A new customer experience in auto claims?
Making incremental improvements doesn’t qualify as transformative, but completely changing the engagement model does.
As we look at the world of claims changes for 2021, it was dominated by a few key areas for specific functionality, including virtual inspection, document intake, insured communications and payment digitization. However, as we look ahead to the world of auto claims in 2025, Lexis Nexis’ predicts that more than 80% of auto insurance claims will be processed virtually and that total loss claim processing will be reduced from weeks to days.
Making incremental improvements doesn’t qualify as transformative, but completely changing the engagement model does. When we think about what we used to do to call a taxi vs. what we do now through our Uber app, or remember going to a Blockbuster early on Friday to make sure we could get a new release before they ran out of copies vs. watching streaming movies on YouTube, those would be considered transformative experiences. If the auto insurance industry can change the experience from calling into a call center, talking to several different people, and waiting 3-6 weeks for resolution to a few clicks on a mobile device, that is a transformative experience.
Changing the claims process
As carriers look at their auto claims processes, they find that all auto claims fall into one of two buckets:
- Property damage only
- Property damage and bodily injury
Historically, “total loss” auto claims would only be 8-12% of the total claim volume processed. A confluence of events has increased this number dramatically. Before COVID, people drove routinely. Then everyone was sent home for two years and spent time on Zoom calls.
Now, people are driving again but they are out of practice, and subsequently, accidents are more severe than they were pre-pandemic. The amount of electronics in vehicles continues to accelerate, which makes them more expensive to repair. COVID supply chain interruptions create an interesting situation where you can’t get parts to repair cars, but for those cars that are damaged in collisions, you can command a higher salvage price to cannibalize those parts.
Now, total loss claims may comprise 20-25% of the total auto claims processed. While some total loss claims also result in bodily injury claims, auto physical damage (APD) claims comprise about 75-85% of all auto insurance claims.
Total loss auto claims
When you think about what goes into a total loss claim, it should be the simplest type of claim from a property damage perspective. You don’t have to take the car to a body shop for repairs, deal with parts issues, supplemental damage estimates or other factors. You simply need to get paid for the insured value of the car.
The complexity exists because you are essentially “selling” your damaged car to your insurer. This means that you have to execute a bill of sale and transfer of title. Given that nearly 86% of new cars and 55% of used cars are financed, the odds are high that there is a 3rd party lienholder involved in this transaction as well.
Below is a diagram of the total loss process:
However, when you peel back the curtain on the total loss auto claims process, you find that it has been mired in manual processes. “Many insurers have historically leveraged their salvage vendor to manage the entire paperwork process, but now we see a number of carriers reclaiming that part of the process to speed up cycle time and save money,” states Brandon Hall, CEO of LossExpress in Dallas.
Damage assessment has historically been quantified either by an appraiser working for the insurer or an estimate from a body shop. Faxing or shipping documents back and forth, and the related approvals that go along with each of these steps have created a situation where it can take 30-45 days for a policyholder to completely finish with the process of their total loss vehicle.
Since interest is calculated daily, banks have historically provided a loan payoff amount that is only good for a two-week timeframe. If there are any delays for whatever reason that extend the timeline past two weeks, then a revised loan payoff amount has to be requested. Insurers are hyper-focused on their total loss processes for two reasons:
- This particular type of claim represents 20-25% of total claims processed.
- Policyholder retention is a key metric, so in the event of a total loss, the policyholder is going to have a dramatic experience, either very positive or very negative with their carrier.
For these reasons, you have seen carriers dramatically invest in tools for each of the steps in this process. Allowing policyholders to upload photos of their vehicle at FNOL, allowing Artificial Intelligence (AI) to immediately calculate a damage estimate speeds up the front end to the critical decision of whether a vehicle is totaled or not. Electronic title release, power of attorney (POA), and lien payoff information have all been re-engineered to now be available at the click of a button. Payment digitization is important because the last thing that a policyholder wants to hear after this several-week process is “the check is in the mail.”
When you think about these steps, this is all basic blocking-and-tackling work that goes on within an insurer on a daily basis, but should not be considered “transformational.” Driving a vehicle with power windows and doors instead of manual window handles/locks is not transformational. It’s nice, and perhaps seems cutting edge at the time, but in the grand scheme of things, it doesn’t rise to the level of transformational. The transformational part will be when our vehicles total themselves, coordinate a rental car with one or two clicks on our phone, it is delivered to our location, and our insurance payment is direct-deposited within an hour of the collision.
Timothy D. Christ is a well-known thought leader and speaker in the insurance industry, with over 20 years of experience in forensic engineering and claims investigations, including two published books. Much of his consulting work centers around the future of claims and the impacts of technology. He can be reached at timothydavid.christ@gmail.com.
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