Claims at a Crossroads - Accenture Insurance Blog

Claims at a Crossroads

Accenture Claims Transformation Services

Table of contents

It's time for change, but choosing the right path 3 is critical

Yesterday's strategies are not up to tomorrow's

4

challenges

Generation Xpectation

4

The data deluge

5

Outcomes matter--still

7

The people imperative

8

The changing face of risk

9

Evolution of technology

9

The road to high performance

10

RSA: claims transformation drives high performance

11

How can Accenture help?

12

Collaboration for Insurance Claims cuts costs and

boosts retention

14

XL Group unveils multi-channel insurance claims

15

customer portal developed with Accenture's support

Allstate reinvents its claims process to enhance

16

customer service

Accenture provides cloud-based claims software to

17

leading US insurer

Embracing a new vision for claims

18

2 | Claims at a crossroads

It's time for change, but choosing the right path is critical

Within the global insurance industry, there is widespread recognition that the claims function holds a unique place in differentiating an insurance company's brand and influencing overall competitiveness. On the one hand, high performance in claims can place much needed distance between the insurer and the rest of the pack through increased loyalty and superior financial performance. Conversely, a failure to properly execute can have disastrous consequences and represents a missed opportunity.

In an effort to meet this challenge, insurers have been diligently executing claims initiatives designed to improve performance in parts of their respective organizations. While admirable in intent, a confluence of events--profound changes in the consumer, the emergence of new risks, and the dizzying evolution of technology--have rendered yesterday's approaches nearly powerless against the challenges that lie ahead.

The claims function is at a crossroads. The time is now to gain a fresh perspective on claims, embrace a comprehensive "end-to-end, top-to-bottom" vision-- a new operating model and a highperforming workforce, powered by leading edge technology--and ruthlessly execute. The choice is simple and stark: capitalize on this opportunity or be left behind by those who do...

3

Yesterday's strategies are not up to tomorrow's challenges

"The more things change, the more they remain the same."

This adage is applied in many areas, including insurance claims. People who believe it are clinging to the false hope that yesterday's strategies and tactics are sufficient for dealing with today's competitive environment. But because the game has changed in so many ways it is hardly surprising that the old approach, on its own, is no longer delivering the required outcomes. Yet it is Accenture's experience that the "playbook" used by many claims organizations has barely been expanded over the years (Figure 1). Simply trying harder with strategies that are inappropriate or inadequate will not deliver the required outcomes.

We believe today's claims executives are at a crossroads--to make the right decisions for their claims operation requires a fundamental reexamination of the situation at hand. Through a fresh look at the challenges of the claims organization--some old and some new-- leadership can gain the right perspective to forge a vision and a plan for the future.

Generation Xpectation

During the financial crisis which started in 2008, a significant amount of attention has been devoted to the structure of the insurance industry, focusing on financial viability, capacity in the market, and the challenge of attaining historical returns. Undoubtedly, the crisis will leave its stamp on the industry structure over time, but perhaps the most enduring impact is on the customer. In fact, customers have exited this period of uncertainty a very different animal than they were going in.

Figure 1. Most claims organizations today execute a standard "playbook" to achieve their goals.

The Standard Claims Playbook

Indemnity

? Leakage reviews/ closed file reviews

? Open file reviews ? Redefining the role

of the supervisor (Intervention Excellence) ? Firm/factory ? Core process redesign ? Predictive modeling

Loss Adjustment Expense

? Re-engineering/TQM/ Fishbone diagramming/ Pareto analysis

? Organizational flattening/ spans of control changes (Command & Control)

? Sourcing rationalization (medical, legal, vendor, etc.)

? Straight-through processing ? Lean Six Sigma ? Business process outsourcing

Customer

? Rise and fall (and rise again) of the contact center

? Customer satisfaction surveys

? Customer involvement across the lifecycle of the claim

This unique confluence of events has reshaped an entire class of consumer attitudes and behaviors, giving rise to what can be called "Generation Xpectation". Unlike previous schools of thought, which focused mainly on age and demographic differences as key determinants of preferences, we are seeing a much broader impact across all age and demographic boundaries that signals a new face of the customer.

What we are left with is a challenging party indeed--a digital-savvy, mobileenabled skeptic who questions conventional assumptions and insists on dealing on his or her terms. Across the age and gender demographics, insurance

customers have become more demanding, more critical of carriers' attempts to differentiate themselves, less trusting and loyal, and more open in their quest to find products and services that better match their needs (Figure 2).

The flip side of this expectation is daunting: 55 percent of adults in North America believe insurance customers who receive poor service are more likely to submit fraudulent claims1. Interestingly enough, it's not a price game--this new breed of customer is actually willing to pay more for the right products and services (Figure 3). In addition, these attitudes are being felt not only in personal lines--commercial lines managers

4 | Claims at a crossroads

Figure 2. Many insurance customers would be willing to switch providers to get the service they want.

Q: If your insurance provider did not offer the following, how likely is it you would switch to one that did?

67%

23%

59%

59%

18%

17%

49%

48%

14%

14%

44%

41%

42%

35%

34%

Very likely Somewhat likely

Information and

All services available

advice available

via all access points

whenever you need it

Possible to start an operation via one access point and pursue it using one or more other access points

Wide range of transactions and operations accessible via handheld devices such as Smartphones

Access to personal account information via handheld devices such as Smartphones

Source: Accenture Customer-Driven Innovation Survey, 2010

Figure 3. Customers would be willing to pay an average of 11 percent more to get more relevant insurance products and services.

Q: How much more would you be willing to pay for products/services that were more relevant than your current products/services?

You are willing to

52%

pay more

30% more

3%

25% more

5%

20% more 11%

15% more 10%

10% more 30%

Average premium percentage: 11%

You are not willing to

48%

pay more for products/

services that are more

relevant for you

5% more

41%

Total sample Source: Accenture Customer-Driven Innovation Survey, 2010

Respondents willing to pay a premium to gain more relevant products/services

5

are coming under similar pressure from small businesses to meet heightened demands for more personalized service, more convenient access, and more competitive pricing. In most respects carriers are falling short of these expectations. As Figure 4 shows, there is a broad and dangerous gap between what today's insurance customers regard as important and what they believe they are receiving.

The data deluge

Most claims professionals have come to appreciate the potential value of data and analytics in improving the speed, efficiency and transparency of the claims process, as well as its predictability. In addition, they realize it can contribute enormously to retention decisions, confirming the assumptions which underlie underwriting guidelines, and meeting regulatory requirements.

Until now, the data battle was fought in the confines of existing legacy systems. These tend to capture transactional data at varying levels of detail and accuracy. The notion of extracting data is a challenge in and of itself, and the aspiration to harness predictive models introduces another level of cost and complexity.

While insurance companies have focused their efforts to address these issues, the world of data has changed around them. In fact, we are arguably in a state of data deluge with massive amounts of structured and unstructured data being generated each and every day (Figure 5). Far beyond pure transactional data that is largely in their control, insurance companies are now looking at new sources and types of data in an effort to take advantage of this for claims (Figure 6).

Social media alone offer a wealth of insights about consumers, available to anyone who can make sense of the 25 billion pieces of information which are shared every month. There is an abundance of commercial databases on the market, a growing volume of usage data collected by means of telemetry and global positioning systems (GPS), and asset damage records collected by the millions of radio frequency identity (RFID) devices which have become commonplace throughout the logistics supply chain.

These and many other sources represent a rich opportunity for the insurer to become smarter, quicker and more precise. Carriers need to acquire the capability to use all kinds of data, both structured

Figure 4. There is a gap between what customers expect of insurers and what they believe they receive.

Percent

62%

61%

53% 49%

42%

39%

37%

35%

32%

29% 27%

24%

21%

23%

24%

21%

Very important 33% that insurers provide

23%

Very satisfied with what insurers provide

Provides clear Provides

Gives you Makes you Provides you Proposes

and easy to prompt and access to the feel they with the ability updating

understand effective

information understand to compare your policies

information service/answers you need

your needs rates and

when your

on policies requests in a whenever you and help you switch plans situation

timely manner need it

face the

changes

challenges

of life

Provides a wide range of services online

Provides Makes you feel you with you are not personalized anonymous information

Source: Accenture Customer-Driven Innovation Survey, 2010

6 | Claims at a crossroads

and unstructured, from within the claims operation, the enterprise as a whole and beyond its walls. This will go a long way toward improving the performance of their claims function, and giving them an enduring competitive advantage.

Outcomes matter--still

Accenture's ongoing, systematic study of insurance claims performance--dating back to the 1990s--has shown a mixed bag of successes and clear signs that the industry overall continues to struggle to achieve durable performance improvements. Over 15 years of research, compiled across more than 70,000 claims reviews, 4,500 interviews with claims professionals, and across companies operating in more than 14 countries, has confirmed that there is significant room for insurers to deliver improved outcomes across loss cost management and expense efficiency.

Figure 5. Data is increasing at an explosive rate.

According to an estimate by The Economist, mankind created 150 billion gigabytes of data in 2005 and 1,200 in 2010. The amount of digital information is believed to be increasing tenfold every five years.

Bn Gigabytes

12,000?

150 2005

1,200 2010

Source: The Data Deluge, The Economist, 25 October 2010

2015

Figure 6. Computing growth drivers over time.

Devices/users (MM in log scale)

1,000,000

100,000

Mobile Internet 10B+ units?

10,000 1,000

100 10 1

Increasing integration

Mainframe 1MM+ units

1960

1970

Minicomputer 10MM+ units

Desktop Internet 1B+ units/users

PC 100MM+ units

1980

1990

2000

2010

2020

More than just phones

Smartphone Kindle Tablet MP3 Cell phone/PDA Car electronics (GPS, ABS, A/V) Mobile video Home entertainment Games Wireless home appliances

7

Claims professionals still spend nearly half their day on activities that do not impact the outcome of the claim (Figure 7). In practice, this means that for every claims professional that an insurance company employs, half of the person's talent, energy and effort are focused elsewhere than on delivering a superior claims result. The industry is operating with the pedal only halfway to the floor. And claims outcomes overall remain mixed, with varying degrees of consistent top-level

performance (Figure 8). The financial impact of this is staggering: in the US P&C industry, a mere 2 percent improvement in loss costs would result in a $11 billion annual increase in bottom-line results.

The people imperative

At the heart of any high performing organization that delivers superior financial and service results lies a highly motivated, well trained, and properly organized workforce. The hallmarks of such a workforce are a strong customer-

oriented culture, collaboration between experts, and a desire to innovate to improve. The challenge for the claims operation is manifold in this domain. Through the cost cutting driven by the financial crisis, the claims workforce was an early target for downsizing for most insurance companies. There are simply fewer claims professionals today than in the past. In addition, the movement to outsourcing for some claims-related functions has further complicated the workforce model. Lastly, the desire of customers to be an active part of the claims process adds a new wrinkle.

Figure 7. Efficiency and time allocation among claims professionals.

Distribution of Work by Core vs. Non-Core Activities

Time Allocation

Staff Adjuster

Actual Preferred practices

40

60

70

30

44 to 49%

51 to 56%

Claim Supervisor

Actual Preferred practices

45

55

70

30

Non-core activity

Core activity

Source: Accenture analysis

Field Adjuster

Actual Preferred practices

59

41

75

25

0 20 40 60 80 100 % of Total Time

Figure 8. Claims effectiveness--the savings potential associated with achieving consistency in claims handling, in accordance with good market conduct and consistently applied company procedures.

Loss economic opportunity

Class

Type of claim

Below average Average

Above average

Personal and Commercial Auto

Comprehensive

>12%

8-12%

12%

8-12%

14%

10-14%

12%

8-12%

10%

6-10%

12%

8-12%

10%

6-10%

13%

9-13%

12%

8-12%

10%

6-10%

18%

14-18%

8%

4-8%

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