IoT & claims: Bringing real-time data to an imperfect process
Technology can reduce claim frequency, assist in determining cause and document evidence for subrogation.
For those in insurance who have been around a long time, especially in claims, you recognize how “manual” much of the claims process is. IoT will have a tremendous impact on how claims of the future are adjudicated.
Take, for example, a very common residential claim with the recent Texas freeze. A cracked pipe allows thousands of gallons of water to flow from the ceiling into the home, damaging all the contents, flooring and drywall in its path. Historically, the adjuster would go out and scope the damage, retain a mechanical engineer to conduct a causal determination of the pipe break, and then write a report. This takes several days and costs anywhere from $1,500-4,000. With IoT devices, the game changes, impacting insurance claims in primarily three ways: 1. reducing claim frequency/severity; 2. providing clear liability/root cause determination; and 3. providing documented evidence for subrogation.
Reducing claim severity
IoT sensors monitor the system in real-time and provide daily, weekly or monthly insights. They know whether or not people are in the home. If the IoT device senses continual water running (past a prescribed time length like 30 minutes), the system automatically shuts off the water to the home to avoid a significant water peril. More complete maintenance and operational records are now contained within this IoT device.
Alarms can notify owners when action needs to be taken to prevent failures. Assuming insureds respond to and properly address maintenance or error notices dramatically reduces both frequency and severity of claims.
Determining root cause
Assembling the complete record, such as the sequence of events leading up to, during and after a loss and determining the extent of the damage consumes hours, days and sometimes weeks of a claims professional’s time. With IoT devices on or around major appliances and the water supply system, the ability to provide information about the time, date and circumstances of loss are dramatically improved. Having a complete recorded history of the event in question dramatically decreases the time required to make an appropriate coverage or liability determination. This correlates to an improved insured experience due to the cycle time improvement.
As an industry, we have relied on first-party interviews to provide much of the information used for a claim assessment. This has created several issues directly related to potential fraud, subrogation and other coverage concerns. Frequently, the first-party adjuster taking the information is the only person in this information exchange, and if they do not pick up on a potential issue, it can easily be lost.
Hundreds of millions of dollars of profit are lost in the insurance industry every year because we rely on a single person per claim to make many of these decisions. The recent Texas storm will echo this as we watch numerous coverage determinations be changed, claim supplements added and claims re-opened. In every CAT event, the same issues always arise. However, IoT capabilities move us past a single human’s subjective, post-hoc evaluation and into a technology-led, objective set of real-time facts.
Documentation for subrogation
IoT enables timely evidence for subrogation. While it is still unclear whether ERCOT will owe for the Texas power failures, it is well-documented in insurer statistics that subrogation recoveries as a percent of subrogation potential typically fluctuate between 15-18%, including both personal and commercial property. With complete documented records, subrogation recoveries have the potential to increase 2x-5x. Because subrogation recoveries as a percent of total paid losses have hovered between 2-5%, this creates immediate cost recovery or indemnity reduction opportunities of between 5-10% of total indemnity dollars. If carriers can effectively capture this potential, they have a significant boost to corporate profitability.
The one part of subrogation that has historically been ignored, but is now in the realm of opportunity, is to broadcast and leverage these good subrogation stories for marketing purposes. Imagine carriers being able to tell their insureds and prospects, “We were able to completely recover the deductibles (or 80% of the deductibles) for your neighbors. That is how much we care about taking care of our members.” Great claims stories can create brand loyalty and can have an immense impact on customer lifetime value. IoT devices are changing the game for claims. The question is not when they will dramatically shape the industry, but how fast it will happen.
Tim Christ is a vice president at Claimatic, a SaaS intelligent decisioning software that serves several P&C insurers. He is the author of two books on insurance, business and technology, a speaker at industry events, and a frequent contributor to various insurance publications. Contact him at tchrist@claimatic.com.
Related: