The football playbook has changed dramatically over the years.Teams no longer use the single-wing formation, and it has been along time since anyone has tried a drop-kick. Since the inventionof the forward pass, coaches have continually experimented andadapted to change with new plays and strategies.

Insurance has changed dramatically in recent years, as well, butthe playbook used by many claims organizations has barely beenexpanded. Rather than develop new plays, many insurers simply tryharder with strategies and tactics that are inappropriate oroutmoded. These insurers should not be surprised when they don'tget the outcomes they desire.

We believe that claims executives need to undertake afundamental re-examination of the situation at hand. A fresh lookat the challenges facing the claims organization—some old and somenew—can help leadership forge a vision and a plan for thefuture.

Since the financial crisis that started in 2008, insuranceindustry participants and observers have devoted a significantamount of attention to the structure of the industry, with a focuson financial viability, capacity in the market, and the challengeof attaining historical returns. Perhaps the most enduring impactof the crisis, however, has been on the customer. The insurancecustomer has changed, particularly in terms of attitudes andbehaviors.

Insurers used to view differences in age and demographics as keydeterminants of consumer preferences, but we now see a new consumeremerging—a digital-savvy, mobile-enabled skeptic who questionsconventional assumptions and insists on dealing with organizationson his or her terms. Across ages and genders, insurance customershave become more demanding, more critical of carriers' attempts todifferentiate themselves, less trusting and loyal, and more open intheir search to find products and services that better match theirneeds.

This change in attitudes is not “all about the money.” Ourresearch indicates, in fact, that this new breed of customer isactually willing to pay more—11 percent more, on average—for theright products and services. There is a broad gap between whattoday customers regard as important and what they believe they arereceiving from their insurers. Closing this gap will require claimsexecutives to come to grips with some challenging newrealities.

Dealing with the Data Deluge

Most claims professionals have come to appreciate the potentialvalue of data and analytics in improving the speed, efficiency andtransparency of the claims process. Data and analytics can alsocontribute to retention decisions, confirming the assumptions whichsupport underwriting guidelines, and to meeting regulatoryrequirements. Until now, insurers have dealt with data withinconfines of existing legacy systems. These tend to capturetransactional data with varying levels of detail and accuracy.Extracting data and developing predictive models introduces anotherlevel of cost and complexity.

While insurers have tried to address these issues, however, theworld of data has changed around them. Massive amounts ofstructured and unstructured data are generated every minute.Insurers need to look at new sources and types of data that can beused to improve the accuracy and efficiency of claims operations.

Social media, for example, offer a wealth of insights aboutconsumers—but only to those who can make sense of the 25 billionpieces of information that are shared every month. There are moreand more commercial databases on the market, along with usage datacollected by means of telemetry and global positioning systems(GPS) and asset damage records collected by the millions of radiofrequency identity (RFID) devices now commonplace throughout thelogistics supply chain.

When these and other forms of data are aggregated and analyzed,they create the platform for a whole new world of context-basedservices. Such services extend far beyond location-based services,adding rich layers of insight into who the customer is; his or herneeds, intentions and attitudes; and what might spur them to act ina particular way at a particular time. This type of informationrepresents a great opportunity for insurers to become smarter,quicker and more precise, offering products and services in a way,and at a time and place, when they are most likely to beaccepted.

Improving Outcomes

Our ongoing, systematic study of insurance claimsperformance—dating back to the 1990s—has shown a mixed bag ofsuccesses amid clear signs that the industry continues to struggleto achieve durable performance achievements. Over 15 years ofresearch, including more than 20,000 claims reviews, 4,500interviews with claims professionals, and across companiesoperating in more than 14 countries, has confirmed that there issignificant room for insurers to deliver improved outcomes in areasincluding loss cost management and expense efficiency.

Claims professionals still spend nearly half their day inactivities that do not impact the outcome of the claim. Inpractice, this means that, for every claims professional aninsurance company employs, half of that person's talent, energy,and effort are focused elsewhere—not on driving a superior claimsresult. In effect, the industry is operating with the pedal onlyhalfway to the floor.

Claims outcomes overall remain quite mixed, with varying degreesof consistent top level performance. The financial impact of thisunderperformance is immense: In the U.S. property and casualty(P&C) industry, a mere two-percent improvement in loss costswould result in an $11 billion annual increase in the bottomline.

Addressing the People Imperative

At the heart of any high-performing claims organization thatdelivers superior financial and service results lies a highlymotivated, well-trained, and properly organized workforce. Thecharacteristics of such a workforce are a strong customer-orientedculture, collaboration among experts, and a desire to improvethrough innovation.

In the cost-cutting driven by the financial crisis, the claimsworkforce was an early target for downsizing for most insurancecompanies. There are simply fewer claims professionals today thanin the past. In addition, the movement to outsource someclaims-related functions has further complicated the workforcemodel. The desire of customers to be an active part of the claimsprocess—a relatively new development—adds another twist.

Progress in the workforce is not a function of increasing pay,or of hiring away the best claims professionals from thecompetition. The problem is how to achieve the highest and best useof talent in the claims organization. The new claims workforce willoperate in a highly distributed fashion, where claims professionalsare connected through collaboration, and are focused on thoseactivities where they can drive the best outcome. This type ofworkforce requires a new style of orchestration between parties,expanded to include customers, high-value vendors or suppliers, anddistribution channels, in addition to the claims professionalsthemselves.

Innovating Through Technology

In the claims organization, technology is creating tremendousopportunities for innovation, efficiency, and effectivedecision-making—opportunities that early adapters have seized togain competitive advantage. The “consumerization” of technologycontinues to place new pressures on carriers to become more openand flexible, regardless of the platform or channel through whichthe technology is being accessed.

As no one can be sure where these trends are leading, insurersneed to design architectures that are agile and future-proof. Among the key attributes will be speed to respond to newdevelopments, the ability to integrate with other systems, and afocus on configurability rather than hard-wiring to accommodate afixed vision of the future.

Successful transformation of how claims services are deliveredand how claims outcomes are managed will ultimately rely upontechnology. This technology must capture data at a minute level ofdetail, interrogate that data in real time, use it to providecustomer and outcome analytics, and then respond with new businessprocesses, based on the customer and claims circumstances.

This technology must also be put in the hands of all parties whowill benefit from it, across channels and devices, and personalizedto the user. Developments such as cloud will enable rapiddeployment in a software-as-a-service (SaaS) model.

Achieving and maintaining high performance in claims is acomplex undertaking, and insurers cannot succeed by pursuingisolated, quick-fix system and process improvements at theperiphery of their claims operations. They should take a holisticview of the claims operating model (claims personnel, processes andtechnologies) and how it supports the company's overall mission andobjectives. They must adopt well-defined processes supported bymeaningful metrics and enabled by effective tools and technologies.Insurers with an “end-to-end, top-to-bottom” vision will achievesubstantial gains, and, most importantly, they will create a solidfoundation for continuous improvement.