The new standard for insurance claims

In this podcast, three claims experts discuss what insurers should consider as they update their technology, ways of working, and workforces to bring forth the future of claims.
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The new standard for insurance claims

In this episode of McKinsey on Insurance, Elixabete Larrea speaks with fellow claims experts Michael Müssig and Samantha Prymaka about the future of claims in insurance. They discuss how data and analytics has shaped the industry, how the workforce and workplace have changed, and what they foresee for the future.

The following transcript has been edited for clarity.

Digitalizing the claims journey

Elixabete Larrea: Let’s start with the digitalization of claims, since there is so much happening right now in the industry. Samantha, can you describe what you are currently seeing in Europe?

Samantha Prymaka: Both digital and analytics have been two of the core topics in claims lately. With insurers investing heavily in digitalizing direct claims journeys, they often focus on some of the core assets along the journey: first notification of loss, fraud management, or claims tracking. At the same time, we see lots of service providers emerging in that space offering digital analytics tools along the end-to-end claims process. And yet only very few insurers manage to reach the full potential. We’ve seen several insurers follow a single asset-by-asset approach and realize, at first, potential that is sometimes quite significant. But oftentimes, they miss the end-to-end view by digitalizing their full customer journey before the processes that support it.

Elixabete Larrea: We are seeing a similar trend here in the US. I think it’s clear that the pandemic has served as a catalyst to drive adoption and the pace of innovation in not only insurance but across all different industries as well. The clearest example here in the US—and I’m sure it’s the same in other geographies—is how claims organizations adopted digital tools such as conducting appraisals virtually based on pictures or videos, rather than doing that in person. It was unbelievable how, from one day to another, everyone had to adapt. This was one of the things that was unquestionable: it had to be done this new way because there was no other way.

We also recently conducted a claims digital study among some of the insurers here in the US, and it showed that 60 to 70 percent of them are saying that they are moderately adopting these new digital tools or ways of working, which to me presents great opportunity. The beginnings of new innovations are here, but there is still a long way to go.

Michael, what is next for digital analytics in claims? What big trends that are impacting our industry?

Michael Müssig: We are looking forward to very interesting times. I think change will never be as slow as it is today. Consider that five years ago, we had around 30 million zetabytes of global data. Now we have 80 million. In another five years, we will have 300 million. 1 It’s an explosion of data. For reference, you need less than one terabyte to codify all the human knowledge that is available globally. So, clearly, it’s not about the amount of data but rather having the right technology and the right approach to get useful information out of that data.

Luckily, we now have this technology. The error rate of voice recognition is close to that of humans talking to each other. Computer vision can extract data out of images, so we’re not just relying on structured data. So all of these ingredients, technology-wise, are there.

From an insurance claims perspective, I see three main trends emerging in the next years. First, a full end-to-end integration of digital and analytics will become more popular. We see many insurers working on single-point solutions or single elements of the value chain. But combining these end to end from the perspective of data and user experience will be key in the next five years.

We see many insurers working on single-point solutions or single elements of the value chain. But combining these end to end from the perspective of data and user experience will be key in the next five years.

Michael Müssig

Second, I think insurers and claims organizations will change the types of services they offer. Of course, a claims organization needs to be well-versed in classic protection—but what about moving forward to prevention? And we must think about new value-added services that come with ecosystems and how they’ll play a critical role.

Last is the changing skills of our current claims workforce. Claims handlers won’t be made obsolete by automation. Rather, we will need different types of claims handlers who have the right level of empathy and the right digital and analytics skills to stay relevant in the new ways of handling claims.

Elixabete Larrea: Samantha, you are on the ground level driving a lot of claims transformations. In your experience, how do we deliver on these trends that Michael was discussing—the ecosystems, the prevention, the importance of talent, and the digitally enabled human touch?

Samantha Prymaka: From an insurer perspective, you need to take the full market into account when digitalizing claims. In fact, most insurers don’t build journeys or the required assets on their own—they have been integrating assets and solutions from various service providers that are out there. It really helps to think in ecosystems when building your target claims journey.

In fact, most insurers don’t build journeys or the required assets on their own—they have been integrating assets and solutions from various service providers that are out there.

Samantha Prymaka

Take the example of motor claims. A repair network not only supports the insurer with discounts or the service levels they provide but it also helps to create a seamless experience from the customer perspective through, for example, the online appointment-booking tools that are available now.

Elixabete Larrea: To go a bit deeper on that ecosystem point: in the US, at least, we are debating the role of the claims handler and the AI or digital engine in this ecosystem. The claims handler or adjuster is at the center of the ecosystem, so they are the connection between the customer and all of these different actors, like you are describing, Samantha: the repair shops, distributors, other vendors, etcetera.

In some cases, the AI engine is at the center of this interaction—or at least could be at the center of this interaction—connecting the customer with the other elements of the ecosystem. And, to me, the question is not whether the AI can do that. It’s whether we are all comfortable with the AI playing that role. It’s not a technology readiness question; it’s a human readiness question. I think we are going to have this transitional scenario in which the AI engine and the human will be interacting with each other.

One thing that might happen is that, as we are interacting with the technology, we will start to feel comfortable having an AI engine interact with the customer for certain claims and then tag in a human being at moments in the claims journey when they’re needed or when it matters. Or, on the other extreme, we could never feel comfortable with AI playing that role. In that case, AI would stay in the background, and the human would be the one pulling it into the journey to interact with the customer when needed. We will learn a ton during this transition phase, which will help us understand where in this ecosystem the claims adjuster, the insurance company, and all the other elements finally end up being.

The future workplace

Elixabete Larrea: Trends around the future of work and the workplace are also top of mind in claims—not only in how skills and roles will evolve but also how we work with different versions of hybrid or remote models in play. This will become very important in claims organizations because they typically utilize one of the bigger full-time employee groups within insurance companies. I think it will be the responsibility of claims departments to shape the way others in the organization work. We know from McKinsey Global Institute reports that automation and new technologies will deeply impact key roles in insurance companies in the next decade or so, including claims-related roles.

There will be roles that disappear entirely because they are simple tasks that can be performed by automations but, in general, roles won’t fully disappear. They will just evolve. To your point earlier, Michael, we will require roles to evolve to include new skills over time. That will be exciting.

Thinking about this strategically, partnering with the talent and HR organizations within insurance companies will be critical, but we must also consider how we will go back to work and embrace remote possibilities now that we have seen that it is feasible to actually attract and retain exceptional talent for claims organizations. That will be a real challenge or, better, an opportunity for most insurers across different geographies.

Samantha, I know you are very passionate about talent and skills in the future of work. What do you think?

Samantha Prymaka: As you just mentioned, Eli, insurers will have to follow a dual strategy. Given the significant amount of change that is needed, they will need to both reskill and upskill their existing workforce and claim centers. At the same time, they will need to hire new talent. Especially with the hiring of new talent, one needs to recognize that insurers are now fighting for talent with other big technology companies. To attract talent with the digital-analytics skills that are needed now, insurers will also need to rethink the way they work and the flexibility they offer.

Michael Müssig: There’s no one-size-fits-all approach. It might differ by geography. It might even differ within a geography by company culture, but I would love to see it as a glass half full rather than a glass half empty. For the first time, claims employees can now work remotely. Alternatively, we are also able to go back into offices in most countries due to vaccinations, thankfully. So, in the end, we could have the best of both worlds.

My view is that we won’t go back to 100 percent in the office. We might also not stay 100 percent remote, but there might be a good mix. Each organization can talk about when it is relevant for people to be in the same room, meet each other, and talk to each other, and when it’s good for employees to work on their own projects.

Elixabete Larrea: To that point, Michael, today, we know that claims roles are typically focused on technical claims adjudications, with some administrative burdens and low-value-added tasks that are part of the work. In the future, there are probably three types of roles that we will see as claims organizations grow over time.

The first one is digitally enabled claims handling. We need people who can seamlessly pick the right information from data sets to interact and communicate with the customer. That will require the skill set needed for that claims handling role to change.

We need people who can seamlessly pick the right information from data sets to interact and communicate with the customer. That will require the skill set needed for that claims handling role to change.

Elixabete Larrea

The second is claims prevention. In the next few years, we will need more and more professionals within insurance companies dedicated to that role. Today, it exists in some organizations, but it will probably grow dramatically over the next few years, and it will be focused on monitoring, prevention, and mitigation.

Third is a continuous-improvement and risk management role. I was explaining earlier how claims handlers will need to learn from the AI engine. In some cases, we’ll need the claims handler to participate in trying to improve those algorithms so that we can continuously improve the outcomes that come from them. Then we can find the most effective way for claims departments to function to better serve customers.

People in this new role will interact with these algorithms to make sure that they are built the right way and are continuously learning and grabbing all the experience and expertise that is needed to make them better. Obviously, this is not going to happen overnight. It will require a journey that we will need to make together—technology and humans.

The new normal for claims

Elixabete Larrea: What is making you excited about the future of claims? Michael, let’s start with you.

Michael Müssig: I think we are seeing an extension of our claims triangle—the three dimensions of claims efficiency, effectiveness, and customer satisfaction—to include two more dimensions. The first is employee satisfaction. We all know we can’t afford to lose good people. It’s important to have the right digital-analytics talent who can provide right empathy when talking to the customer and who are using all the outputs of the AI model in a way that feels good to the customer so that they still want to interact with the insurer of their choice.

The second additional dimension is on sustainability. That’s not at all an insurer-specific topic, but you see how claims organizations play an important role in that in terms of how they can provide the right services while thinking about whether they can repair a car rather than replace it to save on CO2, for example. Or, thinking about our ecosystem of suppliers, are they are eco-friendly? Do they have the right setup in terms of sustainability? It adds more complexity to the game.

We are now considering five dimensions rather than three, but I think this is also what makes the industry exciting in terms of how claims organizations of the future can excel. They will be the ones that balance all those dimensions—efficiency, effectiveness, and great customer service, as well as making sure the employees are happy and repairing the car in a sustainable way.

Elixabete Larrea: I love this, Michael, and I couldn’t agree more: our definition of impact across insurance is evolving. Samantha, what about you? What are you excited about?

Samantha Prymaka: Claims has developed in a positive way during the pandemic because many claims organizations were forced to accelerate their digital journeys. Many had started their journeys a long time ago, but most of them hadn’t finished. Claims organizations are often hit with surges in claims in times of natural catastrophes or other happenings, and with these varying volumes, they need to react to it and adapt in terms of flexibility. They needed to do that anyway, and the pandemic actually helped to accelerate this.

Elixabete Larrea: This is an opportunity to raise the aspiration of claims organizations around the world. Because you are right: the pandemic has been a catalyst. But at the same time, I think the moment of claims is now. We really need to accelerate these transformations. Customers are now used to a level of digitalization across product services that has completely evolved from two years ago, and claims organizations haven’t caught up with that pace.

We need to think outside the box as we consider how we are communicating with our customers. How do we meet them where they are? How do we surprise them in a positive way, proactively sending communications? The industry five years from now could look completely different from today, but for that to happen, there needs to be very concerted efforts across data, analytics, and digital to transform the journey and establish that end-to-end view. And that requires commitment and alignment across all levels of the organization.

Thank you, Michael and Samantha, for such a lively and interesting conversation. I think we can all agree that there is a lot of potential. I love your phrase, Michael: let’s see the glass as half full. Let’s be hopeful and let’s take this as an opportunity to bring claims organizations to the next level.

To our audience, thank you very much for listening. Remember to subscribe to the McKinsey on Insurance podcast wherever you get your podcasts.

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