Claims Transformation In The Post-Crisis World: Challenges And Strategies

NU Online News Service, Jan. 31, 2:38 p.m. EST

As insurers deal with post-financial crisis challenges, such as dwindling reserve releases and a challenged investment environment, many companies are looking to enhance customers’ claims experiences to retain and attract business, a recent report said.

However, the report, consulting firm Capgemini’s “World Insurance Report 2011,” noted that a number of inefficiencies, many of them longstanding, stand in the way of insurers as they seek claims transformation.

One obstacle remains aging claims technology. “Many insurers continue to run multiple disparate legacy platforms,” the report said. “This impedes integration with both internal and third-party systems, increasing claims settlement times and costs, and creating customer dissatisfaction.”

Tied to aging technology, claims processing is becoming more complex, leading to the misallocation of resources. “As a result,” Capgemini said, “people and resources are poorly mapped to processes, and claims adjustors spend more time administering claims than adjudicating them.”

Higher claims costs, due to global increases in litigation and a rising number of weather-related catastrophe losses in some countries, presents another obstacle for insurers. “Demand for liability coverage, and payouts on that coverage, have both risen,” Capgemini noted. The rise in litigation, the report said, is due in part to the economy.

Insurers must also contend with fraud, which Capgemini said accounts for 10-15 percent of insurers’ loss ratios. Additionally, the report said insurers are missing opportunities for salvage, subrogation and third-party recovery. “All of these issues stem at least in part from the lack of integrated claims data,” Capgemini said. In some cases, data is unavailable; in others, there are gaps in reporting and analytics around the data.”

Combined, these factors are working to undermine insurers’ reputations with customers, according to the report. “A bad claims experience drives clients to competitors, a dynamic that is especially costly for insurers given that it costs seven times as much to acquire a new customer as it does to serve an existing one,” the report said.

It added that insurers recognize the importance of claims transformation and overcoming customer service obstacles, fraud and inefficiencies. The challenge is identifying which specific actions and investments will generate value.

Capgemini said its analysis showed investments in four key areas showed benefits:

Efficiency and effectiveness in claims adjustment/processing. Improving both indvidual activities within the claims process, and integrating the systems with third parties and other internal systems can reduce cycle times and improve efficiency.

Risk management to reduce the impact of contingent liabilities on indemnity costs. Insurers should monitor and manage liabilities such as litigation, reserves and vendors. Insurers should also maximize recovery opportunities such as salvage and subrogation.

Customer retention. Consistent standards, prompt settlements, and effective processes will help satisfy customers and keep them loyal.

Customer acquisition. Effective risk underwriting will help price risks accurately and competitively, and will help ensure that customer acquisition strategies are profitable.