The insurance industry is facing distinct market headwinds, challenging both the top and bottom line. As market conditions remain tough, a well-structured and efficient Claims function that consciously delivers value for policyholders and other stakeholders can help mitigate some of these the market uncertainties and build strong foundations for growth and profitability.
The challenges are myriad but we see 4 priority areas to solve for:
- Inflationary Pressures: The market perennial of claims inflation continues to impact most lines of business, Claims functions are under pressure to balance delivering for the customer whilst swallowing these increasing costs
- Customer Expectations: Customers have never expected more value and service from insurers, at a time where almost half1 of policyholders are considering cutting back on insurance as cost-of-living rises
- Claims Talent Exodus: The industry is increasingly seen as laggard and is struggling to attract and retain top talent, with the Claims function, typically displaying higher turnover rates, as seen in the 51%2 rise in claims vacancies from 2021 to 2022
- Regulatory Implications for the Insurer: Claims is susceptible to complaints and recent regulatory focus has been on protecting the customer as seen with the successfully implemented GIPP FCA rules and Consumer Duty, which will also require Claims Directors to demonstrate how products are ‘treating customers fairly’
However, despite these challenges, the Claims function is well-positioned to take a key role in driving insurers forward and contribute to growth. To do so we expect to see claims directors begin to challenge themselves and their teams on how to differentiate the Claims function within the increasingly competitive market.
HOW CAN YOU START TO THINK ABOUT EVOLVING TO THE CLAIMS FUNCTION OF TOMORROW?
We see the push to differentiate against the competition to result in insurers’ Claims functions converging around four key archetypes:
- Customer Experience Leader
- Innovation Leader
- Financial Performance Leader
- Technical Expertise Leader
They are not mutually exclusive, and insurers may aspire to excel in more than one area based on their market strategy. These archetypes are intended as references to frame the intended outcomes of an insurer’s strategic ambition and assist in defining the future of the claims organisation.
The archetypes are characterised by the trade-off between key investment imperatives. The unique combinations of these imperatives define the archetype profiles and are achieved through investment across People, Process, Technology and Data within the Claims Function. The 6 investment imperatives are:
- Prevention: offerings that focus on reducing the likelihood and severity of claims
- Omnichannel Customer Journey: accessibility and personalisation for individual customer preferences
- Automation: Artificial intelligence enabled tools to drive automation of both processes and customer interfaces
- Talent Management: acquisition, retention, learning and development of the claims workforce of the future
- Indemnity & Expense Management: control of indemnity costs and expense ratios
- Claims Supplier Management: management and control of the supply chain and its associated costs
CLAIMS ARCHETYPES OF THE FUTURE
Customer Experience Leader
How: Employing automation to allow for triaging of low-touch simple claims and cases requiring a more premium service. Ensuring personalisation of the customer journey handled by emotionally intelligent claims handlers. Offering prevention solutions to provide greater value and increase engagement with the customer.
Where to invest?
- People: Prioritise the building of emotionally intelligent and digitally enabled claims handlers and cultivate a culture of servicing customers based on their individual needs
- Process: Devote resource in designing personalised processes underpinned by customer profiles and enhanced by automation to create capacity for claims handlers to focus on complex and sensitive cases
- Technology: Invest in technology platforms that support omnichannel engagement of customers and enable seamless interaction between the channels and services
- Data: Utilise robust data to drive customer profile creation and inform continued improvement of personalisation journeys
Innovation Leader
How: Fostering a culture of continuous improvement to instil confidence in claims staff to “fail fast, learn fast”. Developing flexible operating models to ensure capability to adapt to the newest technology and platforms available. Engage in partnerships with both established technology providers and emerging Insurtechs to accelerate claims offerings.
Where to invest?
- People: Recognise that the claims staff of the future will require skills above and beyond traditional technical claims expertise and target analytical skills, UI/UX specialists and AI/ML technicians to continuously change and iterate the claims environment
- Process: Prioritise standardisation and flexibility thereby ensuring that processes have the space to be continuously improved
- Technology: Remove reliance on legacy technology and invest in Cloud-enabled solutions that provide the flexibility to scale and to remain ahead of the curve in future technology investments
- Data: Embed data into all areas of decision-making and prioritise identifying the data sets that will be required to drive claims insights in the future
Financial Performance Leader
How: Ensure the Claims function is integrated with Underwriting to enable real-time risk pricing and improve financial performance of products. Build frictionless, simplified and automated processes wherever possible to increase speed of claims handling and reduce expenses. Utilise technology to encourage cost vigilance and target claims leakage and fraud, in addition to driving efficient supplier management and offering targeted prevention recommendations to customers.
Where to invest?
- People: Develop a culture that strives for commercial acumen, speed and efficacy, investing in building a small contingent of expert claims handlers to support with complex cases and review automated straight-through processing of simple claims.
- Process: Continuous process mining and improvement to promote further optimisation and design effective methods for feeding up-to-date claims data and methods back into the business
- Technology: Prioritise the reduction of legacy technology, whilst enhancing automation and investing in market leading claims fraud detection tools
- Data: Target data to drive effective insights into minimising claims leakage and employ data to target the settlement of claims in the most optimum way to control indemnity and operational expense
Technical Expertise Leader
How: Offer bespoke experiences with each claim handled on its unique path to account for its individual nuances. Leverage data augmented decision-making by ensuring claims Handlers access the right information from which technical insights can be driven. Engage a panel of experts, forming partnerships with the best claims investigators, lawyers and loss adjusters to enhance the technical advantage.
Where to invest?
- People: Prioritise building a team of high calibre claims handlers with expertise to handle complex claims with minimal uncertainty, resulting in accurate settlement in the shortest amount of time
- Process: Ensure claims processes are effective and geared towards quality claims handling and effective handoffs to the relevant expert partners
- Technology: Invest in a technology environment that provides the appropriate tools to manage complex moving parts and assist handlers to better ingest and analyse complicated documents and claims information
- Data: Augment data sets with appropriate third-party sources and drive data analytics to enhance the claims information available to the handler throughout the claims journey
HOW CAN YOU FUTURE-PROOF YOUR CLAIMS FUNCTION?
The first step on the journey to transforming the Claims function is to establish where to differentiate from the market, how that maps to the desired archetype and what the optimal combination of investment imperatives are. This will clarify the implications for the organisation by defining the strategic objectives for claims and aligning these to the wider business.
Once the vision and trajectory is determined, the attention should shift on successfully implementing foundational initiatives that benefit all Claims functions before embarking on focussed transformation. Examples of foundational initiatives are: remove or minimise the reliance on legacy technology, invest in transitioning onto Cloud, identify inherent inefficiencies in existing processes and prioritise inflight change based on the strategic objectives. Regardless of the desired archetype and the strategic objectives, these foundational initiatives establish a baseline efficiency and capability for Claims to accelerate their transformation journey.
Many insurers have already made strides towards progress, but the leap towards the next level will be in focused transformation to achieve differentiation and the archetype. Depending on the insurer’s ambitions, and with considerations for size and maturity, Claims should be future-proofed through a sequence of focused transformations or simultaneous transformation that achieve the strategic ambitions.
This focused transformation should be targeted at attaining the desired balance of the investment imperative trade-offs that underpin the aspirational archetype and align to existing strategic objectives. A variety of options exist from optimising the management of cost through the claims function, to indemnity & expense management, through to developing omnichannel claims journeys that deliver desired customer outcomes and improve ease of service. Ultimately, the outcome of these transformations will be benefits that cascade through three levels: a more competitive organisation, employees focused on value, and a growing customer base.
How Alpha Can help?
Alpha’s Insurance Team has deep experience of working with industry leaders across the Claims lifecycle and we are here to support Claims Directors in their journey to navigate and transform their claims function. We can support our clients address a number of key challenges with our expertise in digitalising claims operating models, improving customer experience , and optimising cost and supplier management .
If you would like to discuss more, please get in touch with us here.
About the Authors
Tony Sault
Executive Director
Tony is an Executive Director at Alpha FMC with 30 years in the Insurance industry. Prior to working in advisory services, he worked for RSA in Group, personal lines and commercial lines roles, and most recently held the role of Claims Director at a claims run off business. Prior to joining Alpha, Tony was a Partner in EY’s General Insurance practice focusing on promoting and the delivery of strategy and business change programmes. Tony is also a Visiting Honorary Lecturer on the Insurance & Risk Management MSc at Bayes Business School
Huw Barker
Director
Huw is a Director in Alpha’s Insurance division, with over 13 years’ experience working with retail and specialty (re)insurance and broking clients. Huw has a background in both industry and consulting, having spent the formative part of his career working in Claims for a large general insurer before consulting with Accenture, EY and the PEN Partnership, joining Alpha in 2021. Huw is a Chartered Insurer, ACII qualified, a reviewing editor for the CII’s Advanced Claims text and has a degree in Accounting, Finance and Business Administration from the University of Kent.
Barnaby Taffs
Consultant
Barnaby is a Consultant in Alpha’s Insurance practice with over 3 years working within general and specialty insurance market. Barnaby has experience across strategic, proposition and project management roles and started his career at Allianz prior to joining Alpha. Barnaby is DIP CII qualified and has a degree in Economics from Durham University.