THE FUTURE IS ALREADY HERE: LEADERSHIP, TECHNOLOGY AND A GLOBAL PANDEMIC CONVERGED TO ACCELERATE CONNECTED CLAIMS
A perfect storm comprised of several macro factors has supercharged several trends that were already emerging in the insurance industry. The digital revolution that began in the 1980’s and eventually went mainstream by the 2000’s spawned legions of visionary tech entrepreneurs. This new generation of digital inventors identified opportunities to create and leverage new technologies with the power to fundamentally transform commercial activity, starting with consumer-focused products and services. Financial services were among the early targets, starting with banking, the most visible sector, and eventually insurance.
How We Got Here
Traditionally, insurance companies were organized into several distinct and separate operating verticals; product and underwriting, sales and marketing, claims, finance and investment. Adding to the complexity, the Property and Casualty segment of the industry was further divided into separate, totally unique lines of business: Personal Auto and Home, Commercial Auto, Property and Liability, Specialty Lines and Workers Compensation. The mountains of information needed to enable a meaningful digital transformation of these enterprises were trapped inside numerous vertical silos and resided on a wide variety of different and separate storage systems and architectures.
Initial efforts to digitize these disparate operating verticals soon revealed to the most insightful business leaders that only an enterprise wide digital transformation strategy would yield the results required to justify the effort, disruption and costs. These initiatives were hardly trivial and required well informed, committed, visionary leadership to marshal and lead management teams and organizational staff through the coming battles. Not all insurance leaders were up to the challenge but for those who were, market differentiation for their companies became the prize.
Digital Transformation and InsurTech 1.0
Meanwhile, large numbers of different technologies that enabled digital transformation continued to emerge from incubators in Silicon Valley and beyond, further complicating the effort to design and implement a digital enterprise strategy. As fast as carriers could incorporate a new technology into the enterprise, it was superseded by newer, better and more effective solutions.
This same period also saw the rise of InsurTechs, basically tech-enabled digital startups that planned to compete as “full stack” insurance companies directly against well-established insurers whose attempts at digital modernization where weighed down by legacy systems and siloed data. Professional investors, who had accumulated unprecedented levels of available investment capital (referred to as “dry powder”) seeking deployment, became enamored with the InsurTech segment and provided them with all the development capital they needed while driving their valuations to previously unthinkable heights. Their investment thesis was that these portfolio companies would either take significant market share from the established carriers or they would be acquired by those same carriers as a defensive strategy. Both assumptions turned out to be correct.
During this period, which we will call Insurtech 1.0, the newcomers viewed themselves as direct competitors to the incumbents and similarly, incumbent carriers felt the pressure to transform more quickly or lose ground to the InsurTechs. However, after almost a decade in this mode, both sides began to adopt more pragmatic strategies that involved strategic alliances, partnerships and even investment which we will call InsurTech 2.0
Claims Transformation and InsurTech 2.0
Of all the operating areas within the insurance enterprise, Claims arguably warranted and received an oversized percentage of attention in terms of investment, innovation and digital transformation.
The reasons for this were apparent; claims costs consume an average of approximately 80% of all premium income and also represents the single best opportunity insurers have to interact with their customers at an important time to deliver upon the insurance promise, frequently referred to as “the moment of truth”. Because consumers had already become enamored by the allure and convenience of mobile, digital experiences delivered by the “FAANGs” (Facebook, Amazon, Apple Netflix and Google/Alphabet and others like them), they naturally began to evaluate all other service experience levels by those standards.
Claims has historically been a complex labor and paper intense process with stubbornly long cycle times involving large numbers of different types of service providers in fragmented industries, many of whom were small, independent unsophisticated businesses, and so effective digital transformation seemed overwhelming, if not impossible. But here again, strong visionary leadership, new technologies and large pools of investment capital combined to begin meaningful digital claims transformation, initially in portions of Personal Line Auto and eventually across the entire end-to-end claims process. Advancements in artificial intelligence, machine learning, robotics, connected vehicles, drones and IoT devices brought a marked shift in the way claims were being processed, managed and reported and resulted in improved operational performance as well as customer satisfaction and retention.
Covid-19 and the Future of Claims
The global pandemic emerged suddenly early in 2020 and instantly changed everything about the way we lived and worked – and insurance claims were no exception. Indeed, it forced the acceleration of the future of claims to arrive much sooner than anyone expected.
While some types of claims, including personal auto, temporarily fell significantly due to a decrease in travel, claims overall still required attention, even as insurance offices were being vacated. The industry to its credit repositioned almost all of its’ hundreds of thousands claims professional to work from home within two weeks. Now the technologies that were driving earlier transformation became critically important as the virtual and touchless claims concept became a necessity and a reality almost overnight. Insurers use of customer self-service, photo estimating and artificial intelligence-supported claims expanded at a record pace, exceeding double-digit growth since just the beginning of the year, as auto insurers accelerated the use and adoption of digital tools in response to COVID-19. Digital claims payments also attracted increased attention as the printing and mailing of paper checks was no longer a practical option and claimants needed their settlement funds more quickly than ever but expect contactless delivery.
Connected Claims
Fortunately, connected autos, homes, property and even people have proliferated and become the backbone of connected claims, featuring almost touchless processes and enabling cycle times of seconds, minutes and hours instead of days and weeks. Advancements in areas such as machine learning, robotics and connected IoT devices will continue to bring a dramatic shift in the way claims are processed, managed and reported, and will result in better operational performance and improved customer satisfaction.
To learn more, join us for Connected Claims USA Virtual on June 23-25 as Insurance Nexus by Reuters Events welcomes an expected 10,000 insurance claims industry executives, professionals and ecosystem partners to participate in an unprecedented virtual learning and networking experience.
June 10, 2020
Stephen Applebaum, Managing Partner
Insurance Solutions Group