What impact climate change may have on the digital claims process

With climate change causing a steady increase in claims over recent years, insurers should adjust to accommodate the shifting landscape of property insurance trends in the years ahead. This means improving digital access for customers to facilitate an efficient and empathetic claims process, re-evaluating reserving methods to account for increased demand, and improving or automating internal processes to match product value with rising premiums.

In 2020, natural disasters – excluding COVID-19 – caused a total of $76 billion in insured losses, as opposed to the $7 billion in man-made insured losses. This marks the fifth most expensive year since 1970 and includes damage from storms, polar vortexes, and wildfires. With these numbers come unprecedentedly high pay-outs for insurers, who paid $31 billion each year on average in the 2010s as opposed to $19 billion the decade before. As these trends are likely to worsen over the coming years, it is time for insurers to re-evaluate their understanding of risk in the 21st century.

Companies must prepare to meet the demands of an increased customer base, including facilitating an easy claims process and expanding digital access. There is often a rush to incorporate automation to meet these needs without assessing the effect on the customer journey. While every company is aware of the need for digital access as claims volume grows, it is important not to lose sight of the end goal of truly addressing the needs of the customer.

Customers want fast processing, but that doesn’t mean their experience is made better by sitting on the phone through several bot menus during a relocation effort. Having automated internal processes speed up service time, which means resources are freed up to be where they can best serve customer needs. That might mean anything from helping a customer with the difficulties of their situation or walking them through their policy coverage details in a way no app or bot can. Product value only increases relative to a customer’s experience. In an industry that deals directly with customers in one of their greatest times of need, it is important to think critically about applying automation with a human touch.

With the impending climate-caused upward trend in claims volume and cost, insurers must consider their reserving methods. Historically, reserving techniques have relied on year-over-year experience to help predict future trends. Furthermore, investment in advanced analytics will lead to more dependable and accurate risk forecasting. As risk assessment evolves, data and analytics will play a key role in companies’ ability to react to the changes ahead.

There is a level of uncertainty that comes into play when looking at the future costs of climate-related property and casualty claims. As insurers fund their reserves, some opportunities are stable and conservative, while also supporting climate change through investments. An example would be government-funded bills, like the Infrastructure Bill, which incentivizes the construction of clean energy alternative industries. Insurers should use several factors when assessing risk exposure related to climate change, such as:

• Possible shifts in economic activity with a potential decrease in investment made in industries with a high negative effect on the climate change movement (e.g., carbon-based industries) 
• Volume and effect of possible climate or weather-related events and if they have a short- or long-term period of exposure (e.g., flooding or tornado-related seasonality) 
• Regulatory changes across the globe may also affect behaviors and policies 

As premiums increase with the added factor of climate change, insurers will want to make sure the value of their product aligns with their customer needs and economics to stay competitive. According to the Insurance Information Institute, premium rates were up 11.4% on average from 2017 to 2020, far outpacing inflation’s 7.9% increase over the same period.

This goes hand in hand with focusing improvement efforts directly towards those which will benefit the customer’s true needs. So, whether through an improved digital journey, a reliable payout plan, or faster claims processing, customers over the coming years will be seeking out firms prepared for the changes ahead. In the end, companies that are best able to discern and address their customer needs will come out on top in this climate-fueled landscape.