Claims spending is expected to rise 5.8 percent over the next three years, according to Karen Pauli, who presented at this week’s CEB Towergroup Financial Services Technology Conference; as a result, the bottom line for claims executives is investing in technology in order to keep costs down and satisfaction up.

While natural catastrophes have been getting a lot of attention for putting strain on claims departments in the last two years, the high number of catastrophe claims is not why spending is expected to rise.

“The one thing claims execs have been dealing with for a long time is highly erratic claims staff numbers,” said Karen Pauli, who led the session and serves as research director, insurance, CEB TowerGroup. In years with very high catastrophic events, she pointed out in the presentation, the numbers among staffs rise—however, in 2011 and 2012, the expected spikes have been marginal, especially compared to the aftermath of Katrina. This is likely the result of efforts to keep costs down and taking advantage of the efficiencies of technology.

Therefore, the claims cost increases, Pauli explained, are not just about catastrophes, but a prolonged trend of climbing claims severity in the non-cat categorization. “It really is about overall severity problems and it calls for claims executives to take a new tactic,” Pauli said.

According to CEB TowerGroup data, no-fault insurance costs are a leading example of soaring severity, citing a 50-percent increase in Michigan’s no-fault costs. Elsewhere in claims operations, staff costs are down 9 percent, according to the data, while hardware, software and other IT costs are also growing just enough to cancel the reduced staff spending.

Also, Pauli added that TowerGroup’s recent survey of insurers indicated that claims departments were putting an equal emphasis on expense management in claims operations and customer experience/satisfaction. Yet, recent J.D. Power data, including statistics saying 12 percent of customers will not renew coverage if they’re unsatisfied with a claims experience, indicates an emphasis on customer experience is necessary to retaining and growing customer base.

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