational efficiency.
Meaning that insurtech companies can be your number one threat or solution.
Tom Van den Brulle, Global Head of Innovation, Munich Re and Chairman of the Board at InsurTech Hub Munich, shared a similar idea at the DIA Munich 2022.
At the event, he stressed the traditional industry's importance in teaming up with insurtech and different startups.
Combining big insurers' data, expertise, customer connections, knowledge, and experience with insurtech’s entrepreneurial mindset and profiles you rarely find in big corporations are where big business wins can happen.
But a humble, prestige-free approach is key, as is continuous interaction from both sides.
The insurance industry is one of many affected by digitalization. And your way of handling this shift will determine if you stay competitive as the landscape changes.
But even though the challenges of legacy systems loom, there are solutions. For now, the goal for traditional insurance companies may not be to revamp their tech stacks completely.
Using specific technology on top of legacy systems is the first leap into digitalization for many. Innovative insurtech companies enable traditional insurance companies to streamline operations and deliver better customer experiences.
And because it’s wise to give claims top priority in your digitalization goals, Mavera's Decision Support System can be an important factor in helping insurance companies make this important step.