The regulatory benefits of modernizing claims

Industry consensus points to claims as the next practice area that will be transformed by technological disruption, given its significance to the customer experience.

Yet many insurers today still implement legacy approaches as a part of regular workflow, which slows down the entire claims process. This will change soon with an overhaul that largely mirrors the underwriting market’s transformation over the last decade.

One of the most mature forms of widespread technology innovation in the insurance space is in underwriting, where predictive analytics, data integration and improved core systems have disrupted historical workflows and empowered underwriters with actionable insights. For many carriers, this has given underwriters the freedom to focus their expertise on the complex policy decisions that have the greatest impact on the profitability of a book of business.

Big data and analytics also have simplified the process of working with regulators. Insurers can now showcase their decision-making process and oftentimes expedite regulatory approvals, by keeping digital records of how policy decisions were made.

A similar level of transformation is on the horizon for claims and promises a comparable impact on adjusters, allowing experience to match claim complexity and enabling insurers to more readily meet their regulatory requirements.

Related: Why predictive analytics is the secret weapon for P&C insurance

Filing

In claims processing, “the clock begins” once the insured has filed the report and the insurer acknowledges receipt. Each state has its own requirements on how long an insurer can take to either pay or contest a claim. Through the use of artificial intelligence (AI), these claimant submissions can often be immediately cycled through databases that provide information such as geolocation data, weather patterns at the time of the incident, past claimant history (perhaps from historical NCCI data), and many others. Insurers can obtain far more information at the point of assigning an adjuster now than at any point in the past. This allows the carriers to align the most cost-effective resource allocation based on claim complexity or other criteria to deliver a more favorable outcome.

It also allows for a more tactical approach to assigning adjusters, leveraging the most experienced to handle the complex claims and the novices for straightforward ones. It’s akin to underwriting, where straight-through-processing (STP) allows insurers to decide which policies could be written automatically. Adjusters, just like underwriters, will be positioned to focus on the claim instances where they can make the biggest difference.

Related: Using AI and automation to transform claims handling

Fraud mitigation

Fraud mitigation is obviously critical in growing profit; paying fraudulent claims takes money out of the black. Independent of adjuster assignment, information as to whether a claimant has been found to have filed potentially fraudulent claims can be enough to raise a red flag and convince an insurer to investigate further.

Use of AI and machine learning is making it easier to leverage important data to assess risk, reduce operational costs and improve efficiencies and security. Until recently, much of this data either wasn’t available in a manner that would allow an insurer to act quickly enough to meet their regulatory requirements, or simply didn’t exist in any meaningful way. Today, it can be accessed with just a couple of clicks and can help insurers more readily raise flags on potential fraud.

Some insurers are taking this a step further on the regulatory side, especially in workers’ comp, automatically incorporating the latest changes from NCCI and other independent bureaus into a claims file and building rules that provide reminders and timelines for regulatory requirements. This removes the legacy approach of meticulously sorting through online or physical databases for the correct form. For experts, this can take 25-30 minutes for each claim but novices could take over an hour. Insurers are mitigating a significant source of human error and automating the lion’s share of their regulatory compliance in the process.

Handling claims

Every carrier has its own procedure for handling claims, but the bygone era of call center agents manually entering data left an incredible amount to be desired. People are inconsistent by nature. The human element will always be a critical component to business growth, but the velocity of change in modern business has created new requirements for success. Insurers must provide their employees with the tools they need for a stronger, more flexible foundation and one that can scale to the pace of change. AI-driven decision-making and process alleviate some of this burden. Smart forms, for instance, enable claimants to enter their own information and save everyone time in the process.

Insurers also are in the nascent stages of claims being automatically filed by devices in commercial settings. Consider a food transport company with food stored in a malfunctioning freezer. As Internet of Things (IoT) technology becomes more common, the freezer itself can report a claim after a certain amount of downtime. After all, the company knows how much product was stored in a specific location, the value of that product, and the length of time it can go without a working freezer.

Similarly, autonomous commercial fleets might run self-diagnostics to determine the damage caused by an accident. Faster handling of claims with less room for human error should all but assure regulatory success, while enabling adjusters to maximize their value by focusing on the claims that fall into gray areas.

Related: Changing times ahead for insurance claims industry

The experience gap

The insurance industry talent gap is widely known, as carriers struggle to backfill roles left by baby boomers who are creeping up to retirement age.

Today’s knowledge drain in the claims space has exposed insurers to a generation of human capital less interested in the time it takes to sit down and analyze the information available, or fully evaluate the claims-handling landscape. They’re often missing the requisite skills, are pressed for time, or work from assumptions that don’t align with the larger strategic vision.

Claims can be particularly affected by this issue, since the knowledge is very specialized, requiring considerable training that many insurers simply can’t offer.

The good news: Modern core systems software is reducing this experience gap by automating many of the meticulous claims processes and alleviating some of the concerns for a more shallow pool of talent.

Claims, as a practice area, is extremely complex, especially since regulators generally side with consumers on most issues when it comes to claims. This means that insurers often have hard-caps on the amount of time they can take to pay a claim, and considerable penalties for prematurely declining to pay a claim deemed erroneously to be fraudulent. Through the use of modern claims handling, however, carriers can meet their regulatory requirements while also limiting the chances of human error and fraud.

Related: How digitization continues to disrupt the insurance industry

Sylvester Mathis (sylvester.mathis@insurity.com) is vice president of Claims Product & Strategy at Insurity. These opinions are the author’s own.