Digital technology is a double-edged sword for insurance companies. While it's never been easier to make improvements in the customer experience, it's also easier than ever for policyholders to switch insurance carriers if they have a poor experience. That's leading to renewed energy around claims innovation, according to Jay Sarzen, senior analyst for Aite Group specializing in P&C insurance.

Until recently, most of the digital disruption to the insurance industry has taken place earlier in the value chain, with the goal of boosting customer acquisition, Sarzen says. That includes digitally enhanced underwriting and distribution capabilities. But carriers are realizing that they have to retain their customers as well, and that means using digital more fully at the "moment of truth" for insurance: the claim.

"The thing that carriers really don't want is to lose a policyholder to whom they just paid out a claim," Sarzen says. "This is a 180 when you think about the attention being paid to this after all the money was spent on distribution and underwriting."

The big opportunity for insurers comes in using digital technology, especially third-party data, to make the claims process more transparent, Sarzen says. Data platforms exist that can allow insurers to optimize payouts while keeping customers in the loop along the way.

"Insurers really want to give the claimant a sense of ownership in the claims process while helping them understand how they arrived at the claims decision," Sarzen says. "What it comes down to is making sure the process runs as smoothly as possible with as little friction as possible."

For example, with a home claim, more refined data allows insurers to not just provide a check for repairs, but to know with more certainty exactly how much local repair providers will charge and what the contents of a particular dwelling are likely to be.

"You know what you have but if you don't know what it costs to replace it, you may feel you're getting shortchanged," Sarzen says. "We can use tech to maximize what the claimant should be paid."

Other digital technologies like the Internet of Things and enhanced customer portals that allow customers to catalog their posessions in advance of a claim are making minor inroads for insurers, but on a wide scale, better data and analytics is more closely tied to a claims ROI, Sarzen says.

"It would be great to have, but the challenge you're going to get is that people have to pony up for thses types of devices that can feed back all that data," Sarzen says. "Then if you don't have a claim, you've invested in a bunch of gadgets."

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