Pursuing the future of claims while ensuring effective claims operations

The future of claims: Rethink today, reshape tomorrow

June 17, 2024

This article explores the tension between addressing current claims challenges, while not losing sight of preparation and proactive strategy for future claims transformation. Through an integrated future-ready strategy, insurers in Australia can address their legacy today, while accelerating investments in their future of claims vision.

The claims process has traditionally been perceived by claimants and insurers as a journey both parties would rather avoid unless absolutely necessary.

For a claimant, there is benefit in the peace of mind of loss recovery - but that’s not always the reality when met with opaque and time-consuming claims processes, frustration with suppliers, and anxiety over the uncertainty and timeliness of outcomes.

For an insurer, having a robust claims process is critical to the health of its books. Achieving this presents myriad operational challenges to service all claims volumes within expected timeframes, particularly during catastrophic events when volume and complexity increase. Then there’s the added challenge of delivering all this with sustained excellence in customer service and contemporary user experiences.

While we can debate the perception of claims, we can’t deny their importance in insurance. We need to treat claims with as much respect as we do our underwriting, actuarial, and risk functions.

Complex challenges in the immediate future

Holding onto the imperative of claims excellence for a moment, let’s fast forward to a post-COVID world, and consider that the next decade of challenges for insurers will be sticky, and largely driven by external factors. Australian insurers are facing into longer and more frequent catastrophe seasons; are capital constrained by higher interest rates; and are absorbing the brunt of challenging supply chains due market volatility in supplier networks. All of which creates the perfect storm for a sustained challenge on the reinsurance markets.

Insurers must also respond to rising regulations on claims handling, while meeting community expectations (as observed in the recent ASIC report into claims handling of home insurance, which found that general insurers have more work to do). And if all that were not enough, established insurers are also dealing with the threats of new entrants and leakage throughout the claims value chain.

Changes raise questions over competing priorities

With so many present dilemmas, it is extremely challenging for insurers to balance their priorities, and perhaps overwhelming for many claims executives who are pondering what to do next to be ready for the future of claims.

It may be reasonable for customers to ask if their insurer should pursue parametric claims. Perhaps scrap the current customer journey and start fresh to make the claims journey look like social media. Should insurers go “all in” on AI to set the field for advanced fraud detection and straight through process? Do insurers defer large capital investments in this financial year and take more cost out?

For each insurer, the answers to these questions depend on the vision and strategy of your claims business.

Globally, we have seen insurers’ strategy walls filled with plans for large investments in the leading technologies to unlock the future of claims (eg. cloud, robotics, AI, predictive modelling, and future workforce technologies). We have also seen leading insurers apply scorecards that weight process excellence, cost efficiency, risk, and customer excellence to guide what to do next and be able to change the plan in-quarter.

Business leaders turn to technology for value creation as the race to reinvent heats up - A recent PwC Australia CEO survey provides a view on how today’s leaders are focussing on their technology agenda to drive value to their businesses.

Where leaders diverge is in their market strategies and application of their leading technologies. The diagram below explores some of the key trends in investments that we anticipate insurers will make over the next decade.

Image: Future of claims (PwC research, 2023)

Combined, these market challenges present a complex equation that is hard to solve. However, there is growing confidence about what the future of claims will be. And that means that there are levers to pull in the near term that can achieve market leadership sooner, take cost out of the operation, and develop workforce mobility to adapt to new claims management models. Furthermore, these levers enable insurers to move their claims businesses in the direction they must go in the short, medium, and long term. Let’s explore these levers in more detail.

The eight immediate priorities to help achieve the future of claims

Globally, claims portfolios are pressured by difficult macroeconomic conditions, rising catastrophes, supply chain volatility and stickiness in claims leakage. Proactive insurers will double down on cost excellence through their process workflows, automation, and risk modelling capabilities, while relentlessly pursuing low hanging fruit in claims leakage. All of which sets the foundations for a healthy baseline to drive effective claims operations.

In our recent global customer surveys, as many as 87% of policyholders believe that the claims experience impacts their decisions to remain with their insurer, and 80% of customers would switch insurers due to a lack of user-friendly customer experience. This correlates with the bigger picture where most customer demographics are seeking seamless experiences on par with the likes of Amazon and Google, in return for their renewal. These demands are only going to increase through the intergeneration shifts of digital natives. To provide differentiated and truly special customer experiences for claimants, insurers must revise the entire claims journey to be intelligent, think for the claimant, and remove all non-value adding workflow steps.

It is an industrywide truism that technology is hard and expensive, but it can be cheaper with a thoughtful vision for enterprise claims technologies and a simplification plan aligned to the corporate vision for claims, and whole-of-enterprise insurance strategy. By integrating claims to the whole-of-insurance plan, insurers can ensure that they get the right people at the right time – and identify opportunities to take advantage of other in-flight initiatives (rather than duplicating efforts across the cloud, integration, process, security, data, and innovation projects). Moreover, we recommend that all insurers take at least a 3–5 year view of their in-flight projects and assess how these will enable or hinder the future of claims – and be prepared to modify the plan in response.

The next truism is that claims will always have leakage. But leakage can be limited with proactive investment in people, processes, and technology. We have seen leakage between 3% and 25% depending on the claim type and market, which even at its best will be billions of dollars of value eroded across Australia’s books. Technology has largely solved for leakage across several areas, including through quality automation, fraud detection and predictive models, real-time auditing and flagging, robust payment controls and workflows. There is an immediate opportunity for insurers to build their future claims operations on stabler and more profitable baseline. Also, as hostile cyber actors become ever more sophisticated, the need has never been greater for insurers to stay ahead of the curve in fraud prevention.

All knowledge-based industries are exposed to challenges in workforce mobility over the next decade due to the emergence and acceptance of AI. As a greater share of low and medium complexity can be radically automated, insurers must consider the skill demand for traditional claims office roles (e.g. triage and management), and technology and data roles. This will allow them to continuously improve the systems that drive the value of autonomous claims, virtual processing, fraud detections, IoT, parametric, etc. In the long run, the benefits of successfully re-tooling are a lower cost base across higher volumes; a faster resolution of simpler claims; and an increased ability to assign the right people to assist with complex claims.

It remains difficult to predict where insurance will be in 2030, and each insurer will uniquely balance their investments in table stakes and differentiated capabilities. But insurers must all proactively choose their future claim journey and have a pragmatic and integrated plan to achieve that vision. The plan must have clearly defined stage gates, accountabilities, risk and compliance acceptance, technology feasibility, skills, and budget – each of which requires a north star to evaluation. The final truism – which remains incontrovertible – is that there is no better time than the present to get started.

The rapid evolution of Generative AI is happening at a time when the migration to the cloud and the use of digital tools and data has become mainstream in the business. With unmatched levels of early adoption organisations are trying to reinvent their business and are trying to identify opportunities for both growth and efficiency. From flagging fraudulent claims to damage assessment and loss estimation, reserving, adjusting, and processing optimisation, organisations are deriving significant benefits through automation, process efficiency and GenAI is bringing significant value across the claims value chain focussing on targeted use cases. While automation is the norm for most processes, insurers should retain human intervention to strike a balance between automation and empathy and adopt a right strategy to protect their cost optimisation. The metaverse, a virtual-reality space where users can interact with a computer-generated environment and other users, offers several innovative virtual claims processing solutions for understanding accident simulation to better assess damages and virtual inspections of properties or vehicles using Virtual Reality (VR), reducing the need for physical site visits, and speeding the claims process.

There has been significant shift in the insurtech market from providing solutions from personal lines to speciality lines market. The drive to attract new and diverse talent, more tech savvy community, emergence of start-ups providing niche solutions embedded with GenAI/AI powered capabilities in the claims value chain are being adopted by organisations tactically to resolve key challenges around claims processing, digital co-worker capabilities to understand policy and claims documents and simplifying claims experience. The challenge these platforms are currently trying to address is how they can seamlessly integrate into core leading claims and insurance technology platforms and if they have all the compliance requirements addressed to fit into the broader insurance architecture ecosystem and long term relevance due to the evolving nature and maturity of core insurance platforms.

Map your unique path towards a brighter future of claims

Every transformation journey is unique, whether your starting point is learning more about the future of claims - taking an immediate defensive stance in addressing the macroeconomic challenges - or proactively making early investments in market leadership. However, whatever route you take, your journey will require patience and strategic focus. Trying to solve everything at once will complicate matters and risk losing sight of the big picture. So, we recommend prioritising and then taking gradual, forward-looking steps toward improvements.

We invite all fellow claims industry participants to reach out to our practice with any questions or feedback, and to discuss the future of claims and how to get there.