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Essential elements needed to digitize and transform insurance claims

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Successful digital transformations in claims begin with developing a new value proposition that sets a high-level aspiration and pursuing an end-to-end digitization of the claims customer journey. The development of a truly innovative customer journey can be achieved by integrating with three other areas—AI and digital technologies, the digital integration of the claims ecosystem, and a new digital operating model (Exhibit 2). Together, these five elements give management the strategy and tools to both transform claims into a digital function and improve performance on all of the three foundational KPIs.

New digital value proposition for claims

For the digital age, the claims value proposition—that is, the value an insurer can provide to its customers through the claims process—needs to go beyond traditional after-the-fact claims management. The value proposition sets the aspirational goal of offering excellent omnichannel customer experience supported by intuitive digital processes. Insurers should aim to adopt a faster, analytics-driven approach to claims handling and fully automate the claims handling processes for clear and simple cases.

In addition to working actively with customers to prevent claims, insurers should provide services that add value for and delight customers and draw on customer feedback to continually improve service offerings, usability, and performance.

Instilling this upgraded value proposition within the organization is an often-underestimated element of a digital transformation. Top and middle management in claims should become champions for the new value proposition; otherwise, they risk finding themselves halfway through the digital transformation without the necessary company-wide buy-in to stay the course.

End-to-end digitization of the claims customer journey

At the core of the claim function’s digital transformation is a redesign of the claims customer journey. There is no silver bullet interaction that ensures customer satisfaction, but a successful redesign typically involves considering processes from the customer perspective and optimizing back-office processes accordingly to provide simple and fast claims services.

Insurers should start with an “everything is possible” mind-set to unleash truly transformative ideas. Satisfaction surveys in claims consistently show that customers desire a fast and intuitive process as well as transparency on where they are in the process and what happens next. Accordingly, the digital redesign of a claims journey needs to go much deeper than superficial process improvements.

To determine how digital technologies can unlock value and improve the claims customer journey from start to finish, managers should examine each step of the journey with the following areas in mind and start to develop an aspirational future state for claims that is unconstrained by potential short-term, technological barriers:

Product simplification

Customers want simple and fast digital interactions, but complex coverage details that include many specific exceptions can create barriers. Large numbers of legacy products with different coverage details also make it difficult to implement and maintain the technology systems necessary to improve efficiency. A carrier should find ways to simplify products and reduce product generations to ease the development of fully digital customer journeys.

Customer and intermediary self-service

Insurers have the opportunity to shift simple, routine transactions from claims handlers to intermediaries, such as agents and brokers, or customers themselves. As with any self-service tool, insurers must precisely define the necessary information, for example, where the customer can find his or her policy number. They must also build in support in case customers need it, such as online-chat with a claims handler or easy-to-find FAQs. Further, seamless handoffs across channels are critical: customers who start their journey online but want to talk to a claims handler or agent halfway through should be able to do so without having to repeat steps or information. This functionality requires that all system interfaces follow an identical structure and logic.

Intelligent case management

After the First Notice of Loss (FNOL) and throughout the process, handlers typically evaluate claims cases manually to decide on appropriate next steps, such as scheduling an adjuster appointment or providing information about direct repair programs with local repair shops. Supporting the entire journey with automated, intelligent case management is critical to establishing truly end-to-end digital customer journeys. With the help of AI, a digital evaluation automatically identifies the best next step in a specific customer journey, reduces manual touchpoints, and significantly speeds up the claims process. For example, in a simple claim, this technology can allow a customer to schedule an appointment with a repair shop as part of the FNOL. Enriching these journeys with insights from behavioral economics can help customers to follow the most satisfying and efficient paths in their claims journeys.

Frontline and back-office process digitization

Claims handlers and adjusters manually carry out often-complex tasks, leading to significantly divergent results. Digital tools and systems can simplify and standardize manual processes. For example, tablet-based calculation tools for home damages can help claims adjusters estimate the value of losses faster and more accurately and consistently—even if this means that indemnity payments may increase for certain cases. Standardized reports and calculation methods will leave customers with a comprehensive overview of how their claim was calculated. This results in higher customer satisfaction and a leaner process with reduced follow-ups and recalculations or litigation.

Back-office automation

Insurers can achieve the greatest efficiency gains by fully automating back-office processes. Customers benefit significantly from faster claims processing—for instance, through automated verification of car repair estimates and invoices as well as automatic reimbursements as soon as the repair invoice has been verified. In addition, digital tools can support and assist the decisions of claims handlers, leading to better outcomes.

Communication

Providing customers with the necessary information in digital channels offers customers the sense of control they desire. The quality of communication can raise customer awareness and usage of digital self-service tools throughout their journey.

By examining each of these areas, claims functions can start to rethink the claims customer journey and back-office processes. This approach should be synthesized into an aspirational future state outlining the digital assets needed to achieve the ideal state. Claims leaders should prioritize these digital assets based on the value they can generate. For example, digitizing invoice reviews and automating payment processing often significantly reduces processing time.

Enabling truly innovative customer journeys

Offering truly innovative customer journeys requires a combination of AI and upgrades to technology platforms as well as the digital integration of partners in the claims industry ecosystem. A greater understanding of these elements and the digital operating model needed to bring them to life can help claims managers make the proper investments.

AI and digital technologies

Digital customer journeys require not only the AI-enabled automation of decisions traditionally made by claims handlers but also an IT architecture that supports real-time digital interactions with customers. While AI should ideally support the entire customer journey, it can generate significant value by automating claims management. The following three modules lay the basis for real-time engagement:

Prediction of claims characteristics

AI can help infer as-yet-unknown characteristics of a claim, such as the likelihood of fraud, total loss, or litigation, to speed up its downstream handling. And leading players in automotive can estimate a vehicle’s damage value in real time at FNOL based on customer pictures or a damage description, using the latest advances in AI and picture recognition.

Claims segmentation

AI algorithms can help segment claims cases by complexity using factual and predicted claims characteristics. Based on this segmentation, claims can be assigned to specific downstream handling processes—either one of the fully digital self-service journeys (such as selecting a direct repair shop in self-service) or a claims handler for more complex cases (for example, with high litigation risk).

Supported claims handling

Going beyond the first two modules, AI can support in finding the optimal claims handling process for a specific claim.

Integrating real-time customer interactions and insights from AI modules into customer journeys poses vastly different requirements for the IT architecture. While in the past, online interactions with the customer were only one way (for example, saving the details of an online FNOL into the claims database), interactive digital customer journeys require real-time, bidirectional interactions. A new IT architecture concept—generally referred to as two-speed architecture—is required to complement the stability of the core claims database with responsive features on the front end. A middle layer connects the traditional, slow claims database with customer-facing interfaces and runs AI modules. This functionality connects the information a user submits with insights from AI in real time to populate online forms and offer direct feedback to the customer.

Digital integration of the claims ecosystem

For competitive differentiation and ownership of the customer in a claims case, insurance carriers need to proactively manage more (ideally all) processes related to a customer’s claim—also those involving third parties. By providing a fully integrated digital experience, claims functions can become the true and sole owners of customer contact in a claims case.

To combine such offers into efficient, digital, self-service journeys, insurance carriers need to digitally integrate with relevant players in the larger claims ecosystem (Exhibit 5).

In addition, a digital integration can vastly improve efficiency in communication between the ecosystem parties and speed the claims processing for the customer. As this type of digital integration is currently rare, a carrier can become the ecosystem integrator, harnessing the best of the ecosystem for its customers.

Given the complexity of this integration, carriers should prioritize pursuing digital interfaces with the players that are involved in a high number of claims cases. In auto insurance, for example, these players would be roadside assistance services, claims assessors, and repair-shop networks, as well as invoice control service providers. Insurers don’t need to start from zero.

In many markets, insurtechs have started to lead the digital integration, for example, by digitally connecting car repair shops and enabling digital cost-estimate and invoice transmission. Insurers should explore partnerships with existing offerings to further digitize and integrate the claims ecosystem. 

New operating model for the digital age

A successful digital transformation radically reinvents the claims customer journey with the help of AI, digital technologies, and the claims ecosystem. To support these efforts, the claims department needs to pursue deep, cross-functional collaboration with other functions such as marketing and IT. Bringing the transformation to life requires new roles, including data scientists, customer journey “owners,” and user experience designers, as well as a digital way of working, which must be instilled in the organization.

As this new approach can represent a substantial change, success depends on deeply integrating a digital way of working into the entire organization. Successful organizations tap joint cross-functional management teams to lead the effort, develop experts in all digital methods, and provide intensive coaching for all relevant employees.

 

 

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Insurance

How Much Life Insurance Should an Individual Carry?

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Very few people enjoy thinking about the inevitability of death. Fewer yet take pleasure in the possibility of an accidental or early death. If there are people who depend on you and your income, however, it is one of those unpleasant things you have to consider. In this narrative, I’ll approach the topic of life insurance in two ways: First I’ll point out some of the misconceptions, then I’ll look at how to evaluate how much and what type of life insurance one needs.

 

Does Everyone Need Life Insurance?

Buying life insurance doesn’t make sense for everyone. If you have no dependents and enough assets to cover your debts and the cost of dying (funeral, estate lawyer’s fees, etc.), then it is an unnecessary cost for you. If you do have dependents and you have enough assets to provide for them after your death (investments, trusts, etc.), you still do not need life insurance.

However, if you have dependents (especially if you are the primary provider) or significant debts that outweigh your assets, you likely will need insurance to ensure your dependents are looked after if something happens to you.

 

Insurance and Age

One of the biggest myths aggressive life insurance agents perpetuate is “insurance is harder to qualify for as you age, so you better get it while you are young.” To put it bluntly, insurance companies make money by betting on how long you will live. When you are young, your premiums will be relatively cheap. If you die suddenly and the company has to pay out, you were a bad bet. Fortunately, many young people survive to old age, paying higher and higher premiums as they age (the increased risk of them dying makes the odds less attractive).

Insurance is cheaper when you are young, but it is no easier to qualify for. The simple fact is insurance companies will want higher premiums to cover the odds on older people, but it is a very rare that an insurance company will refuse coverage to someone who is willing to pay the premiums for their risk category. That said, get insurance if you need it and when you need it. Do not get insurance because you are scared of not qualifying later in life.

 

Is Life Insurance an Investment?

Many people see life insurance as an investment, but when compared to other investment vehicles, referring to insurance as an investment simply doesn’t make sense. Certain types of life insurance are touted as vehicles for saving or investing money for retirement, commonly called cash-value policies. These are insurance policies in which you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for their benefit, much like banks, and are paying you a percentage for the use of your money.

However, if you were to take the money from the forced savings program and invest it in an index fund, you would likely see much better returns. For people who lack the discipline to invest regularly, a cash-value insurance policy may be beneficial. A disciplined investor, on the other hand, has no need for scraps from an insurance company’s table.

 

Cash Value vs. Term

Insurance companies love cash-value policies and promote them heavily by giving commissions to agents who sell these policies. If you try to surrender the policy (demand your savings portion back and cancel the insurance), an insurance company will often suggest that you take a loan from your own savings to continue paying the premiums. Although this may seem like a simple solution, keep in mind that if the loan is not paid off by the time of your death, it will be subtracted from the death benefit.

Term insurance is insurance pure and simple. You buy a policy that pays out a set amount if you die during the period to which the policy applies. If you don’t die, you get nothing (don’t be disappointed, you are alive after all). The purpose of this insurance is to hold you over until you can become self-insured by your assets. Unfortunately, not all term insurance is equally desirable. Regardless of the specifics of a person’s situation (lifestyle, income, debts), most people are best served by renewable and convertible term insurance policies. They offer just as much coverage, are cheaper than cash-value policies, and, with the advent of internet comparisons driving down premiums for comparable policies, you can purchase them at competitive rates.

The renewable clause in a term life insurance policy allows you to renew your policy at a set rate without undergoing a medical exam. This means if an insured person is diagnosed with a fatal disease just as the term runs out, he or she will be able to renew the policy at a competitive rate despite the fact the insurance company is certain to have to pay a death benefit at some point.

The convertible insurance policy provides the option to change the face value of the policy into a cash-value policy offered by the insurer in case you reach 65 years of age and are not financially secured enough to go without insurance. Even if you are planning on having enough retirement income, it is better to be safe, and the premium is usually quite inexpensive.

 

Evaluating Your Insurance Needs

A large part of choosing a life insurance policy is determining how much money your dependents will need. Choosing the face value (the amount your policy pays if you die) depends on:

  • How much debt you have. All of your debts must be paid off in full, including car loans, mortgages, credit cards, loans, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest as well).
  • Income replacement. One of the biggest factors for life insurance is for income replacement. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. To err on the safe side, assume that the lump sum payout of your policy is invested at 8% (if you do not trust your dependents to invest, you can appoint a trustee or select a financial planner and calculate his or her cost as part of the payout). Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Once you determine the required face value of your insurance policy, you can start shopping around. There are many online insurance estimators that can help you determine how much insurance you will need.
  • Insuring others. Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. The death of a child, while emotionally devastating, does not constitute a financial loss because children cost money to raise. The death of an income-earning spouse, however, does create a situation with both emotional and financial losses. In that case, follow the income replacement calculation we went through earlier with his or her income. This also goes for any business partners with which you have a financial relationship (for example, shared responsibility for mortgage payments on a co-owned property).

 

Other Ways to Calculate Your Needs

Most insurance companies say a reasonable amount for life insurance is six to 10 times the amount of annual salary. Another way of calculating the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement. For example, if a 40-year-old man currently makes $20,000 a year, under this approach, the man will need $400,000 (20 years x $20,000) in life insurance.

The standard of living method is based on the amount of money the survivors would need to maintain their standard of living if the insured died. You take that amount and multiply it by 20. The thought process here is the survivors can take a 5% withdrawal from the death benefit each year (which is equivalent to the standard of living amount) while investing the death benefit principal and earning 5% or better.

 

Alternatives to Life Insurance

If you are getting life insurance purely to cover debts and have no dependents, there is another way to go about it. Lending institutions have seen the profits of insurance companies and are getting in on the act. Credit card companies and banks offer insurance deductibles on your outstanding balances. Often this amounts to a few dollars a month and in the case of your death, the policy will pay that particular debt in full. If you opt for this coverage from a lending institution, make sure to subtract that debt from any calculations you are making for life insurance—being doubly insured is a needless cost.

 

 

 

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