Numerous factors are colliding to create a complex and costly environment for claims management companies and functions. At the same time, as David Adams writes, the demand for fast settlement is a persistent pressure

New technology is helping insurers to accelerate settlement processes and to reduce the incidence and impact of delays or other problems. Supporting solutions that have become more important to insurers and more widely used include telematics used in road vehicles; and drone and video technologies enabling direct communication with customers making a claim. More significantly for the longer term, insurers are also investing heavily in advanced data analytics capabilities, to identify loss trends and to extract information that can be shared with clients to help them reduce losses.

“Insightful use of claims data is how insurers will stay relevant to their clients,” says Stephen Agutter, head of international claims, general insurance, at AIG. He emphasises the importance of analysing this data both to assess losses and to predict where future losses might occur.

A growing number of insurers have also invested in AI-based tools designed to improve the customer experience. Allianz Global Corporate and Specialty (AGCS) is among those testing predictive models for automatic claims routing, with the aim of settling standard, low value claims more quickly, in order to prioritise resource allocation on more complex cases.

Philipp Cremer, global head of claims at the insurer, is particularly enthusiastic about a trial of new internet of things technologies that will help to mitigate losses through tracking and monitoring marine cargo and industrial equipment.

Other insurers have also made significant investments in technology to meet an underlying goal of settling claims – particularly lower value claims – faster and more efficiently. Derek Thomson, claims customer service manager at Ecclesiastical Insurance, says improved reporting, communication and validation processes mean the firm now settles almost one in three small household claims (30 per cent) the day they are reported.

The human touch

Any insurance professional who has spent even a short time working in claims understands that technology can only really drive genuine improvement when there is also investment in people and processes – regardless of the nature of the claim or the line of cover. What is most impactful for many insureds is the human response – the phone call that a claims handler makes within 30 minutes of a terrorist attack, or the adjuster who is on site at a store in the immediate aftermath of a flood.

AIG’s Agutter says it’s the strength of that human element, supported by the best technology, that makes claims management “the beating heart of any insurance company”.

The significance of improving claims management is well understood in the London Market. Individual companies in the market are working with insurtech firms to improve the speed and efficiency of claims management processes. Market participants are also coordinating collective efforts to improve claims processes. John Muir is managing director of technical and operational practices at Willis Towers Watson, with responsibility for driving London Market claims modernisation at the firm. He has also served on a number of project boards working towards market modernisation; and is also a member of the Market Reform Steering Group at the London & International Brokers’ Association (LIIBA).
Muir is used to grappling with the inherent conservatism of parts of the market and with the complexity created by the networks of relationships used to support individual contracts. Both can frustrate attempts to streamline business processes. “The moment you’ve got more than one insurer involved you’re adding complexity,” he says.

But this is not the client’s concern. Many clients don’t really understand how the system works, Muir notes, so find it difficult to understand why it can take a long time for a claim to be settled. They may also be irritated by the existence of a strange anomaly in the subscription market: it is often easier to pay very large claims than smaller claims, because the market permits special or out of account settlements: “so a claim of £10 million goes through on a fast track, but a claim of £1,000 doesn’t”.

The market has developed some initiatives to address this problem. The Single Claims Agreement Party (SCAP) makes it easier to settle claims worth £250,000 or less in a situation where there are multiple London agreement parties. But SCAP is optional for both brokers and insurers, so may not always be used.

Muir is also involved in initiatives seeking to update the claims technology used in the market, the Electronic Claims File (ECF), which has been in use for more than 10 years. He feels that the right investments in technology and new processes could make the market much more competitive, in terms of the speed of handling and payment of smaller claims. But he acknowledges the resistance within the market to rapid, radical change. “I think we all become creatures of habit,” he says. “There is sometimes a general culture of being wedded to the status quo within the market.”

But claims is an area of focus for insurtech companies serving the London Market, like BelMead Tech Solutions (a sister company to Belvedere Mead), which has developed a claims support platform that uses blockchain and other technologies to increase process speed and efficiency. One theoretical advantage of using blockchain in this context is that it could enable coordination and synchronisation of communications related to a claim.
The ultimate aim in improving claims management within the London Market is to reform processes that still show traces of their origins in a paper-based world, when a printed claims report would have been read by a broker, who then passed it to the lead underwriter, who then passed it to the next underwriter, and so on. A blockchain-based process would mean every party would receive the same report at the same time.

Blockchain could also be used as a means of improving claims management processes and reducing fraud elsewhere in the insurance industry. For example, storing claims information and data related to known fraudulent claims on a shared ledger could help insurers collaborate in identifying suspicious behaviour – although such an initiative would take a long time to coordinate and implement.

The technology could also be rolled out alongside smart contracts to manage property and casualty insurance more efficiently. It is already being used in marine insurance by a number of industry participants who now share information through blockchain-based platform, Insurwave.

In another development, a project to develop AI technology for tackling fraudulent insurance claims is one of a number of new programmes set to receive funding under the government’s UK Industrial Strategy.

The software, being developed by Intelligent Voice, Strenuus and the University of East London, will combine AI and voice recognition technology that is said to detect and interpret emotion and linguistics to assess the credibility of insurance claims. Insurance fraud cost the UK £3 billion in 2017, equating to £10,400 per fraudulent claim. This project is one of 40 backed by £13 million in government investment to support collaborative industry and research projects.

Moving forward, AGCS’s Cremer suggests that in an interconnected and globalised business environment, it is almost inevitable that financial losses due to claims will increase, “due to geographical concentration of values – often in risk-exposed areas – and the knock-on effects of global supply chains and networks”. He says this effect is visible in multiple insurance lines, including property and liability covers in particular.

Other factors include the inflationary impact of business interruption on the cost of property claims; and the equivalent effect of increased legal costs on liability and D&O claims. Liability claims costs are also increased both by the increased complexity of supply chains; and by the trend for companies in many sectors to try to minimise the number of suppliers they work with, which could increase product liability risk.

New rules in April

Meanwhile, the Financial Conduct Authority has published new rules and fees that will apply to all claims management companies from April 2019, when the watchdog takes over responsibility for their regulation.

From April, all claims management companies set up or serving customers in England, Scotland and Wales will have to be authorised by the FCA to continue operating legally. To be authorised by the FCA they must demonstrate they meet minimum standards to operate. Any firm that isn’t authorised will have to stop handling claims.

Jonathan Davidson, executive director of Supervision – Retail and Authorisations at the FCA, said: “We’re ready to take over regulation on 1 April 2019. The new regime aims to drive up standards in a sector whose reputation has been tarnished by some companies engaging in high pressure selling and by failing to provide clear information on the fees they charge.

“The new rules will ensure firms are transparent about their estimated fees before the customer signs on the dotted line, and notify customers of free statutory ombudsmen or compensation schemes. It’s vital that customers have the information they need to make informed decisions. We will take action against those that break the rules.”

This article was published in the March-April 2019 issue of CIR Magazine.

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