New claims solutions: Transforming the value proposition

To bring claims into the digital age, today’s insurers need to identify the strategic investments that will enable future success. New claims solutions will broadly fit into one of three areas:

As risk pools change and technology drives product and service innovation, the claims function must also evolve to provide clients with modern solutions. New products will need to cover emerging risks and existing risks previously deemed uninsurable. New developments such as artificial intelligence, 3D printing, augmented and virtual reality, and cryptocurrencies, for example, are creating new risks that do not fit neatly into existing product categories and coverage offerings.

In addition, the proliferation of connected devices and data from new sources means that currently niche parametric insurance products are becoming more prevalent, especially in general insurance (i.e. personal insurance). There will be fewer subjective interpretations of limited data as connected devices deliver more- complete datasets that support increased automation. Handlers will need to spend less time physically handling a claim and can increasingly turn their focus to data analysis and setting new rules for data management and claims processing.

The line between underwriting and claims will increasingly blur, demanding a more-flexible operating model and a break from traditional, functionally led structures to self-contained cells of expertise around risk for specific insurance types, such as motor vehicles. These cells will feature much closer collaboration and feedback loops between the core functions of sales and distribution, reserving, underwriting, policy servicing and claims — with a loop of timely information constantly feeding all areas and providing input from the whole value chain.

The benefits of modern prevention and response solutions in reducing disruption among policyholders and lowering costs for insurers are clear enough. KPMG professionals estimate that claims can represent 70 percent or more of the cost base for an insurer¹  and savings will enhance profitability.

Claims provide organizations with a wealth of data on several risks — from tangible to intangible. There is an opportunity today to analyze data more deeply and produce a more-dynamic view of current risk and how to minimize it. As insurers start focusing on prevention, the insurance model may shift from the traditional risk- transfer model to a mix of risk transfer and risk hedge, where policyholders weigh the claim risk amid the tighter focus on prevention. Given the expertise of the claims function, insurers could increase focus on prevention vs. only on handling, resulting in the need to change their organizational structure.

But challenges exist. In personal insurance, insurers have struggled to influence client behavior. In health insurance, organizations have made progress with connected-health devices and incentives, while for motor, household and travel insurance, any impact has been more elusive. This is potentially linked to the level of trust policyholders have in insurers, and the ‘grudge purchase’ challenge whereby clients limit their contact with insurance providers. To combat this, insurers must ask themselves:

• How can we foster trust in the eyes of clients?
• How can we offer meaningful, tailored insights to individuals to help manage their risk?
• How can we incentivize clients to change behaviors and reduce risk?

Technology is helping insurers both to answer questions such as those noted regarding client trust, insights and behaviors, and to meet related challenges. The use of connected devices, to support prevention, is showing some indication of becoming more mainstream, but insurers are still navigating the landscape to understand how and if this fits their business model.

Today’s insurers also have an abundance of claims data to work with and enhancing their ability to compile and interpret data will unlock smart new insights for consumers regarding loss prevention.

For many insurers the only touch point on the client journey is when they are interacting with their client who are making a claim. This light touch relationship means many insurers are competing on price for business and are increasingly seeing clients lapse on renewal to move to a competitor. Insurers are exploring ways to provide value-add services through the innovative use of data, insights and the claims experience to retain clients.

For example, a travel insurer could handle a client claim by booking a different holiday for the price of the claim amount, providing a convenient, value-adding service to the insured. Download our detailed “travel claim” journey below.

Some insurers may choose to invest in claims and innovation to provide new solutions and services, offering longer-term sustainability and security. Others may focus on enhancing core activities within traditional claims functions to reduce costs and improve the client experience. Neither choice is right or wrong — but it will be critical for insurers to take a strategic approach.