October 27, 2022

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Claims leakage prevention: Investing in efficiency and experience

Claims has been a top concern for property and casualty insurers, especially with recent events such as the COVID-19 pandemic and the ongoing threat of natural disasters.

Photo of Stephanie Dalwin

Stephanie Dalwin

Advisor at Aite-Novarica Group

Two people kneel to inspect vehicular damage after an auto accident.

In this piece:

  • What is claims leakage?
  • Digital challenges and opportunities
  • Data integration
  • The role of core systems
  • Reducing claims leakage

Claims has been a top concern for property and casualty insurers, especially with recent events such as the COVID-19 pandemic and the ongoing threat of natural disasters.

Claims in sectors like auto insurance increased in severity in recent years. What’s more, the looming threat of catastrophic weather and environmental damage can create a lot of chaos for insurers in a short window of time and stress test an organization’s claims handling process. The increase in current and potential claims has highlighted the need for efficient claims handling and, ultimately, reduction in claims leakage.

What is claims leakage?

Claims leakage occurs when the amount paid on a claim exceeds the original estimate or reserve. This occurs in a variety of ways.

Some claims are outright fraudulent, resulting in insurers paying for losses that aren’t valid. Examples might be overstating the damage sustained from water damage or physical injury. Fraud can also build up on valid claims by service providers such as in auto damage or home repair.

Yet many instances of claims leakage occur on valid claims due to inefficient and manual-based processes. Inefficient claims triaging can lead to leakage compounded by costs associated with delays in handling. Claims caseloads can stack up, and adjusters and claims managers often have to prioritize claims manually or as they see fit.

The adage “time is money” is the core of efficient claims handling.

Time is of the essence in claims management. Prolonged claims usually mean unnecessary expenditure, inefficiency and potential leakage. Investments across digital, data and core systems can help insurers future-proof their organizations and mitigate claims leakage.

Digital challenges and opportunities

Inefficiency in valid claims is often a source of leakage. Excessive processing can introduce delays and compound the cost of a claim.

To overcome this challenge, insurers can invest in automation solutions like intelligent process automation and intelligent data capture to streamline otherwise manual processes. Insurers will also need the ability to collect documentation digitally to allow claims managers and adjusters the ability to access the information they need in one place and make decisions more quickly.

The importance of digital solutions

Efficiency concerns are especially pronounced in today’s climate of economic uncertainty and market forces that are beyond an insurers’ control. Economic complexity and resulting supply chain issues mean that crucial claims costs like building materials and rental cars may simply cost more.

Modern digital solutions can enable remote claims resolution and analysis, and in turn produce process efficiency gains. Digital collaboration tools can help policyholders and adjusters remotely document and assess the contents of a house. Digital imagery tools can enable virtual inspections via drone or smartphone video.

Loss control solutions

A huge piece of leakage prevention comes in the form of mitigation, whether through loss control, risk control or risk engineering. Standalone loss control solutions can help in more complex claims in lines of business such as commercial or high-net-worth personal property.

Loss control solutions often handle functionality like workflow management and report generation.

The internet of things (IoT) is also an emerging area of loss prevention. IoT devices can monitor environmental factors like home water leakage, the presence of carbon dioxide or machinery malfunction.

Wearables are also growing in popularity in workers’ comp. It can be difficult to determine cause of injury (i.e., what was caused at work vs. preexisting conditions). Wearables can help prevent injury through biometric feedback on things like proper lifting form, and they can document injury through motions like slips and falls.

Modern digital solutions can enable remote claims resolution and analysis, and in turn produce process efficiency gains.

— Stephanie Dalwin

Data integration

Leveraging data is one of the most crucial components of reducing claims leakage. Data and analytics also tend to underpin digital initiatives to curb leakage.

Insurers need to be able to take advantage of new and emerging data sources. Data may come from third-party providers or new sources like the internet of things.

Data can be used to remotely assess damage incurred on, say, a property or vehicle, and speed up resolution. It can also be applied to complete a more accurate risk profile of a customer or business during underwriting and prevent downstream losses.

How content services can help

Content services platforms can be critical components of a data strategy surrounding claims leakage. These systems can access and digitize information stored in critical claims documents in a variety of source formats, ranging from paper to email.

Correspondence with policyholders and adjusters are often complex, involving multiple channels and handoffs. Adjusters need to be able to access pertinent claim information quickly and efficiently, and content services platforms can act as a central hub for this data and information.

Application of technologies like predictive analytics and artificial intelligence (AI) can flag potential fraud and more accurately predict claims frequency and severity. Insurers can use analytics to predict loss cost trends and perform both real-time and continuous claims severity analysis.

Geospatial analytics and imagery can also help automate the process of damage and severity assessment remotely. Machine vision in lines of business, like auto insurance, is being applied to remotely determine damage severity via image and video analysis — and in some cases, triage claims — without the need for an adjuster onsite.

The role of core systems

Claims systems handle functionality that can directly impact claims leakage.

These systems handle reserving and claims reserving capabilities, including for claims incurred but not yet reported. Accuracy in these functions is critical.

Claims subrogation and special investigation unit (SIU) capabilities can be crucial. Subrogation units, for example, may be missing out on claims recovery opportunities. Moreover, insurer claims systems increasingly need to be able to automate handling of simpler claims via straight-through processing.

Third-party integration

Beyond basic claims functions, perhaps the most important role of a claims system is its ability to integrate externally.

The claims evaluation process in personal lines tends to be adjuster-driven, and third-party integration is crucial.

Adjusters need information in one place while adjudicating claims. Having to go to multiple external systems introduces additional unnecessary complexity.

Insurer core systems also need to be able to take advantage of emerging technologies, data sources and solution providers — an imperative that requires strong integration framework. APIs and modern architecture will help insurers keep pace with new players in loss prevention and risk mitigation.

For workers’ compensation and auto insurance, additional expenses for unnecessary and preventative medical procedures can quickly add up. Integrating core systems with repair networks and medical ecosystems can help speed up triage and reduce costs associated with the number of days a car is rented, the time to rehabilitate to an injured worker or the completion period for repairs. Moreover, integration with a content management system can help streamline and digitize processes while settling claims more efficiently.

Reducing claims leakage: it’s good for everyone

At the end of the day, reducing claims leakage benefits all parties: insurance carriers, adjusters and even policyholders.

Insurers and adjuster partners stand to gain process efficiencies, hard dollar savings and a reduced number of headaches and handoffs. But preventing claims leakage tends to also mean reducing the time it takes to handle claims, which can be a net win for policyholders, many of whom simply want their claims settled as quickly as possible.

An investment in leakage reduction is an investment in the user experience.

The bottom line: Claims leakage reduction can benefit an insurer’s cost-effectiveness, as well as their relationship with policyholders.