Just how much innovation is happening in claims processing? A recent report provides some evidence that companies in certain sectors that invest in state-of-the-art claims processing practices and technologies may be reaping the benefits of demonstrable efficiencies and lower costs.

A study by Novarica surveyed 92 personal lines, commercial lines, specialty carriers, workers' compensation, and multiline insurers and developed as a result a “Claims Capability Maturity Model,” showing what property and casualty insurers are doing today in the area of claims, and what, if any, are the consequences for their loss ratios. The model examined 20 different claims functions divided into seven categories: FNOL/FROI; triage, assignment, and investigation; valuation and reserves; payments and recoveries; operations; special processes; and data.

In looking at what companies are actually doing in claims processing, the Novarica report further delineated these activities under three descriptive headings—legacy, mainstream, and leading—and attempted to correlate these to loss ratio.

While this type of analysis is still not “an inexact science,” according to Karlyn Carnahan, CPCU, principal at Novarica and lead author of the report, some emerging trends may be seen and a few preliminary findings are worth noting.

“You can see that in some sectors, carriers are doing leading things. It's not that there's that much innovation happening—most carriers are still doing manual processing with claims handling,” Carnahan said. “So the innovation is [primarily] in personal lines and workers' compensation. There's a lot more automation to drive efficiencies [in those sectors]—and it makes sense, because those claims are more homogenous. You can't really say using leading practices causes a better loss ratio, but it is kind of interesting when you see this type of pattern.”

Commercial lines and specialty carriers are the types of insurers most likely to still be employing legacy practices in claims processing, according to the study. This may be because of their commitment to more personalized service, or simply due to the uniqueness or heterogeneity of claims in these areas. Still, the report suggested that even these carriers might benefit from updating their capabilities with the use of the latest technologies. The report also noted that the newer the claims system a company is using, the more likely it is that the company is employing more “leading” practices.

Personal lines and workers' compensation carriers were the most likely to be using more advanced technological capabilities to process claims, according to the report—although only in personal lines was there a clear correlation between the use of such leading techniques and an improved loss ratio across the board. In workers' comp and other lines, certain leading activities did, however, suggest a correlation between their use and lower loss ratios.

“Carriers generally have a mix of leading practices and mainstream practices,” Carnahan said. Leading practices include the ability to provide specialized and specific advice to claimants right away, as opposed to more general guidance; the availability of multiple channels for consumers to get in touch with their agent or insurer to file a claim, including mobile apps, websites, and phone; the presence of specialized adjusters; “just in time” claim scheduling; and the use of data analytics to evaluate claims, calculate replacement costs, and better estimate damages.

Given the trillions of dollars spent on claims—the Novarica report states that typically, claims represents 70 percent of P&C carriers' expenditures, with 20 percent of that devoted to managing the claims process—insurers would be wise to implement newer, leading techniques in claims processing in order to reap significant financial benefits. Greater automation, predictive analytics, specialized advice for consumers, and greater accessibility via mobile and other technologies all add up to a future that is already here, just not evenly distributed, Carnahan said.

Likewise, keeping the focus on operational efficiency, reducing loss costs, and improving customer service, as well as employing automation and/or outsourcing of certain claims processes in some areas, is the wave of the future for carriers who want to distinguish themselves and get ahead of the pack of companies still mired in legacy practices, according to the report.

“For some sectors, it's clear you should be investing in leading capabilities,” said Carnahan. “It's less clear if you're a specialty carrier or a commercial lines carrier—and in some, one claim is not like another so it's difficult to automate the process—but every carrier drives business by automating correspondence, workflow, etc. This is not causation—but all I can say is that those carriers doing leading practices [tend to] have lower loss ratios, sometimes significant.”

Special Reports /

Innovation In Claims Processing Leads To Efficiencies

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