Transforming the claims function
August 2022 | TALKINGPOINT | SECTOR ANALYSIS
Financier Worldwide Magazine
August 2022 Issue
FW discusses the transformation of the claims function with Mark Longworth, Matthew Smith, Claudia Fell, Caroline Leong and Paul Jones at KPMG.
FW: Could you provide an overview of key trends and developments currently impacting the insurance industry, particularly the claims function?
Smith: The insurance industry is having to navigate a complex macro environment, including the impacts of inflation, a changing risk and geopolitical landscape, a volatile market, and evolving regulatory and customer expectations. More specifically, we are seeing four key drivers shaping the future of claims. First, an increased focus and expectation on providing a personalised, holistic customer experience. Second, intensifying competition for top talent across the insurance market. Third, environmental, social and governance (ESG) needing to be at the core of insurers’ decision-making processes. Lastly, a continued focus on digital and data capabilities to unlock value in claims. Regulators and customers alike expect insurers to respond to claims efficiently and fairly, especially in instances where customers may be vulnerable. Claims is the key moment of truth, so getting this right will improve trust and in turn support retention. It is also about balance. History has also shown in periods of economic downturn that fraud increases. It will be vital that insurers have the necessary processes, systems and tools in place to effectively manage this fine balance.
“One thing that insurers have learned from the global pandemic is that change at pace is possible.”
FW: What are the key drivers encouraging transformation of the claims function? What are the inherent dangers of taking a ‘wait and see’, rather than an active approach?
Leong: ‘Wait and see’ is not an option, and it is unlikely many insurers are taking that approach given the last couple of years. Claims leaders recognise they need to continually evolve their customer experience and develop better propositions and services to prevent and respond when claims occur. Claims is one of the most underutilised strategic assets an insurer has, and a number of claims functions are starting to move in that direction in order to remain competitve. We see seven key factors driving transformation in claims, and a number of leading organisations are leaning into the significant change needed. The first factor is operational management, in which ways of working are being optimised to increase flexibility, advance automation and focus on prevention. Embedding a solid foundation enables ongoing innovation and continuous improvement. Second, evolving supply chains. Outdated manual processes and oversight require redesign of supply chains, automatic instruction tools and virtual technology combined with aligned values. Third, a changing workforce and workplace. Technical claims adjusting, with deeper operational management and data and technology specialist skills, will be key. An insurer’s brand and values need to be aligned with the future workforce to attract the talent required. Fourth, building an ESG strategy into claims. Claims organisations must demonstrate a clear focus on sustainability, taking into account evolving client requirements, social impacts and regulatory expectations. Fifth, leveraging data and analytics. Insurers need to create a core data strategy, enabling the use of wide data sets to help improve the client experience, optimise indemnity spend and help shape new solutions. Seventh, developing new prevention and response solutions for customers. As insights and technologies improve, there is an opportunity to develop new propositions to help customers prevent risks, rather than just transferring them via insurance contracts. Finally, managing risk and conduct. The future demands clear principles and decision-making criteria, and a sharp focus on ‘doing the right thing’ needs to be embedded in the claims way of working.
“The future demands clear principles and decision-making criteria, and a sharp focus on ‘doing the right thing’ needs to be embedded in the claims way of working.”
FW: Could you outline the role that technologies such as data analytics, artificial intelligence and machine learning have to play in disrupting the traditional approach to claims management?
Leong: In short, their role is significant. Data and analytics can transform the claims experience for clients who could potentially see claims assessed and settled within minutes. Insurers are analysing data to enhance loss prevention by using data-based insights to better understand the drivers of claims and potential early interventions. Claims departments will leverage enhanced analytics techniques, including artificial intelligence and machine learning, to set more accurate claim reserves, alongside looking to automate low complexity, high volume claims. This can help set initial reserving ranges for complex claims to support handlers with their judgements, to reduce risk and improve processing time on complex claims. Utilising new technologies will enable claims departments to increasingly focus on managing the customer experience and devoting experienced handler time to the most complex claims. The data becomes more accessible and relevant and can help improve pricing decisions and build more relevant, tailored and even parametric insurance products. To unlock the various benefits of a digital, data-based claims environment, the underlying data being entered must be clean, accurate and ‘readable’ by other systems. This requires a focus on improving insurers’ current state processes. It will reduce the amount of time that was spent inputting data, and increase time to analyse the clean data instead. This will be critical to capture the value these new capabilities can bring.
FW: As solutions evolve and improve, how should claims teams go about boosting capability and efficiency opportunities? How should they evaluate various options in the market?
Longworth: Claims functions need to be thinking holistically across all aspects of their operating model. Specifically, they need to extract maximum value from the technology by combining it with leading people skills and ways of working. The winners will look ‘end to end’ across the claims value chain when making choices and investments. Digital solutions can wrap around traditional platforms and enable a more advanced experience, drive significant efficiency and increase the opportunity to develop the capabilities of claims handlers. Ultimately they will be better positioned to drive more strategic change. Those that invest solely in technology point solutions will likely increase their complexity and create future challenges for delivering customer experience and high performance. The need to think longer term and more strategically has never been greater for insurers and claims organisations than it is right now.
“Insurers need to be clear on the business problems that new technology solutions will help to solve, rather than focused on the newest, ‘shiniest’ technology out there.”
FW: As the economy recovers from the impact of the coronavirus (COVID-19) pandemic, what lasting changes to processes and working habits, introduced in response to the crisis, do you expect to persist in the insurance industry?
Jones: One thing that insurers have learned from the global pandemic is that change at pace is possible. Almost overnight, claims functions that historically relied on physical inspections of damage and claims adjusters working on-site, were assessing, managing and settling claims virtually. Insurers and claims functions alike face a risk that they do not maintain the ‘burning platform’ of the pandemic, and that the pace of change will not be maintained. Those that do maintain this energy for change will continue to innovate and establish competitive advantage. We will continue to see a hybrid of office and home working models into the future, and this offers a great opportunity for insurers and claims functions to expand their reach and talent pool. This also provides the opportunity to create a more diverse workforce that sparks increased innovation. This change of mindset to embrace remote working also extends to the supply chain and the increased use of the gig economy. Site visit assessments, for example, could benefit from much greater flexibility for individuals as well as faster response times for insurers.
“It will be imperative that claims functions have the right balance across the three most important assets: people, processes and technology.”
FW: What essential advice would you offer to insurers on effectively integrating new technology to increase agility, accelerate services and transform the claims function?
Fell: Insurers need to be clear on the business problems that new technology solutions will help to solve, rather than focused on the newest, ‘shiniest’ technology out there. It is easy to be distracted by hype and become disconnected from critical business needs. Insurers should make clear, focused investments into the core areas that will make a difference – excellent implementation of a smaller number of investments will always be more impactful than average or incomplete implementation of many. It is also important to consider the long-term sustainability and viability of the technology being implemented, to avoid creating ‘legacy 2.0’. Increasingly, no-code or low-code functionality is being made available and offering opportunities to implement more dynamic, configurable solutions that can flex to business needs and wrap around traditional systems. Finally, investment into technology must be paired with investment into the people who will use the technology – both in building capability in the existing workforce and identifying the new talent that the organisation needs to maximise the value of new investments into technology.
“Claims functions need to be thinking holistically across all aspects of their operating model.”
FW: How do you expect the claims function to evolve in the months and years ahead? What innovations and end goals do you see on the horizon?
Smith: In the short term, with so much innovation and technology solutions to be levered, we are likely to see many insurers focused on delivering tactical solutions to business challenges. This should be approached with caution, as point solutions may not deliver improvements to the end-to-end process. Heavy investments in re-platforming are likely to dimmish as claims functions opt for more agile low-code solutions available in the market. This will enable claims functions to adapt to market changes and to changes in customer needs, without significant reliance on IT functions. For this innovation to happen, we will also start to see more diversity within claims leadership teams moving to skill sets that incorporate a mixture of strong technical claims, data and technology specialists, and customer experience experts. These leaders will need to consider their claims strategy and what they really want their claims functions to be. Some will continue to offer a traditional claims service that delivers faster and better settlements, while others will look to turn their claims function into a strategic asset that the wider business makes better use of. More accurate reserving, product development and loss prevention are all likely to feature in claims innovations. Whichever approach is adopted, it will be imperative that claims functions have the right balance across the three most important assets: people, processes and technology.
Mark Longworth is head of global insurance advisory for KPMG International, specialising in transformational change across life, non-life and London markets. With over 29 years of financial services experience, he has conducted a range of transformational programmes for major global financial institutions and led on strategic and operational change for a variety of financial institutions. He can be contacted by email: mark.longworth@kpmg.co.uk.
Matthew Smith is global lead, strategy & transformation and claims advisory, insurance at KPMG International. In this role he works with chief executives, chief operating officers and chief claims officers across all segments of insurance to help shape the direction, design and delivery of innovation and change within and across organisations. He is recognised for his insights on the future of insurance and the future of claims. He can be contacted by email: matthewg.smith@kpmg.co.uk.
Claudia Fell heads the financial services strategy and management consulting team in Germany. She has 20 years of experience in accompanying insurers in their transformation programmes with a focus on claims optimisation, digitalisation and organisational effectiveness. She can be contacted by email: claudiafell@kpmg.com.
Caroline Leong leads the insurance team within the Australian operations advisory practice. She has 20 years’ experience in financial services, working specifically with insurers to improve customer experience and efficiency through design and implementation of large-scale claims and broader operational transformation programmes. She can be contacted by email: cleong1@kpmg.com.au.
Paul Jones is a senior manager in the financial services advisory practice and has more than a decade of experience working in the financial services sector. He advises clients with a focus on insurance strategy and claims advisory. Most recently, he was closely involved in leading and coordinating the creation of KPMG’s ‘Claims Transformation’ thought leadership series. He can be contacted by email: pauljones1@kpmg.ca.
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