Claims automation provides a path towards digitisation for insurers

Amid falling valuations, automation and an explosion in available data could provide a path forward for digitally savvy insurers

by | September 5, 2022 | bobsguide

The recent shake-out in NASDAQ-listed tech stocks spared few – not least insuretech disrupters such as Lemonade, Root and Hippo, who saw their market valuations slump an eye watering 85-90% from their peaks at one point.

It wasn’t difficult to see why, given aggressive and ongoing interest rate moves by the Fed and loss ratios (measuring claims incurred as a proportion of premiums sold) heading in the wrong direction. This in turn led to a substantial negative impact on earnings.

Indeed, data from Capital IQ showed Root, Lemonade and Hippo collectively wracked up $1.1bn in net losses in 2021 vs. $474m two years earlier.

Yet, if the travails of Lemonade, Root and Hippo offer a salutary lesson in frothy market valuations, they’ve also left the door open for traditional insurance providers to recapture (using third party software providers) lost market share.

The trick may be to appeal to both tech savvy younger consumers, while seeking to optimise claims performance by balancing process automation with access to human help when customers demand it.

More: Lemonade selects Mitchell for claims solutions

On the face of it claims processing automation is largely an exercise in cost-cutting and improving efficiency, given the insurance market is still under-automated in comparison to other areas of finance. But with the likes of McKinsey estimating that by 2030 around 50% of claims processing will be done using AI and ML technology; there’s evidently a lot to play for.

Ben Legg, chief product officer at software provider, Open GI takes a nuanced view, arguing it’s unhelpful simply to characterise automation as a cost-cutting exercise.

“Historically, the ‘rise of the robots’ in traditional industries caused some initial trepidation; anxieties and cynicism about replacing people with machines. Instead, we’ve seen those who embrace technology go on to thrive and innovate, attracting customers and people to work for them,” he says.

“Within the insurance sector, that’s true too. Many are already feeling the benefit from enhanced services, whether it’s website chatbots 24/7, or machine learning, making it possible at the point of quote to assess risk, detect fraud and predict price.”

Also important, according to Legg, automation is adding value, because it’s about freeing up brokers to focus on broking, offering services they may not have been able to provide before, experimenting with pricing, and gaining real-time insight into what’s happening in the business.

“These technologies are now totally accessible and scalable, and that’s why we’re expecting to see such a growth in take-up over the next few years,” he further notes.

“Since launching Mobius, (the company’s fully digital, cloud-native open and API-rich broking platform), earlier this year, we’ve been overwhelmed by the level of interest from the market.”

Overcoming the AI hurdle for claims processing

Going forward, the big beast in the proverbial jungle remains AI, as Accenture noted earlier this year in its report  ‘Transforming claims and underwriting with AI’.

While AI has emerged as a transformative technology and will act as the critical differentiator in the insurance industry when applied in tandem with humans, Accenture cautions that $170 billion in premium is at risk over the next 5 years as customers switch carriers due to not being fully satisfied by the claims process.

Moreover, underwriters are spending an estimated 40% of their time on non-core activities, representing an efficiency loss of $85-$160 billion over the next 5 years.

AI has matured and costs have come down significantly over the past 5 years. It is also delivering increasing value for insurers – not least because  incorporating it, as well as automation, into the underwriting workflow offers a prime opportunity to reduce time spent on administrative tasks, manual processes, and redundant data inputs. This frees up underwriters to focus more of their time on risk evaluations of submissions most likely to drive profitable in-bound premium.

At the coalface in the UK, meanwhile, users of Acturis’ fully integrated e-trade platform and solutions already include Zurich, Towergate and Partners&, for example.

The company’s fully automated underwriting solution, combining technology and functionality in both personal and commercial lines offers a single, full-cycle solution link for brokers, affinity partners, direct insurers and aggregators, covering e-trade, through to complex underwriting.

Elsewhere, Iotatech, the pay-per-use SaaS insurance platform provider, and Optalitix, which offers SaaS software solutions, integrated their platforms earlier this year allowing for Iotech clients to have access to rapid pricing and algorithm development through Optalitix Models, as well as seamlessly creating configurable scalable services, including those from their existing Excel spreadsheet models.

Configurable underwriting rules allow clients to adapt and change quickly, and take advantage by optimising commission and fee calculations, as well as simplifying customer journeys.

Insurers can reap very real cost savings this way. In the re-insurance space, for example, an NTT DATA survey of senior London Market Syndicates in 2020 said automation could drive ROI of between 30% and 300% annually in London markets, depending on the process involved.

Reporting that 70% of brokers and managing agents believed automation could significantly benefit business, it also found 58% recognising digital as important to their business at that time, rising to 97% over the following three years.

The company added that a number of its clients in the London Market had already implemented a fully managed Robotic Process Automation (RPA) solution, improving how the insurers processed data.

Software provider, DHP – whose clients include Royal London and AIG – says ROI in the range of 110%-400 is achievable, as well as 30% increased capacity to enable growth, a reduction in claims elapsed time by 50% and a 20%-40% reduction in cost bases.

In a case study of AIG, for example, it highlights how the company recognised its  cost of acquisition, servicing and claims processing were all over target.

AIG’s objective – an aggressive 3-year growth plan it wanted to achieve without increasing its expense base – yielded an ROI of over 200% inside 12 months – the implemented process still being in place 5 years later.

Meanwhile, upwards of a 30% reduction was achieved in the cost base with UW, Renewals Servicing and Claims costs all being significantly pared.

Going forward it’s clear that by 2030 the insurance industry (like others) will be faced with an exponential increase in data volumes. In the automated claims space the evolution of AI and DL will mean cycle times for completing the purchase of an auto, commercial, or life policy, will be reduced to minutes or even seconds.

From a provider’s perspective – and as AI becomes ubiquitous – carriers will be able to identify risk in a more granular and sophisticated way, reduce costs and shorten the life cycle.

The needs of cohorts such as GenXers and Millennials – who customarily expect seamless, omnichannel, and real-time interactions integrated with the platforms they already use, will need to be balanced with those of boomers who may have slightly different priorities or access.

Winners and losers will be determined by their ability to be flexible, such as swiftly responding to surges in claims in certain lines of business. Also, technology teams will need to be rapidly pivoted in terms of deploying new tools and automation.

As McKinsey puts it; carriers will need to concentrate on five areas: empowering the claims workforce, redefining proactivity, reimagining the insurer’s role, evolving the claims ecosystem and transforming talent.

Ultimately, the difference between success and failure may well come down to very fine margins indeed.

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