DIGITALIZATION OF THE CLAIMS PROCESS
INCREASING THE EVIDENCE ACTUARY’S VALUE PROPOSITION IN THE
FACE OF CLAIMS PROCESS DIGITALIZATION
Strategic Insurance & Risk Solutions
Canadian Institute of Actuaries: Actuarial Evidence Seminar
Québec, Québec
September 11, 2015
DIGITALIZATION OF THE CLAIMS PROCESS
INTRODUCTION
CLAIRE LOUIS
President
Strategic Insurance & Risk Solutions
Boston, Massachusetts
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AGENDA
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
The P&C Insurance Claims Operation
Digitalization: A Not-So Tranquille Claims Process Revolution
Key Digital Technologies Impacting Claims
How Digital Is Changing Claims Management & Loss Prevention
The Future of Claims Post-Digitalization
Evidence Actuaries: A Valued Claims Advisor
Compliance and Legal Risks
Evaluating and Reserving Liability Claims
THE P&C INSURANCE CLAIMS OPERATION
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Fraud Investigation, Reinsurance Collection
CLAIMS PROCESS
CRMChannel Management
Customer Relationship Management
Pricing, Reserving, ERM
SUPPORT SERVICES
SUPPLY CHAIN MANAGEMENT
Management,
Monitoring,
Optimization
Selection and
Contract
Negotiation
Requirements and Solicitation
Investigate &Manage
Triage and Assign
FNOLThird-Party Recovery
PaymentEvaluate, Reserve, &Resolve
Claim Closing
ACTUARIAL ACTIVITIES
ANCILLARY ACTIVITIES
Analytics, Monitoring, Reporting
Organization & HR
IT
Finance & Accounting
CHANNEL MANAGEMENT
Regulatory Relationship Management
REGULATORY
COMPLIANCE &
RELATIONSHIP
MANAGEMENT
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
DIGITALIZATION OF THE CLAIMS PROCESS
KEY COMPONENTS OF LIABILITY CLAIM EVALUATION
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Apart from coverage, the two primary components of liability claim evaluation are (1) liability and (2) damages.
Liability is evaluated based on the law (statutes and case law) and the claim investigation (statements, official reports, ISO ClaimSearch, photos, diagrams, and expert opinions).
The liability analysis considers the comparative or contributory negligence laws of the jurisdiction at issue. Most states apply some form of comparative negligence: pure (1% to 100% fault allocation) or modified (no recovery if > 49% to 51%).
Damages may be “general” (loss of consortium, pain and suffering, disfigurement) or “special” (wage loss, medical and hospital bills, property damage). Evidence Actuaries provide opinions on special damages.
BECAUSE THEY ARE SUBJECTIVE, GENERAL DAMAGES COMPLICATE CLAIM EVALUATION.
DIGITALIZATION OF THE CLAIMS PROCESS
SETTING CASE RESERVES FOR LIABILITY CLAIMS
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Case reserves may be based on one or a combination of the following:
Adjuster or management experience with similar claims
Claims committee discussion that may yield a consensual value based on group discussion
Defense counsel’s opinion of settlement value and jury verdict value (generally considered worst case)
A multiple of special damages (typically three or five times)
Case values generated by valuation software or other models; these should be considered as a benchmark only and should be vetted based on expert opinion, experience with similar claims, jurisdictional settlement values, and other factors.
DIGITALIZATION OF THE CLAIMS PROCESS
SETTING CASE RESERVES FOR LIABILITY CLAIMS
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Other factors affecting case value and case reserves:
Case venue (specific court where case is to be heard) and jurisdiction
(unique legal authority, e.g., state v. federal)
Applicable negligence laws
Plaintiff’s demeanor as a witness
Plaintiff and defense counsel’s abilities as litigators and trial attorneys
Egregiousness of claim facts
Risk of punitive damages
Jurisdictional verdicts
THE ACCURACY OF CASE RESERVES IMPACTS INSURER RATES, SURPLUS, AND PROFITABILITY.
Digitalization Drivers
Declining resistance to technology
among industry leaders
Low investment returns for prolonged
period
P&C industry consolidation
Customer-centricity
Regulatory uncertainty
Legacy systems that lack flexibility and
are costly to maintain and integrate
Pervasiveness of connectivity
Business Challenges & Opportunities
Efficiency in capital management
Claim operational redundancies
Velocity of brand relevance
Regulator emphasis on information
management as key to compliance and
enterprise risk management
Exponentially increasing amounts of
data and dearth of tools and processes
to leverage them
Competitive differentiation through
excellence in interaction across the
entire customer journey8
DIGITALIZATION: A NOT-SO “TRANQUILLE” REVOLUTION
DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
Sources: Towers Watson, Celent, SMA, Marsh
TOTAL GLOBAL P&C INSURER IT SPEND IS EXPECTED TO REACH $177 BILLION BY 2016.
P&C INSURERS
ARE
INVESTING IN
TECHNOLOGY
Top 3 CRM investments by
P&C insurers in 2014:
• Web self-service – 62%• Agent/broker email/web –
53%
• Web/mobile app – 41%
In 2014, about 50% of P&C
insurers were in the
computing Cloud. The Cloud
allows insurers to store and
leverage massive amounts of
data.
68% of insurers have
function-based KPIs (BPM).
71% of insurers use
performance dashboards for
Claims and other functions
(BPM).
Insurers are using Predictive
Analytics to detect fraud
(28%) and segment claims
handling (19%) (PA/BPM).
In 2013, Claims ranked 5th in
terms of overall P&C insurer
technology spend.
DIGITAL TECHNOLOGIES UPENDING INSURANCE CLAIM OPERATIONS10
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
Omni-Channel Customer
ExperienceBusiness Process
Management (BPM)Predictive Analytics Internet of Things (IOT)
Internet of Things will be a
major disruptor, moving
insurers to a prevention and
loss control business model.
CISCO estimates that by
2020, the number of
connected things will reach
50 bn. Examples are auto
telematics, Fitbit, and
energy usage sensors. Some
claims will diminish, but
new claim types will emerge.
Predictive analytics capture
relationships among
variables to assess risk
associated with certain
conditions. Insurers use
predictive analytics to pre-
dict litigation, detect fraud,
and identify recovery poten-
tial. In 2014, Towers Watson
found that 43% to 61% of
commercial insurers used
predictive modeling.
BPM automates claims
management, optimizes
customer service, reduces
settlement timeframes.
and expands reporting
capabilities. BPM in Claims
allows an insurer to co-
evolve with a dynamic
business environment by
being able to make
routine app changes with
little, if any, IT involvement.
Insurers are shifting from a
policy-centric model to a
customer-focused one. CRM
solutions give insurers a 360-
degree customer view. They
see the products their cus-
tomers have, product fea-
tures, submitted claims,
and all their touch points
and interactions. This allows
them to more quickly
resolve claims.
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DIGITALIZATION OF THE CLAIMS PROCESS
PREDICTIVE ANALYTICS PROMOTE EARLY INTERVENTION &
RESOLUTION
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
ResolutionClaim TieringClaim ScoringData CleansingData SamplingData Analysis
Implement
validated business
logic
Collect and identify
target data sets
Apply data quality
checks
Implement
algorithms
Cleanse data
Analyze claims
based initially on
single variable,
then on multiple
variables
Claims are scored
as high, medium or
low
Claims with high
scores are moved to
resolution
Claims with low or
medium scores
require further
work
Validate business
logic &
requirements
Reserves are set or
validated
Claim is assigned a
settlement value
based on insurer
data and adjuster,
expert, attorney
evaluation
Claim is resolved
High
Medium
Low
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DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
INTELLIGENT BUSINESS PROCESS MANAGEMENT FOCUSES CLAIM
ACTIVITIES ON HIGH-RISK CLAIMS EARLY IN THE CLAIM CYCLE
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DIGITALIZATION OF THE CLAIMS PROCESS
OMNI-CHANNEL REDUCES CLAIM COSTS, SHORTENS THE CLAIM
CYCLE, AND INCREASES CUSTOMER SATISFACTION
Late one night, a water heater in Guy’s basement fails, causing water to discharge continuously. Your Insurer instantly spots that Guy’s water meter, which it can monitor remotely, is running unusually fast, indicating a potential problem.
Your Insurer calls Guy, alerting him to the problem. The insurer advises him that a specialist plumber is already en route to his home to deal with the situation and that a loss adjuster has been lined up to visit first thing in the morning.
Guy is delighted by the rapid response, but is in another city on business and cannot be home to let in the plumber and adjuster. So he provides the password to allow the Insurer to print off a set of keys with a 3D printer.
The next day the loss adjuster arrives first thing, having been instructed electronically and provided with full details of Guy’s property coverage. He captures all the relevant data, including photos and video, on an iPad and uploads it to Your Insurer’s claims portal.
1 2 3 4
Your Insurer’s claims handler, the loss adjuster, Guy, and Guy’s insurance agent are all in different locations. But they work collaboratively through the claims portal to settle the claim rapidly. The payment goes into Guy’s bank account real-time, and all the details are filed in Guy’s electronic document vault.
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Source: Capgemini Consulting
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DIGITALIZATION OF THE CLAIMS PROCESS
IOT PREVENTS AND MITIGATES LOSS
“Smart Vest”
Insurance Journal, Sept. 3, 2015 Insurance Journal, Nov. 4, 2014
“Fleet Telematics”
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
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DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
LAWS AND REGULATIONS ARE EVOLVING WITH THE NEW DIGITAL REALITY
Bad Faith/Class Action
Litigation
Market Conduct/Unfair Trade Practices
Privacy DiscriminationCOMPLIANCE
RISK
TORT
LIABILITY
Good Faith
Insurer decision based on objective and
reliable information prepared by and
expert
Claim not covered under the policy
Insurer’s decision based on bona fide
coverage dispute
Bad Faith
Failing to thoroughly investigate claim
Exploiting financial vulnerability of
policyholder
Making unreasonable settlement
demands
Forcing policyholders to litigate
Failure to pay full claim value
Conditioning payment
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INSURER GOOD FAITH IN CLAIMS HANDLING – TORT LAW
DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Enacted as law by most states
Some key provisions:
Failing within a reasonable time to:
Admit or deny coverage to a policyholder
Reserve rights
Misrepresenting to a claimant a material fact or policy provision related to
coverage at issue
Failing to attempt in good faith to effect a prompt, fair, equitable claim
settlement with respect to which the insurer’s liability has become reasonably
clear17
INSURER GOOD FAITH IN CLAIMS HANDLING – STATUTORY
DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
NAIC Model Act – Unfair Claim Settlement Practices
Regulatory settlement related to auto personal injury claims (2010)
Insurer used software program as basis of valuation of settlement offers
Issues:
Inconsistent insurer management and oversight of program by underwriting region
Insurer did not properly consider medical bills, lost wages, job loss when evaluating individual claims
Insurer did not consider pain & suffering
Some key settlement provisions:
Insurer must ensure consistent claim handling across its organization
Insurer must advise claimants of basis of any settlement offer
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INSURER GOOD FAITH IN CLAIMS HANDLING – REGULATORY
DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Market Conduct
Goal of trade practices laws and regulations in insurance is to protect the consumer.
Insurer use of social media is subject to state insurance laws governing unfair trade
practices
Discrimination concerns revolve around whether (1) insurer’s use of information
involves a protected class, e.g., gender and age, and (2) net effect of information use
is discriminatory, even if not intended
U.S. insurers are subject to various privacy laws, including Gramm-Leach-Bliley, the
Fair Credit and Reporting Act, and the Fair and Accurate Credit Transactions Act
Key privacy issues include whether (1) insurers take appropriate safeguards to protect
policyholder and claimant information and (2) the information is shared in violation of
privacy policies.19
INSURER GOOD FAITH IN CLAIMS HANDLING – STATUTORY
DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Unfair Trade Practices/Discrimination/Privacy
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DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
LARGER
SHORTER
NEW TYPES
LESS LITIGATION
FEWER
NEXT GEN
CLAIMS
PERFORMANCE METRICS
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DIGITALIZATION OF THE CLAIMS PROCESS
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
Claim Ass’n. Membership
Ins. Conf. Speaker
LinkedIn Claim
Groups, Thought
Leadership, Discussions
Internal Carrier
Workshops
Networking w/Sr. Mgmt.
and Next Gen Mgrs.
EVIDENCE ACTUARIES: ADDING VALUE TO CLAIM OUTCOMES
DIGITALIZATION OF THE CLAIMS PROCESS
KEY TAKE-AWAYS
• Claims digitalization is on the march: while it presents significant
opportunities for insurers to reduce claim costs—administrative,
indemnity, and expenses, it raises a number of compliance and
bad faith concerns.
• As carriers change their Claims operating models, so might
Evidence Actuaries (EAs) wish to reimagine their business model.
• Future business opportunities for EAs lie as much with non-
litigated claims (which are increasing) as litigated claims.
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
KEY TAKE-AWAYS
• Insurers are not accustomed to working with EAs on non-litigated
claims.
• Because we are at the outset of the shift toward fewer litigated
claims, insurers may be more open to inviting EAs to partner with
them on non-litigated claims. This is even more likely to occur if
the EAs have built strong direct relationships with insurers.
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
DIGITALIZATION OF THE CLAIMS PROCESS
KEY TAKE-AWAYS
• EAs may wish to consider stepping up their direct marketing
efforts and relationship-building with insurers to become valued
claim advisors.
• In this way, EAs may increase the likelihood of their commercial
success as claim operations become more and more digitalized.
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
QUESTIONS AND ANSWERS
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BIO – CLAIRE LOUIS
• President, Strategic Insurance & Risk Solutions
• 25+ years of executive management and advisory experience with PwC,
Capgemini Consulting, and others for global and North American insurers,
reinsurers, self-insured organizations, regulators
• Clients: Zurich, AIG, Fairfax, RSA, ACE, XL, GE, Bank of America
• Services:
• Leading practices-based assessment of insurer and claim administrator
claim practices
• Claim operations alignment with enterprise strategy
• Claim valuation
• Claim advocacy, litigation support, expert witness testimony
• Claim program design & oversight
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THANK YOU!
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Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of ActuariesAll information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.