Predicting the future can be a fool's game, but planning for it is an operational necessity for insurers.
Indeed, considering the nature of insurance, insurance companies and actuarial science and underwriting in particular, are inherently forward-looking. By contrast, the claims process is by nature reactive. Must it stay this way?
The question seems all the more germane in light of rapid advances in predictive analytics technologies. While claims departments may never resemble underwriting departments in temperament, they may be wise to leverage certain tools and processes. For example, no technical reasons exist that would prevent a claims organization from combining data from internal and external sources into advanced analytic tools to create algorithms to predict loss exposure from a variety of events.
The use of analytics is already widespread in some areas of claims, such as fraud (with good reason, as the Insurance Information Institute estimates property/casualty insurance fraud as a $30 billion-a-year problem).
Thus, the challenge is to pivot from using data retrospectively, as in fraud detection, to using it predicatively to drive down costs by lowering claim severities and improving claim service. One area in which predictive analytics can pay dividends in real time is claims triaging and adjuster assignment, says Randy Hanson, auto director, Allstate Insurance Co.
"Analytics allows us to become much more intelligent about how we triage and what we want our staff to look at," he says. "It puts you in a position where you know whether you need to have a person on the scene or in the shop, or if you can just pay it and move on."
Neil Harrison, group managing director of risk control, claims and engineering for Aon Global Risk Consulting, agrees that augmenting existing claims processes with data is the future. "Quicker, more accurate data leads to better decisions," he says. "If you go 3-4 years out, what you will see is a more efficient claims process with less cost incurred for processing the claim and lower overall cost of claims because of the use of data enabling intervention techniques earlier in the process."
Looking further ahead, Harrison says the use of predictive analytics in the claims process will afford insurers the opportunity to invest in solutions to prevent claims from occurring in the first place. "Data can become the tool for organizations to determine how much capital they want to put into risk control measures," he says. "The granularity around information also frees up the way an organization chooses to manage their claims process.
"Some organizations are now held captive to certain vendors that have all the information," Harrison adds. "Going forward, you are increasingly going to see component buying or unbundling of different service areas that impact the cost of claims, whether it is claims administration or choosing a different provider for managed care or pharmacy benefits."
The Beginning
So why is this data-augmented claims process largely relegated to the future and not the present? Kimberly Harris-Ferrante, VP and distinguished analyst for Gartner Research, says one reason is that claims-related data initiatives have not been a top investment priority. Rather, much of the investment in recent years has centered on implementation of modern claims systems. While modern claims management systems have offered carriers a variety of benefits, including increased visibility into the process throughout the claims lifecycle from first notice of loss to settlement, Harris-Ferrante says the data side now needs to be addressed. "If we want to make the claims processes more efficient, we have to circle back to the data," she says.
Harrison agrees that future improvements may revolve less around technology than figuring out novel uses for it. "The technology platforms are interesting, but the value is in the data itself," he says.
Despite the obvious transformational potential of predictive analytic technologies to impact the claims process in the years ahead, it will be just one of many technologies doing so. In lines of business such as personal auto, mobile and telematic technologies hold great potential to alter how claims are handled.
One early manifestation of this was the mobile claims centers employed by insurers in the wake of natural catastrophes. Harrison expects this 24/7 approach to become the norm going forward. "Technology being what it is now with tablet and handheld devices, there is no point in the day when the risk manager or claims manager can't be up to date with what is going on with a loss," he says. "You have the ability to direct the traffic around your claims from anywhere in the world."
Indeed, given the ubiquity of smart phones and the arrival of apps from insurance companies that enable customers to report a claim, the future has arrived on the customer side as well. "Some of the most significant changes in the claims process in the coming years will be how the company is notified by the insured," Harris-Ferrante says.
Taken together, these trends herald a new era of more rapid, more personalized claims handling in which insurers proactively approach their customers, leveraging insights derived from the data. For example, an auto insurer could use technology to enable a customer to track the repairs being made on their vehicle in real time.
"Rather than the claims platform, per se, the competitive arena becomes the granularity and customization potential and the ability to push that data out to clients in a very timely basis," Harrison says. "The insurers that position themselves as data partners for their insureds are going to be the ones that win."
This use of data to improve the customer experience is key, agrees Allstate's Hanson. "There is so much data that could be used to benefit consumers," he says. "We are obligated to push the envelope and see what that data can do for us. I think you are going to see some fairly remarkable changes on how we take pain points out of the process."
One pain point in particular that Hanson sees technology helping to alleviate is the vehicle estimate, citing the old adage that the only thing an estimate guarantees is a supplement.
"One of the biggest things that we see is the estimate itself becoming more of an irritant to the consumer," he says. "My desire would be to see elimination of an initial estimate like we have today. We're just not very good at the estimating process and it's not a good proxy for a conversation with a customer considering how complex these vehicles are becoming."
To improve the process in the future, carriers could make broader use of telematics, he says. "I would venture to guess that, with a few key pieces of data derived from Telematics, you may be in a position where a customer could key in a few nuggets of information and we could produce a very accurate estimate without ever having seen the vehicle because you have so much information associated with what did occur," he says.
Given the wealth of information telematics provides about vehicle behavior, such as acceleration, deceleration and braking, it will also be a boon for determination of fault.
Another promising technology is 3-D imaging. In a hypothetical crash in which a car was hit in the front bumper, a claims adjuster may be able to gauge internal damage remotely by measuring the degree of the concave with advanced imaging technology.
"There are some sophisticated scanning capabilities that if you mirror them with the damage component of estimating, you could have a good idea of what will be necessary to repair the vehicle by the time it goes up on the tow truck," he says. "We are spending a lot of time studying these things because it's definitely going to shape our industry over the next 10 years. I would suspect by that time you will have a radically different estimate."
Insurers also would be wise to stay abreast of more nascent and seemingly exotic technologies percolating among automakers, such as collision-avoidance systems. "It's really amazing technology that has the potential to change the frequency of loss and the degree of loss," Hanson says.
Yet before telematic or other mobile technologies can reach their full potential, carriers will need to concentrate on more prosaic tasks, such as forging standards among the panoply of partners involved in the claims process. In the case of personal lines auto, this means forging links with tow truck operators, repair facilities and other vendors that offer motorists assistance, as do rental car companies.
The industry is making strides here, Hanson says. "You can start to put together partners that play in the space to accelerate removal of some of the pain points in the process," he says. "As you start to leverage these partnerships, there is a lot you can do at the point of an accident that can provide tremendous value to consumers."
New Partners, New People
Harris-Ferrante agrees that this value-add component of claims will become increasingly important for customer satisfaction, and, ultimately, customer retention-not just in personal lines auto. She imagines personal property writers forging mutually beneficial links with electronic retailers in order to help a customer whose home was gutted by fire replace a television with a better one. "We know from the data that poor claims experience is a trigger point," she says, adding that one bad claims experience can be quickly amplified in the Facebook era. "The wild card here is social media as a customer complaint channel."
Thus for claims to improve, a more collaborative approach is needed across the insurance enterprise, and claims personnel will need to become better acquainted with their underwriting and product development colleagues and their data. "Claims used to be a linear process but now it's much more circular," she says. "The wall between claims and customer acquisition is being eroded."
Aon's Harrison says insurers need to seek out a new generation of claims workers more conversant with the data. "The intellectual capital is going to be the differentiator," he says. "Data is only as good as the quality of the people who possess it."
He also says claims professionals need to be assertive when it comes time to budget. "The ability to extrapolate claims data into financial data is going to drive differentiation," he says. "Unless you can articulate the claims data in terms of a true investment, you will never get support from a CFO or treasurer."
Even with the proper human and technological capital in place, claims professionals will need to keep their eyes on the horizon.
"We have a fair grasp of how the future will look in the intermediate stage," Hanson says. "Maybe not 10 years out, but certainly in 3-5 years we will be able to see the direction this is going. However, we constantly look at it and refresh it so we always have a long-term view on the industry. You can shape some of the future."
Bill Kenealy is a senior editor for Insurance Networking News.
