Embracing claims technology to improve insurer profit
The right implementations can help carriers balance time, expenses and resources efficiently.
Tom Wilson, CEO of Allstate, on their investor call, stated, “We’re growing, but GEICO and Progressive are growing auto insurance market share faster, through massive advertising spending and low-cost structures.”
Even though Allstate reported premium increases of 5.6% and a combined ratio of 85.0%, which is 0.3% better than 2018, they are continuing to look for ways to get more efficient. In October, they announced layoffs that were part of their December 2019 “Transformative Growth Plan,” that had three stated goals:
- Overhaul how it does business
- Boost efficiency
- Reduce expenses
Interestingly enough, just a few months earlier, Hartford announced their “Hartford Next” initiative to save $500 million annually through “operational transformation and expense reduction.”
This is a reality for multiple insurance companies; however, many are loath to discuss it publicly, and perhaps more importantly, actually spend investment money to try to improve the current reality. Claims is a “zero-sum game.” With a combined ratio of 85%, Allstate’s chief claims officer is responsible for managing the parts of the loss ratio (both allocated loss adjustment expenses and unallocated loss adjustment expenses) within his span of control.
Historically, if you add more policies and top-line revenue, you also add more claims and support staff. With InsurTech and technology investment, you can change that dynamic. There are two main challenges that chief claims officers (CCOs) face:
Technical debt & system constraints
While many insurers are still on legacy claims management software (CMS) platforms, many have moved to more modern solutions like Guidewire and DuckCreek. Even still, a large proportion of those carriers are on older versions of these newer CMS solutions with more limited connectivity and flexibility. Carriers face challenges from an investment and schedule perspective to upgrade to the latest versions. Focusing on upgrading the entire platform, while necessary, takes insurers’ focus away from spending time and energy on areas that improve customer experience. That means they have technical barriers or operate with technical debt that they need to address.
Making up for churn
Beyond just LAE-focused solutions, CCOs need to think about what customer experience (CX) enhancing solutions will be needed to help retain good customers.
In Allstate’s case, they expect to lose about 20% of their customers annually. That means their agents can only count on about 80% of their customer base staying with them. If they have a goal of 10% growth, that means they now have to find 30% more business to both replace lost customers and grow the book by the targeted 10%. In a relatively flat-growth industry where most growth comes from share-stealing, every point of retention you eke out through better CX is critical to a carrier’s success.
What Allstate will ideally want to do is incentivize and create pressure to drive down expenses through more efficient, straight-through processing tools and making CX investments to ensure the claims experience helps drive retention in a world where customers are demanding more from every business interaction. Since people are our most valuable resource, providing them with tools to maximize their time and do more strategic planning and execution, ultimately provides an extensive net benefit to the organization.
Chief claims officers everywhere have to think about re-designing the entire claims process. The average claims process has 5-9 steps. However, when you whiteboard the claims process and break down each step, you start to see where many challenges lie. Some areas that are ripe for immediate improvement include: enhanced data gathering at the FNOL stage, automating claims triage/assignment, reducing compliance risk and re-assignments, insured communication, working with vendors to speed up the claims investigation process, improving fraud mechanisms and subrogation recoveries, automating quality assurance and control, and others.
While I don’t believe the McKinsey report that 70-90% of the claims headcount will be eliminated in 10 years, I do believe that we can make significant strides that will have a material effect on LAE and the net profit margins of insurers.
Tim Christ is the vice president of Claimatic, a leading SaaS automated claims decisioning software that serves several P&C insurers. He is the author of two books on insurance, business, and technology, speaks at industry events, and is a frequent contributor to various insurance publications. Contact him at tchrist@claimatic.com. Opinions expressed are the author’s own.
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