Insurance Claims in 2023: Our CEO’s View on the Year Ahead
How will claims management change in 2023? What effects will innovation, economic trends, and consumer pressures have? Check out our CEO’s views on the year ahead.
These are challenging times for insurance companies. Going into 2023, insurers must demonstrate remarkable flexibility and resilience in order to overcome a host of economic hurdles – from natural disasters to rising inflation, high interest rates, and the looming threat of recession.
In light of these trends, and Five Sigma’s experience working with P&C insurance companies, insurtechs, and other businesses that deal with claims, here are my view for the world of insurance claims in 2023:
1. Economic market conditions will push P&C insurers to adopt new tech to improve efficiency with clear ROI.
Amid signs that the world could be headed for a recession, recent months have seen high inflation throughout the U.S. economy. For P&C insurers, this means almost every line of insurance is hard hit by rising claims costs and expenses. McKinsey has reported that rising prices contributed to an approximately $30 billion increase in loss costs – the amount insurers are required to pay to cover claims – in 2021. Part of the reason: In the 12 months ending this past June (2022), the price of replacement vehicle parts rose by 23%, while the cost of used cars and trucks jumped 14% – putting financial stress on insurance carriers needing to pay for repairs and replacements.
In addition, when inflation affects the economy as a whole, it impacts consumers: When people are more hesitant to spend their money, we can expect to see an increase in their expectations for better, faster, and fairer service.
While insurers are bleeding money, they need to make investments in order to improve the quality of the service they offer customers. That combination of factors puts serious pressure on insurance companies, pushing them to innovate in order to increase efficiencies.
My view is that in order to build resilience, insurers will comprehend that their fear of the risks involved in adopting new technologies is outweighed by tech’s ability to enhance performance and deliver results. They will realize that innovative technology, such as smart automation and artificial intelligence (AI), can provide the edge they need to optimize their operations.
In particular, the field of insurance claims management is especially ripe for the kinds of improvements that technology can bring – not only in terms of efficiency, but also in terms of reliability and customer service. Due to the role data plays in claims management, and the important role claims adjusters play in both customer satisfaction and insurers’ overall profitability, there is good reason to expect cutting-edge data and automation solutions to dominate claims operations in 2023.
2. Insurance companies will zero in on balancing process automation and providing a “personal touch.” Data will play a major role in the process.
Automation has a lot going for it, but sometimes customers just need (or want) to speak with a human being. That’s why it’s important for insurers to find the right balance of automation and human work, the right ways for people and machines to work together, and the most effective ways to determine the right approach for a given situation.
So, how will insurance companies move forward in their use of automation in 2023?
Every company is different, but as the entire insurance industry gets more accustomed to automation, my prediction is that typical claims operations will move further along in a three-stage process of using automation. Specifically, the three stages are:
- As a first step, we’ll see automation supporting adjusters in their daily work. For example, modern claims management solutions use automated workflows to open claims using FNOL data, assign claims, send and log documentation, send digital payments, and more – freeing up adjusters’ time so they can focus on making smarter decisions and improving communication with customers.
- As a second step, we’ll see technology start to replace some aspects of the adjusters’ work. For instance, where coverage limits are relatively low, insurers can increase their levels of automation to create faster and more convenient claims processes such as straight-through processing (STP) using claims dashboards. Here, the system ingests data digitally and completes the transaction based on decisions governed by algorithms, including predictive models and simple business rules.
- And finally, the ultimate prize – adjusters and automation will work together smoothly and effectively.
Along the way, the increasingly comprehensive use of data will play a major part in the increasingly widespread use of smart automation. Not only will data help automated solutions empower claims adjusters to optimize their performance, but it will also help identify bottlenecks and improve decision-making processes.
3. The big winners will be those who leverage new technology to accelerate performance and support emerging business models
One of the most important innovations in insurance business models in 2023 will be the shift from reactive to preventive action. It’s not hard to see why: Given the availability of technologies such as the internet of things (IoT), AI, and telematics, insurers can now take a more proactive approach to predicting, detecting, and reducing risk. And by preventing an incident rather than trying to compensate customers for damage that has already been done, they can better achieve their goals and better serve their customers.
That’s just one example of a larger trend: Innovative business models and innovative technologies need to be aligned to maximize their effectiveness. That’s why the companies that benefit most from innovation next year will be those that employ emerging business models and use new technologies to assist them in that shift.
Making the most of this new potential involves using innovative technologies for purposes including preventive action and improved claims management. For example, insurers can use catastrophe modeling (relying on IoT algorithms) to quantify the likelihood of a CAT event and the intensity at which it might occur, helping them understand the risk to personal and commercial property. Meanwhile, they can use drone technology to make their claims assessment process faster and more efficient. And auto insurers can use telematics to accelerate their damage assessment and claims processing.
The reality is that there is actually such a thing as a “free lunch” when it comes to innovations like these: lowered risk, high reward, and improved customer service.
With 2023 just around the corner, there are good reasons for insurance professionals to look forward and wonder what to expect in the coming year. At a time when the use of data and automation is taking off across the board, our data-centered field is uniquely poised for digital transformation.
With broader consumer trends and economic pressures pushing insurance companies to innovate – not only by adopting new technologies but also by employing cutting-edge business models – it remains to be seen how specific companies will respond to their challenges next year. But it’s clear that the most effective approaches will involve a combination of automation and organizational change.