Expanding data volumes from sensors and other connected technology, intensifying regulation, increasingly volatile weather patterns — these are among the powerful forces reshaping the insurance industry.
Their effect on the claims function certainly will be profound. Nearly every link in the claims process will evolve in the future thanks to:
- Technological innovations (such as robotic process automation and driverless cars).
- Significant shifts in claims volumes (less, but more unpredictable, claims).
- Changing customer expectations (more digital engagement).
There's little doubt that tomorrow's claims organization will look and act differently. Smaller, leaner teams will rely on greater automation to focus on higher-value activities. Robust digital channels will handle most low-complexity claims (especially in personal lines).
|New tools and technology
New tools and technology will take over activities currently performed by loss adjusters, eliminating the need for in-person property or vehicle damage inspections, for example. Proactive loss prevention, especially in the areas of fraud, data breaches and cybersecurity, will be a top priority.
Analytical thinking and complex adjusting skills will be at a premium as data volumes and complexity increase dramatically thanks to:
- The Internet of Things, including factory and home sensors and telematics systems on cars and trucks.
- Social media data that provides real-time information about claims severity and localization and helps prevent fraud.
- Drones used to remotely inspect damage and collect data for underwriting purposes.
It's possible that retail and personal insurers will reduce their employee base by up to 50 percent, with commercial specialty insurers seeing smaller reductions. Remote working and new sourcing arrangements across complex claims supply chains will reduce real estate costs. Special response units and global catastrophe teams will manage surges and spikes in claims volumes due to increasingly frequent weather events and natural disasters.
In early 2016, EY's insurance group conducted research to better understand how industry stakeholders — including senior insurance executives, financial technology (FinTech) leaders and analysts — view the future of claims operations. They identified six major disruptive forces that will define the future of claims:
Insurance claims will decrease as technology helps mitigate risks for insureds. (Photo: Shutterstock)
|1. Decreasing claims volumes
Claims frequency is falling in many lines of business thanks largely to sensors. Improved safety features (like driver assistance and airbags) have greatly reduced the likelihood of auto accidents. In fact, from 1994 to 2014, there was a 39.2 percent decrease in the number of total reported road accident fatalities, according to the U.K. Parliament. Sensors for monitoring homes and businesses are having a similar effect.
Updated technology provides new opportunities for innovation, reduces fraud and streamlines workflows. (Photo: Shutterstock)
|2. Modernized technology
Better technology means more opportunity for innovation. In the future, the vast majority of simple claims (e.g., those less than $1,000) will be settled through automated, rules-based processes, provided that no fraud indicators are present. The simpler products are, the more automated the claims validation process can be.
Modernized claims platforms will enable the capture of more data, as well as more precise segmentations. Streamlined workflows will also enable higher levels of productivity because leaner teams will be able to process more claims. Robotic process automation, in particular, will help alleviate the long-standing talent shortage in claims.
Sensors collect data that can be monitored remotely and allows insureds to be proactive in reducing the risks in their homes. (Photo: iStock)
|3. The sensor revolution
With more devices linked to the ever-growing Internet of Things, closer and more effective monitoring of homes, businesses and individual behavior has become a reality. And it has shifted the focus of claims organizations to proactive monitoring and away from reactive handling processes.
New data sources will be focused on loss prevention and incident management in all lines of business. Insurers must invest in cybersecurity to protect the larger and more valuable data sets available to them.
Information from multiple sources can now be personalized and sent immediately to a customer's phone to mitigate risks. (Photo: iStock)
|4. Digital disruption
Companies such as Uber and Amazon are redefining customer expectations in terms of service interactions, personalized products and efficiency. The customer experience bar is now higher in all industries, including insurance. Within claims, that means better self-service tools. Accurate, timely and transparent information about claims status will be shared or "pushed" proactively to customers and made available through online channels.
Many commercial and corporate clients still turn to brokers for advice, meaning claims service likely is to become a key differentiator. But, in other lines, superior customer service will be associated with the ability to meet customer preferences, rather than the level of human interaction.
Improved risk management tools will further reduce the number of claims insurers receive. (Photo: Shutterstock)
|5. Better enterprise risk management
Large businesses have vastly improved risk management capabilities because of the wider scope and more stringent health and safety regulations and a greater focus on the return from capital, including insurance arrangements. Better data about claims incidents and clearer insight into the cost of risks are likely to decrease the overall claims volumes from large commercial policyholders.
Advanced technology will be able to warn insurers and policyholders of severe weather, but flooding will continue to be a major risk. (Photo: Shutterstock)
|6. Severe weather
The increased frequency and often localization of weather-related events mean significant flooding is likely to continue to be a major issue. Claims operations will need innovative technology for advanced warning of such events and operational flexibility to scale up quickly to meet demand spikes. Management of such severe incidents will soon become a business-as-usual activity for claims.
The insurance industry is changing faster than at any time in its history and technology is a huge driver as insurers work to meet and exceed the expectations of their customers. These changes will impact all aspects of the industry for years to come and the result will be an even more dynamic business for those willing to take advantage of these opportunities.
Nicole Michaels is a principal in the insurance advisory practice at Ernst & Young. Email her at [email protected].
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