By David Tweedy, Redhand Advisors
Back in the late 1970s, I entered the workforce as a claims adjuster for Liberty Mutual Insurance Company. At that time, not much was automated. The only computers were large mainframes that stored policyholder and claims data but were generally inaccessible to claims personnel. Everything was manual and paper oriented.
Of course, today the claims landscape is quite different. In the pursuit of greater efficiency and lower costs, many processes are now automated. But there are greater efficiencies still to be gained as manual processes still infest the claims life cycle.
Today, we are witnessing seminal changes in the insurance industry, and technology is the driving force. According to a McKinsey report [1], “over the next decade, next-generation capabilities have the potential to completely transform the claims process.”
The following three technologies promise the most transformational changes:
1.Artificial intelligence (AI). The goal of AI is to essentially replace human activity through machine learning. Here are a few examples of AI in the claims process:
Enhanced data entry: Ironically, the initial data entry at the beginning of a claim or incident still requires manual processes despite all the recent technological advancements. One AI process designed to address this is called IDP (intelligent document processing). IDP automatically captures, classifies, and extracts unstructured data from various documents and sources, thus eliminating the need for human rekeying of data. Another is RPA (robotic process automation), which enables extraction of relevant information from scanned paper documents.
Infused AI: Claim system vendors are now infusing AI algorithms into claim analysis, valuation, and resolution use cases. These algorithms are also known as expert systems. For example, reserving has mostly been subject to human judgment. Now, with AI processes built into the expert system, it will make the evaluation of a claim’s ultimate value much more accurate.
2.Advanced analytics. Analytics has been the holy grail of insurers for years because of the need to accurately predict ultimate claim costs as early as possible once a claim occurs. Analytics can help insurers marshal loss control efforts to mitigate a problem claim—or settle it before it gets too bad.
Today, there are many software firms and applications that help to achieve this goal. Most of the leading RMIS vendors have some form of advanced analytics software. Many of the software vendors that we track are implementing advanced analytics capabilities to give their clients an edge in controlling claim costs.
McKinsey[2] sums the trend up well. “The proliferation of third-party data sources is reducing insurers’ dependence on internal data. Digital “data exhaust” from social media and multimedia, smartphones, computers, and other consumer and industrial devices—used within privacy guidelines and assuring anonymity—has become a rich source for behavioral insights for insurance companies, as it has for virtually all businesses.”
This proves the investment enthusiasm that insurers and related software firms have for pursuing advanced analytics algorithms. We will see an increasing dependence on Internet of things (IoT) sources to generate these predictive analytics for ultimate costs.
3.Low-code and no-code platforms. Legacy systems are becoming the bane of many software providers. Historically, it was always difficult to integrate or improve these systems without a significant investment—thus, the development of low-code and no-code platforms.
Companies such as Microsoft, Mendix, Salesforce, and ServiceNow are offering a different solution. APIs (application programming interfaces) are offered as low-cost options by these low/no vendors. Suddenly, it is no longer an expensive or lengthy experience to integrate with popular HR, ERM, payroll, or other systems because the low/no vendors have already done it. Several new vendors in the RMIS and CMIS space are taking advantage of this innovation, and we suspect more will follow.
These are just a few of the new technological innovations that will transform the claims management industry. We look forward to seeing new solutions in 2022. The result will be favorable to all clients in the InsurTech space.
[1]McKinsey & Company “Claims 2030: Dream or reality?”, April 2019 [2] McKinsey & Company “Unleashing the value of advanced analytics in insurance,” August 2014