Getting commercial maritime claims on the fast track
What are the advantages or values of fast-tracking high-frequency, low-value marine cargo insurance claims via AI?
It has been said that data is the new oil; I propose that data with artificial intelligence (AI) is the new electricity. With data entered and processed by a “machine” via AI, there is more accuracy and clarity. Let’s look at how AI can powerfully affect the progress of any enterprise, such as insurance.
Utilizing business intelligence
Several years ago, using Business Objects as a business intelligence tool, we were able to drill down to what was causing damage to cargo consisting of electronic equipment consigned to China. Based on the data from Business Objects, we found the damage was caused by trucks not having air-ride suspension. The trigger was the consistently high number of occurrences involving land transit in China. Claims adjusters communicated with partners and identified the truckers transporting the cargo as the proximate cause of the damage. This is loss prevention using technology.
Stale Hansen, Skuld CEO, stated last year: “We are sitting on a wealth of data that can be utilized to identify trends — for example, what sorts of incidents cause casualties, which cause spills, what are the key threats that shipowners have to protect against? This creates a suite of loss prevention advice that we can share with the industry.”
In the past, data processing had many hand-offs. First, claims adjusters manually completed a hard copy of the claim intake form and then handed it over with the claim file to a data entry clerk to enter the data into the WINS system, a DOS-looking screen. The new system uses an interactive graphical user interface (GUI) screen, but adjusters still must extract the data from an electronic or hard copy document and enter the data in this new interface. With all these hands, entered data will likely be inaccurate.
One example is how a vessel’s name is entered. For example, M/V “Albatross,” M/S “Albatross,” or just “Albatross.” What are the chances of the adjuster entering the date of loss correctly? Incorrect data entry results in ‘dirty data.’ Dirty data will give the enterprise a distorted picture with no possibility of helpful insight.
Entering data correctly via AI is just the beginning. How about bringing the emerging digital technology to this captured data into the resolution of claims?
The most effective way to move forward is to take baby steps, focusing first on high-frequency/low-value claims (fast-tracked claims) in which stakes are not as high as they are in bigger claims.
Fast-tracking claims
In the 1980s, some insurance companies moved their fast-tracked claims to a central unit for processing since it did not seem cost-effective for senior adjusters to handle them. While some argued that a senior adjuster could finalize these claims at a much faster pace than a junior adjuster, my experience is that junior adjusters can finalize these fast-tracked claims “blindfolded” due to the high frequency of similarly simple tasks. Additionally, since the claim process includes data entry, there are no savings because one can only type one character at a time. However, if junior adjusters handle these fast-tracked claims, there are potential savings because of pay scale differences.
By using a dedicated staff, productivity increased and cycle time decreased benefitting insurers and insureds. The practice gained traction as companies started moving these claims to fast-tracked claims units outside of metropolitan areas. Complex claims were then handled by senior adjusters.
What about using AI technology to handle fast-tracked claims? In marine cargo insurance claims, the shipping documents are consistently uniform throughout the world, such as a bill of lading, commercial invoice and insurance certificate. Oftentimes, if you place three shipping documents on top of each other, the data fields are in almost the same place. There must be an urgency on the part of marine insurance carriers since logistics, ocean/air carriers, and sellers/buyers are now bringing digital technology into the supply chain. There will be increased efficiency if all partners in the shipping industry collaborate via digital technology.
In 2016, Fukoku Mutual Life Insurance Company changed its claims handling philosophy by utilizing AI in its claim resolution. According to “The Mainichi,” a Japanese publication, “Fukoku Mutual Life Insurance is replacing more than 30 staff by using IBM Watson cognitive computing software to read medical documents that are used to assess payments.”
Having led two major insurance companies’ marine claims divisions in the United States with 40 to 50 adjuster reports, my experience tells me that claims below $5,000 comprised about 70% of the total population of marine cargo insurance losses (the trigger amount will vary depending upon the type of cargo book written by the insurance carrier). If this dollar amount represents most of the claims, then it will meet the fast-tracked claims criterion.
According to The World Bank, in 2018, shipped goods totaled $25 trillion. And, according to the International Union of Marine Insurance (IUMI), that same year about 12.1 billion tons of cargo were moved by sea. According to IUMI, the size of the global marine insurance premium in 2017 was $28.5 billion and the premium income for global marine cargo underwriting was about $16.1 billion. If we apply a 70% industry loss ratio estimate, the estimated loss exposure is about $11.3 billion. Approximately $12 billion is in the hands of claims adjusters worldwide. These statistics show that there is a large market that can be penetrated by this AI application.
In addition to insurance carriers as AI customers, if there is a critical mass, this AI application can apply to insurance brokers with settlement authorities from the insurance carriers, insureds with high self-insured retention, logistics and air/oceans carriers who are now providing cargo insurance to their clients.
Lars Henneberg, head of risk and insurance at A.P. Moller-Maersk A/S, said that “insurance transactions are currently far too tedious and frictional.”
Simon Gaffney, chief data officer of Willis Towers Watson said, “Redesigning the insurance process is critical for the evolution of our industry.”
Finally, Michael Park, chief product and marketing officer at Eagleview, said AI is poised to have a tremendous impact on the insurance industry. He notes that Accenture research estimates that U.S. insurers could increase profitability by as much as $20.8 billion in increased profitability using AI.
Benefits of AI
What are the advantages or values of fast-tracking high-frequency/low-value marine cargo insurance claims via AI?
- Shorter cycle time means customers get their money quickly. Loss reserve shelf life is shortened, so when the claim is quickly paid, the loss incurred is accurately measured, which makes an insurance company surplus picture more accurate. Data points are easily identified.
- Settlement calculations are more accurate since calculations are not done manually.
- Fraud is reduced because of algorithms that cross-check data elements.
- Labor costs are reduced since the system will only require overseeing the operation, unallocated loss adjustment expenses shrink and human resource issues are almost eliminated.
- Claims can be settled within an hour instead of a week.
- With no human data entry intervention, data is more accurate and more reliable.
- These improvements are ultimately passed to the customers since claims will be closed faster and more accurately. This, in turn, increases Customer Satisfaction Scores (CSAT).
It is recommended that claims from major perils, stranding, sinking, burning and collision (SSBC) and general average claims not be considered fast-tracked claims. General average claim resolution is based on third-party adjustment by an average adjuster, which takes years to resolve even though the payout could be less than $5,000 a claim. Stranding claims could be joined with other claims associated with a major peril to have a commonality in the approach, as well as subrogation potential.
Automated interactions
AI machines have already come into our lives, not only in the insurance world. I shared with my wife two decades ago that the bank tellers at the bank could contribute more to society by not just dispensing cash or accepting checks. In no time, her branch closed. I think most people were using ATMs for their bank transactions, and now one can do bank transactions wirelessly via smartphone.
Putting this change in the perspective of marine cargo transportation — no one wants to go back to break-bulk cargo shipping from the current containerized shipping. Break-bulk cargo is so labor-intensive during cargo operation that the ship’s stay in port is sometimes longer than sailing time. We have moved on from the bank tellers of yesterday to the present, but we are still behind the futuristic “Blade Runner” experience, which supposedly occurred in 2019.
In Alana Samuel’s review of Daniel Susskind’s new book, “A World Without Work,” she writes: “Susskind declares that machines are getting so smart that they’ll soon replace humans at a growing list of jobs, potentially including doctors, bricklayers and insurance adjusters [emphasis added], thus ending what he calls the ‘Age of Labor’.”
However, Susskind is optimistic and believes automation anxiety is not new and despite technological advances over the decades, there remains a “demand for the work of human beings to avoid the emergence of large pools of permanently displaced people.”
The digital revolution is an offshoot of the industrial revolution when physical machines replaced some production workers. We know the industrial revolution did not completely eliminate the need for people and likewise, the digital revolution will only replace some workers.
Eventually, our world will include more participation of AI machines, with humans building a better world for us. While AI may affect people in the workplace, it also helps people live longer and healthier based on improved healthcare delivery.
The challenge for our generation is to first to accept the inevitability of this changing work landscape. As they say, the only constant is change. We must use our historical data to help shape our future.
Jose A. Guerrero, Jr. (jagjr@virtualclaim.com) is the president and CEO of Virtual Claims Services with over 40 years of experience handling maritime claims in the marine insurance industry.
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