Claiming the future
With increasing outsourcing of claims functions and rapid growth in automation, could the role of the loss adjuster be consigned to history?
It is 1980 and a loss adjuster drives his Ford Cortina along miles of dual carriageway to the scene of a fire at a stationery warehouse. His armoury includes a clipboard, pencil, experience of every type of claim under the sun, and a raft of colleagues back at HQ to handle the paper work.
Fast-forward to 2030 and drones have replaced the legwork, with payment being made directly into the insured’s account.
The process is largely untouched by human hands and, back at HQ, the claims team comprises just a small handful of technology specialists.
Claims management and loss adjusting is arguably changing faster than any other part of the insurance industry as carriers and brokers strive to make the process – insurance’s ultimate product – speedier and cheaper to execute.
We might not yet be at the point where most claims are settled automatically – as PwC predicts will be the case in 2030 – but automation is creeping up the claims value pyramid.
Milan Simic, executive vice president and managing director of global business development at Verisk, notes that personal lines motor claims are now typically determined by algorithms, using images submitted by the insured.
“Five or 10 years ago everything would have some kind of human intervention. But the boundary between ‘low touch’ and ‘light touch’ is constantly moving.”
In the front line of the changes are claims management firms.
Sedgwick International CEO Ian Muress started in the claims business in 1978 and has witnessed sweeping changes, including the divergence between the way low-value, high-frequency and large losses are handled.
“I sometimes draw an analogy with getting on a plane – you can turn left to buy business class and cross the Atlantic – or turn right to buy coach,” he says.
Muress’ firm is one of a number of claims companies to have thrived amid increased demand from carriers for outsourced services.
The largest of these players have expanded through mergers as insurers seek suppliers with a greater geographical reach or broader range of claims-related services.
Sedgwick bought Cunningham Lindsey in April and, at a stroke, transformed from a large North American workers’ compensation-focused business – with a small adjusting operation, mostly reliant on international partners – into a global, diversified claims business.
Another expansive firm is Davies Group, whose acquisitions have included an October deal for the claims business of Ardonagh’s Direct Group.
According to Darren Coombes, chairman of Davies’ claims solution unit, insurers are increasingly looking for suppliers that can offer a range of services.
He says mounting regulation and compliance requirements are working in favour of the larger claims management companies.
“There are still some claims businesses out there that are smaller or mid-sized which are owned by proprietors towards the end of their careers and they are getting challenged with complex governance, data, and client reporting issues,” he adds.
“Layered on top is the fact that some of the tendering exercises are quite onerous – some of the due diligence documentation that is required to complement that governance is making it very difficult for those businesses to continue to grow.”
The General Data Protection Regulation (GDPR), which came into force in the UK in May, is one such regulatory challenge for the claims sector.
The regulation significantly bolstered EU residents’ rights over how their data is handled, and introduced heavy fines for firms that break the rules of either up to EUR20mn ($22.7mn) or 4% of a company’s global turnover – whichever is the greater.
Although in the UK the insurance sector has a derogation, allowing sensitive personal data to be handled for “insurance purposes”, the movement of personal data across the insurance chain must still be carefully tracked, and parties need to be equipped to handle “data subject requests” – when individuals demand to see what data on them is held – and to do all they can to avoid the loss of personal data.
Meanwhile, the UK’s Enterprise Act introduced liability from May – and raised the prospect of conflicts among different parties in the insurance chain – if claims are not paid in a “reasonable” length of time.
More generally, regulators worldwide are increasingly alive to the need for carriers to oversee outsourced services more effectively.
In the UK, the Senior Managers & Certification Regime, which will capture insurers from December this year and brokers in 2019, stipulates that a named senior manager within an organisation must take personal liability for outsourced functions.
In October, the UK’s Financial Conduct Authority underscored how closely it is watching such arrangements when it fined Liberty Mutual Europe £5.3mn ($6.8mn) for the failings of a former retail coverholder in the handling of mobile phone insurance claims over a near five-year period.
The Liberty case serves as a stark reminder that outsourced claims handling can go wrong. The economic case for outsourcing is a different matter – and indeed for many carriers is a no-brainer. But how might emerging technologies change the dynamics?
Taking back control
Lee Elliston, claims director of the Lloyd’s Market Association (LMA), is of the view that outsourcing of the claims function within the London market will diminish over time.
The LMA has been working hard to leverage technology to make claims payments more efficient.
It recently deployed its new satellite imagery and intelligence service to assess and pay claims arising from hurricanes Florence and Michael.
One of the advantages of the technology is that, when natural catastrophes strike, the claims team can often avoid the need to temporarily staff up, limiting the occurrence of scenarios like those during the 2017 hurricane season when loss adjusters became gold dust due to the volume of work.
The service can also provide exposure and mapping information, aid post-catastrophe triage, speed up advanced payments and allow total losses to be made good earlier than before.
Another claims initiative is the ECF (electronic claim file) Write-Back project, which offers carriers the ability to review and respond to a claim in their own system, interacting with central market systems. The LMA expects 50 carriers to have adopted the ECF by the end of the year.
Meanwhile, the association’s Single Claims Agreement Party, which went live in Lloyd’s in February, allows policy leaders to agree to non-complex payments up to £250,000 on behalf of following carriers.
The LMA’s Elliston estimates that the market is 12 to 18 months away from allowing commercial insurance policy holders to track claims.
He says: “We are using technology to create a more flexible model that people can relate to and know it will help their business in terms of efficiency, cost modernisation and speed.
“We’ve only started scratching the surface and need to look at what we can achieve at a transformational level.”
Training and re-skilling staff to deal with such new technology – including identifying and working with the right vendors – is a major concern for the claims sector, both at outsourced claims management companies and in-house at carriers.
Davies’ Coombes says the company’s recruitment needs are shifting towards statisticians, analysts and mathematics graduates who are able to extract the increasingly forensic level of data clients require.
As is the case among many industries, genuine specialisms look set to insulate some of the claims workforce from automation.
Sedgwick International’s Muress notes that his firm is increasingly drawing from outside the sector to secure the expertise it needs for high-value claims.
“In the old days you would turn your hand to anything – but now, just as with underwriters, we think in terms of specialisms, whether that’s cyber, renewable energy claims, power and energy or aviation.
“We increasingly look at recruiting people from professional backgrounds and work them into our training programmes so they pick up the insurance, social and customer care skills.”
Within Lloyd’s, the market was widely perceived to have lost claims expertise after the Lloyd’s Claims Office was swallowed up by Xchanging in 2001.
However, Keoghs partner Andrew Schütte says the Single Claims Agreement Party Clause could be the “beginning of a trend that takes us back to a scenario where a finite number of people understand and have the skills to deal with claims, to the point where we might see a return to the old Lloyd’s Claims Office”.
“I see a recognition in some parts of the market that the skillset that claims handlers need within the insurers and the syndicates themselves is a valuable resource and there’s concern that people coming up through the ranks need to be exposed to the right sort of training,” he adds.
Looming on the horizon of all these changes is Brexit, which will complicate the claims function within the UK and the European Economic Area (EEA) in several ways.
Top of the list of headaches is concern about the legality of claims payments on pre-Brexit contracts from carriers that have lost their local authorisations with the loss of passporting rights.
This won’t be a problem for EEA carriers in the UK, because of both local rules and steps the Prudential Regulation Authority and the UK government have taken to ensure contract continuity.
But without a political agreement, supervisors in countries including Spain, Poland and the Netherlands could make life difficult.
The data flow across the future border could become more complicated if the European Commission does not give an “adequacy” stamp of approval on the UK incarnation of GDPR, or deem it to match the data protection regime of the EU-27.
And movement of claims professionals – notably loss adjusters assessing claims – into EU markets could be trickier if temporary visas are required across that same border.
Whatever type of Brexit is agreed, innovations like satellite, drone and streaming technology mean the movement of people will ultimately cease to be a major headache.
PwC’s Jim Bichard and Michael Cook predict that, by 2030, most first notice of loss and triage work will be automated.
Increased emphasis on reducing losses or reducing the severity of losses will mean fewer claims in the first place – and investment in and understanding of automation and artificial intelligence will be key, they note in a report entitled the Claims Workforce of the Future.
Bichard and Cook predict that the overall claims headcount will fall, and those remaining will be more highly skilled technical professionals.
They note: “The optimal insurer will be a bionic organisation, harnessing the power of data and technology, while combining this with a human touch that the customer really values.”
This article was first published in the Winter 2018 issue of Insider Quarterly.