The COVID-19 pandemic hit the global insurance industry like a meteor and accelerated changes that were never expected. The high catastrophic losses in 2020 set the stage for a more disruptive future. The experts predicted that the global insured loss from the ongoing pandemic will exceed the market’s previous estimate of $100 billion.
However, the burden of these losses is not distributed evenly across all lines of business among insurers. The life insurance segment was hit the hardest due to the catastrophic amount of claims and increased mortality rates around the world. According to a report from the Canadian Institute of Actuaries (CIA), individual life insurance claims increased significantly during April and May last year. In non-life insurance, there was an upheaval in claims associated with travel and event insurance due to worldwide restrictions and lockdown. There was an epic rise in workers’ compensation claims around the world, especially the ones associated with the healthcare industry and other frontline jobs.
Also, business interruption claims became a fighting arena between policyholders and insurers. Many businesses filed lawsuits against their insurers who refused to pay business interruption claims associated with the COVID-19 government shutdown.
On the contrary, the pandemic had a positive influence on the auto insurance claims as there was a reduction in driving and accidents during lockdowns, which reduced the claims frequency. Faced with increasing uncertainties and challenges, insurers must leverage emerging technologies to revolutionize and transform the claims process.
Digital transformation, which has now become imperative for insurers to sustain their operations can enhance virtual operations and turn headwinds to tailwinds for many insurers, driving faster action. It could make things possible which might originally have been included in three-to-five-year transformation plans of insurers.
Insurance companies must move quickly to integrate digital technologies into their operations as digitizing the claims function holds tremendous potential. To capture the value of digital claims, functions must embark on a transformation to become a customer-centric and digitally enabled organization that excels in the three foundational areas of claims—customer experience, efficiency, and effectiveness.
A typical claims process involves several verifications and document validations, including licenses and other critical paperwork. AI-driven solutions allow insurers to automatically extract, classify and process relevant information from these documents. It enables automatic request routing based on intent identification and request classification, which results in saving time and improving operational efficiency, thereby reducing claims turnaround time.
Also, there is an upward trend of implementing automation and AI in fraud detection. According to a report published by the Coalition Against Insurance Fraud and the SAS Institute, about 90 percent of respondents said they use technology primarily to detect claims fraud, a significant increase from 2016, and about half said they use it to combat underwriting fraud, up from 27% in 2016.
A survey by Willis Tower Watson also states that demand for predictive analytics continues to rise, as life insurers seek new solutions to sharpen business performance and boost customer relations. Over 80% of life insurers that already use predictive analytics report a positive impact on their business and four out of ten companies reported that predictive analytics helped them reduce claims costs.
Another important trend accelerated by the pandemic is the use of Cognitive Vision technology. Insurers are increasingly using images for damage assessment, settling claims, and investing in AI to model catastrophic losses and optimize loss reserves. Since 20% of claims typically drive an estimated 80% of losses and expenses, it is critical for insurers to quickly identify which claims are likely to prove most complex. Predictive modeling can help provide this insight by applying data mining techniques and statistical algorithms, thereby effectively forecasting outcomes for individual claimants and expediting claims processing.
As COVID-19 has shifted the pivot towards a touchless future with minimal human touchpoints in processes, the primary interaction between the insurer and the policyholder starts at the time of First Notice of Loss (FNOL). Improving FNOL processes enables insurers to collect insights they need at FNOL to improve the claims management process, from assignment to resolution.
Moreover, the use of chatbots and voice bots has gained momentum during the pandemic and has become an important element for insurer’s digital transformation, ensuring consistent customer experience. According to a survey by LexisNexis, more than 80% of large U.S. insurers have fully deployed AI solutions in place including the research and development of chatbots. In the U.S., more than forty insurers have incorporated chatbots into their daily business.
Insurance companies aspire to become more data driven, but few are able to operationalize their data within the scope of their current business model and expertise. It is estimated that almost 80% of the AI implementations fail and one of the main reasons is the issues with the data, which mainly stems from the underlying data platform that is not mature.
Companies must build the right infrastructure to store and process data on their journey towards reimagining claims. They must harness the power of AI and machine learning to tap new opportunities, generate deeper customer insights, improve risk-modeling, and revamp their claims cycles.