In my last post, I promised that I would explore each step in the value chain and the potential impact on each from digital transformation (which my colleagues and I explored more deeply in our White Paper, Insurance in the Digital Age: Transforming from the Outside In). This month I’m going to take a look at claims. While it may not be the first area that comes to mind when people discuss digital transformation, it is, in my opinion, a great place to start the journey. It impacts the customer relationship, generates meaningful back-end efficiencies and it may even lead to a revolutionary new business model for insurers.
Digital Claims is a Customer Engagement Opportunity
A lot of attention has been paid to digitizing sales and distribution, with good reason. Improving the customer and agent experience is at the heart of the digital revolution. The non-insurance companies that insurers point to as inspirations tend to excel in sales and distribution (e.g., Amazon) and much InsurTech investment has focused in that realm as well. Insurers, however, have one unique customer experience that eclipses all others in importance: claims. In terms of importance, claims is the biggie. It tells a story about whether or not an insurer can and will keep its promises and take care of its customers during a time of crisis. And the whole experience can be improved with digital capabilities.
Imagine this scenario:
James is the landlord of three medium-sized apartment buildings in Bergen County, New Jersey. During a storm, several trees are downed on one of his properties, and tenants on the top floor report some leakage. James wonders how long it will take to get an adjuster out to see him after a big storm like this, and he is not looking forward to “all that paperwork” he’s sure he’ll have to fill out for a claim.
But this time it's different. His carrier has been investing in digitizing claims as a differentiator and an efficiency boost. A chatbot on the company’s mobile site walks James through first notice of loss and next steps using natural language processing to answer and ask questions for a “human-like” experience. In fact, James can simply speak into the microphone to answer most questions. Behind-the-scenes business rules and business process orchestration show that James is a premier client.
A CSR with 360-degree view of James – including the recently completed claim notification – calls to let him know that an adjuster is on the way to inspect the roof – using a drone. Business rules and advanced fraud detection analytics allow for the insurer to adjudicate the claim on the spot using the video and still images transmitted remotely. James’ insurer makes a direct deposit into his account within hours of his claim. James marvels that he never once saw a piece of paper.
A fantasy? No. The capabilities described above all exist today, although putting them together is a longer-term goal for most insurers. But this story is about the customer experience – a vision for what a claims experience could be. Envisioning that end state, mapping the customer journey as well as those of other key stakeholders, and identifying the key differentiators, are the steps you need to take to get started and to stay on track.
A common misconception is that digital transformation and customer engagement is really just for personal lines. While a lot of focus has been in that space, I would argue that commercial claims is ripe for digital transformation:
- Small business owner demographics are changing - by 2020, according to Morgan Stanley, more than 60% of US small business will be owned by Millennials and Gen Xers, who prefer to manage insurance digitally.
- Our research, highlighted in our Thought Leadership piece The Rise of the Small-Medium Business Insurance Customer: Shifting Views and Expectations Is Your Business Ready?, shows that while small- and medium-sized business owners preferences continue to shift to digital, they feel compelled to use more expensive channels like call centers because of insurers’ limited, ineffective digital self-service capabilities.
- Our research on business customers as well as in our Future Trends 2017: The Shift Gains Momentum report, clearly shows that InsurTech startups are looking to simplify their offerings and create a “personal-lines like” experience to business owners. At the same time, brokers and MGAs are beginning to focus on the customer experience as well.
- Big data analytics-driven companies like Attune and Terrene Labs are looking to drive down administrative expenses using advanced analytics to open up what they see as an untapped protection gap among small and medium-sized businesses.
- According to SafeShare Global, the digital-driven “sharing economy” is estimated to grow from $15B in 2015 to $335B in 2025, but a majority of insurers surveyed by Altus Consulting in 2015 responded that they had no plans in place to offer products and services tailored to this market.
- But this is already changing: InsurTech start-up Slice is set to offer products tailored to home sharing businesses like Airbnb and it has stated that its next move will be into ridesharing.
So, while the personal lines market space is crowded and getting even more competitive, there is a tremendous opportunity for expansion and differentiation on the commercial side. The market growth is likely to outpace commercial insurer’s expansion into the space.
While the growth opportunity is there, it will take more than just technology transformation and digital advancement to improve the claims experience. The claims department needs to learn the importance of service from areas like sales and distribution. True differentiation in claims should focus on service, not payment (fast, accurate, transparent payment resolution should be considered “table stakes”). Insureds, whether individuals or companies, expect self-service tools, push alerts, mobile capabilities, and more. They want to be able to understand the process from end-to-end, and to be given a measure of control throughout.
An Ounce of Prevention…
Claims prevention is one of the biggest areas for service differentiation. Risk management has traditionally been associated with larger businesses as it has always been an expensive proposition – sending a skilled risk assessor out into the field to analyze a worksite and make recommendations. Digital technology, however, with tools such as remote video and collaboration software, has made it much more accessible to smaller companies and even individuals. The demand for claims prevention services has been growing as well. In our recent thought leadership, Future Trends 2017: The Shift Gains Momentum, we published data showing that interest in services that prevent claims is very high for the next generation of insureds and small business owners: 40-50% of Gen Z and Millennials are interested in services that can prevent or even eliminate risk (and thus the need for claims) as opposed to traditional protection products.
Another kind of prevention to consider is internal. How can we keep insureds and agents from making too many calls into the service center, generating unnecessary costs and giving them information that can be found elsewhere? Insurers can construct a transparent environment, where stakeholders are automatically sent claims status updates through digital channels – text, email, and self-service portals. This will not only keep them happy (or at least not frustrated) but will also avoid unnecessary, comparatively expensive CSR minutes.
…Made Simpler by Devices That Weigh Ounces
The Internet of Things — all of those connected devices – has great potential to change the game when it comes to claims, and, in particular, claims prevention. Progressive’s Snapshot, MetroMile and other usage-based insurance companies are only one realization of IOT in insurance (a shift to the Pay-As-You-Need enterprise we have written about). Think about the potential of using cameras and analytics to identify dangerous intersections and suggest remediation, or using drones to remotely inspect damaged property, or applying sensors to monitor building subsidence, or tracking food transport to ensure proper temperatures were maintained.
The list of potential claims prevention scenarios from IOT is long, and the Boston Consulting Group has estimated real-time IOT has the potential to lower loss costs by 40-60% in the U.S.
Smoothing the Kinks
As a volunteer firefighter, I’ve learned that every kink in a hose line can reduce pressure at the nozzle by up to 25%, which can make putting out a blaze even more dangerous and difficult than it normally is.
I like to think about core insurance processes in a similar way – find the kinks and smooth them out (or “kick” them out, as we say in the fire service) to generate maximum return. With claims, it’s about identifying the claims that should be paid automatically and routing those that shouldn’t to the expert people or systems that are best suited to handle them.
Dan Preston, the CEO of MetroMile, discussed his company’s approach to claims in an interview with Digital Insurance. They use a proprietary algorithm to rout claims properly and strive to process as many as possible with no human intervention. To paraphrase, Preston suggests that digital is also about simplifying the underlying process, and the process goal should be to only ask the questions you need to ask instead of asking every imaginable question.
I can’t go an entire blog post on digital without mentioning the InsurTech startup Lemonade, and it is another great example. Lemonade’s marketing materials say that it takes 90 seconds to buy a policy and three minutes to pay a claim (or as little as 3 seconds in one much-vaunted case). Used properly, digital simplifies.
Fraud management is also essential – being able to detect fraud confidently is one of the keys to creating that seamless process. Without it you are going to end up routing more claims than necessary to manual processing or even to the special investigation unit, with the end result being the exact opposite of what you are trying to achieve with digital claims. We should note that some analysts have serious reservations about the long-term viability of companies like Lemonade — wondering if a focus on fast claims payment makes them easy targets for fraudsters.
Emerging technologies like Blockchain will change the face of claims as well, with smart contracts allowing insurers to automate claims even further.
As I’ve written before, you do not need to do everything at once, nor should you try. Claims is a great starting place because you can use the digital transformation program as a reason to improve the process from end to end, drive value with each iteration, and reinvest the savings in further improvements.
Customer journey mapping is an absolute must-do, not just a fuzzy term from the marketing-speak dictionary. Done correctly it will serve as your vision statement and guide to rolling out service improvements for every step in the claims process and beyond. You have to understand what your stakeholders need and want during every step in the process.
Process mapping and optimization based on the journey maps is essential as well. Understanding the kinks in the process will allow you to “kick them out” before trying to launch a new digital claims experience.
And while I hope you’ll agree that claims transformation is a customer engagement opportunity, you don’t have to look at engagement as its only benefit. If you digitize the claims process, you can automate more of it. You’ll need fewer people to adjudicate and service claims and you can redeploy those people to other value-added areas of the business. Win-win.