Claims Transformation: How to go about this journey?

What Does Claims Transformation Mean for the Modern Insurance Industry?

Claims transformation is a strategic initiative aimed at revolutionizing the claims process in the insurance industry. It involves leveraging digital technology, data analytics, and process improvements to enhance the customer experience, reduce costs, and improve claims outcomes. This transformation is not merely about automating existing processes, ; it’s about reimagining the entire claims journey to meet the evolving needs of customers. By adopting a holistic approach, insurers can create a more efficient, transparent, and customer-centric claims process that aligns with modern expectations.

Why is Claims Management the Critical Intersection of Loyalty and Profitability?

Sales is where every insurance journey starts, and the insurers’ first focus point. The agent–customer relationship has already evolved to become digital, and the insurance company must ensure that claims management is equally advanced. Sales networks are equipped with online digital portals where the agent has the right tools at hand. However, claims management is the most critical point of interaction right after acquisition. Poor claims experiences often drive client churn, so assuming the position of “it will be worked out somehow” once the customer has bought the policy is not enough. In the 2017 EY Global Consumer Insurance Survey, 87% of policyholders say that the claims experience impacts their decisions to stay with the insurer.

Claims are essential to building customer loyalty and the most critical cost area. Losing clients is expensive for the insurer, but we also have to consider the costs of handling claims, which have been constantly increasing in the recent macroeconomic environment. Next in line are offline servicing costs. Manual tasks and paper-based procedures such as life claims significantly drive up operational costs and lengthen processes.

What is the Current State of Claims Processing?

The current state of claims processing in the insurance industry is often manual, time-consuming, and prone to errors. Many insurance companies still rely on paper-based processes, which can lead to significant delays, inefficiencies, and poor customer satisfaction. The lack of digitalization and automation in claims processing not only increases operational costs but also heightens the risk of fraud and reduces competitiveness. As a result, insurers struggle to meet customer expectations and maintain profitability in an increasingly digital world.

What are the Main Business and Technological Challenges in Insurance? 

The main business challenges that all parties of the claims process mainly face include:

• Long claims processing time – collecting documentation and data from all stakeholders can take weeks.
• Effective claims assessment is crucial to ensure that all documentation and data are accurately collected and evaluated.
• Problems with the quality of manual claim processes, loss of data and documentation. Legacy claims experience data quality issues due to outdated systems and a higher rate of manual submissions.
• Transparency issues – a lack of real-time reporting and a comprehensive view of current and historical claims operations, which could significantly improve risk valuation.
• Gaps in real-time control processes, insufficient tools for interactive claims and KPI analysis.
• Lack of implemented preventive and predictive monitoring practices, as well as a proactive insurer role in supporting customers to increase their safety and help minimize losses.

Despite efforts to optimize claims, the main technological challenges remain:

1. Legacy back office systems and outdated claims processes.

2. Lack of integration between internal systems and ineffective communication with third-party software.

3. Gaps in the claims value chain that lead to longer settlement times and higher costs.

What constitutes a real challenge for insurers is modernizing their legacy systems. Insurers operate multiple policy management systems, with different claims submission processes within these systems. They continually strive to consolidate and automate these processes, but we have yet to meet an insurer that would undergo a comprehensive implementation. They are either just starting or halfway there.

Digitizing steps of the claims process, from data entry to payment, requires building a comprehensive action plan. Insurers should rethink their operating models and build fully connected organizations. It is a process where we have to integrate many interactions between various stakeholders such as insurers, secondary insurers, or third parties. And problems are not just purely technological, such as lack of cloud nativeness or open architecture. Customer concerns about data security and privacy are major obstacles to efficient claims digitization. Insurers also have to meet regulatory constraints and, with that, rising compliance costs.

Why is Digital Transformation the Only Way to Revolutionize Claims?

In their 2021 report, KPMG predicts that within the next 5 to 10 years, many claims functions will likely undergo digital transformation, enabling some claims to be reported and settled without human intervention.

Regarding claims transformation, KPMG recommends “resetting the foundations within claims” – increasing flexibility, advancing automation, creating a core data strategy, enabling machine learning, augmenting the use of wide data sets, and focusing on prevention. In terms of solving problems with still manual processes, the future demands a redesign of supply chains using automatic tools and virtual technology.

Capgemini has prepared a range of useful tips and pillars for “claims transformation”, dedicated especially to life insurers, but in our opinion, some of them have a wider reach:

Improve customer experience through automation

During the claim initiation, a claimant is required to supply various documentation and confirm data, which can be streamlined through digital claims processing. The problem begins when the data in the insurer system is outdated or incorrect. This is where the importance of digital tools, such as the online client portal and 360-degree view account, comes into play. The easier insurers make it for clients to keep their policy and personal data up to date, the smoother the claims process will be.

Increased cost benefits and asset retention through service digitization

According to Capgemini, we are heading into a high-payout period where asset retention will be key to survival for life insurers. Achieving a successful digital transformation requires aligning the company's digital strategy with its operational goals. “The Great Wealth Transfer” has begun, and the baby boomer generation is expected to pass more than $68 trillion to their children over the next 20 years. As such, the relationships built with beneficiaries could be one way to close the insurance ownership and retirement gap. We can expect baby-boomer-held life insurance policies to start paying out in large sums. If insurers can retain even 0.5% of these payouts through new policies with uninsured beneficiaries, it will change the impact of this economic transfer across the industry.

There is no time for wait and see. Digitized customers will not wait.

Key features of a digital claims process

A digital claims process is designed to provide a seamless, efficient, and customer-centric experience. Key features of a digital claims process include:

• Online Claims Submission and Tracking: Customers can easily submit and track their claims online, reducing the need for physical paperwork.
• Automated Claims Processing and Decision-Making: Automation speeds up the claims process, ensuring faster claims processing and reducing the potential for human error.
• Real-Time Updates and Notifications: Customers receive real-time updates and notifications about the status of their claims, enhancing transparency and trust.
• Digital Documentation and Storage: All necessary documents are stored digitally, making it easier to access and manage information.
• Advanced Data Analytics and Fraud Detection: Leveraging data analytics helps in identifying patterns and detecting fraudulent claims, ensuring a more secure process.
• Integration with Other Insurance Functions: Seamless integration with underwriting and policy administration ensures a cohesive and efficient claims process.

Strategies for implementing Claims Transformation

Implementing claims transformation requires a strategic approach that involves multiple stakeholders and functions. Key strategies for implementing claims transformation include:

• Developing a Clear Business Case and Roadmap: Establish a strong business case and a detailed roadmap to guide the transformation process.
• Building a Cross-Functional Team: Assemble a team with expertise in claims, technology, and data analytics to drive the transformation.
• Conducting a Thorough Assessment: Evaluate current claims processes and systems to identify areas for improvement.
  Identifying and Prioritizing Areas for Improvement: Focus on the most critical areas that will benefit from automation and digitalization.
• Developing a Digital Claims Platform: Create a platform that integrates with existing systems and processes to streamline claims operations.
• Providing Training and Support: Ensure that claims staff and customers are well-trained and supported throughout the transformation.
• Continuous Monitoring and Evaluation: Regularly assess the effectiveness of the transformed claims process and make necessary adjustments.

How Does Widespread Digitization Finalize the Claims Journey?

Regarding customers who are already well digitized in their daily activities – let’s assume the ideal state for them, i.e., a fully digital, simple, and real-time process to process claims efficiently and collect what they are owed. The claim is reported, and the data is immediately transmitted and recorded. All the necessary documents regarding the claim are available in the cloud, for example health documents. Of course, all in accordance with legal requirements.

After collecting, self-learning algorithms automatically analyze the data. The system enables automatic claims validation, auto-complete data in notifications, and appropriate queuing. If any data is missing, automatic communication with participants will start. For example, a digital form is sent, containing information about which data is collected and which is missing. The decision to approve or deny compensation is sent to the client automatically and is available in the client portal, 360-degree view account. Payment is made digitally and directly to the client.

Such a process requires a sufficiently flexible and open IT infrastructure based on cloud technology that can be easily integrated with automation tools.

It’s an ideal state, with one remark – even with a perfect digital system, the insurer should provide the customer with the possibility of direct contact. Claimants want to be served 24/7 and decide when to talk to humans and when to go virtual. All platforms with omnichannel functionalities are great for this purpose.

Benefits of claims digitalization

In the 2019 report, McKinsey shows that even moving to a partially digital claims processing model can lower the number of claims processes by up to 30%. In health insurance, payers can save as much as 10 to 20% of medical costs if they use advanced analytics to prioritize invoices for auditing or identify patients likely to have future high-cost claims.

Obvious benefits that can be achieved by claims digitalization include:

1. Operating cost optimization by shortening the time needed for claim handling.
2. Increase of competitive advantages thanks to smoothing the information flow, automated processes, and optimization of process monitoring.
3. Business process automation due to automated payments, benefits calculations and verifications.
4. Easier management of consolidated internal processes.
5. Better data integrity, with a single source of truth for audit purposes.
6. Quick decisions and payments would boost the quality of customer service and, thus, satisfaction.
7. Let’s not forget about higher flexibility to changes in legislation and on the market.
8. Of course, the digitalization of claims would also minimize fraud and extortion.

What Does the Future Hold for Claims Transformation and Emerging Tech?

The future of claims transformation in the insurance industry is exciting and rapidly evolving. Emerging technologies, such as artificial intelligence, blockchain, and the Internet of Things (IoT), are expected to play a significant role in shaping the claims process of the future. Insurers that embrace claims transformation and leverage these technologies will be better positioned to meet the evolving needs of customers, reduce costs, and improve claims outcomes. By staying ahead of technological advancements, insurers can ensure a more efficient, secure, and customer-centric claims process, ultimately leading to greater success in the competitive insurance landscape.

How Can Ready-Made Solutions Reduce Risk and Increase Savings?

To effectively manage the claims transformation process, insurers should seek out ready-made solutions that offer pre-configured process flow, in particular:

• comprehensive claim handling software supporting all required lines of insurance, for example life, pension, and health insurance, along with all communication channels. ; Comprehensive claim handling software should support accurate claims assessment to ensure efficient processing;.
• cloud-based, service-oriented architecture (SOA) software facilitating integration with external systems;
• system with user-friendly graphical interfaces, adjusted to the type of claims, allowing efficient claims service and fast payment of benefits.

Modernizing claims can be more effective with the help of an experienced IT provider. Like any transformation, it requires investments, but there’s much less risk to using ready-made solutions, especially when other insurers have already tested them.

Aleksandra Romot
Senior Business Consultant