At the site of loss, a claims rep pulls a smartphone from his pocket, takes measurements, snaps photos, and accesses databases, pricing and restoration vendors. At the other end of the process, a number cruncher compares an insurer's claims performance against peers of similar size and, then again, in similar markets. At points all along the spectrum, the claims division informs underwriting of trends and costs that drive both premiums and the insurer's willingness to accept a risk. There's one thing that connects the carrier's many moving parts, turning discrete incidental data into a foundation for strategic operations and decisions. Information technology.
The claims function is ripe for IT-based innovation, but the head of claims can't do it alone. The chief information officer can play a critical leadership role in helping the claims department. Yet, despite IT's pervasive influence, just one in three senior insurance and information technology executives thinks the CIO is recognized as a business leader and not just an IT leader, according to the most recent PricewaterhouseCoopers' Diamond Advisory Services Digital IQ survey. Worse, more than 20% say that their CIO lacks a productive working relationship with business executives.
Where is your company when it comes to exploiting the power of information technology?
Three Towers of Technology
Three technologies in particular—sensors in insured buildings, mobile technologies in the hands of adjusters, and telematics in vehicles—hold tremendous potential for the claims function. Each of these technologies generates a tremendous volume of data that must be securely captured, stored and, ultimately, converted into actionable information.
Sensors—Wireless sensor networks installed in large buildings to manage security, measure vibrations, and monitor the risk of fire and water damage can provide critical claims-related data. It's possible such data could reveal if building neglect was a determining factor in a loss. Likewise, security technology might be exploited to identify actions or events that have had a material bearing on an incident. Think of these networks like an airplane black box. They are loaded with data that would make an essential contribution to the evaluation of a claim, but claims personnel need to know they exist and how they integrate into the claims process. This convergence of IT and claims functions needs to be facilitated by someone at the carrier.
In some instances, the insurer provides the technology to the client and has jurisdiction over the software and data. For example, a division of a large reinsurer provides power disruption insurance to utilities and equips clients with monitoring equipment to ascertain problems before they happen. The result? This division has loss ratios in the twenties versus other commercial insurer loss ratios that average in the sixties.
In other instances, clients have their own technology that might be valuable to draw from or link to. In those cases, someone at the carrier would have to own that effort and coordinate with the claims department. The CIO and the chief claims officer should, ideally, propel that integration.
Mobile comms and telematics—With mobile phone and tablet solutions, the onsite claims adjuster has the potential to quickly capture and share a wealth of data about a loss. These claims handling tools are already being enhanced, and will increasingly be enriched, by in-vehicle telematics. The caveat is that a mismanaged communications or telematics system can lead to junk data and e-mail bombardment. The IT and claims departments must ally against these common enemies.
As in-vehicle telematics solutions provide more objective accident records, insurance companies will have a new level of granular, detailed data about the behaviors and actions of drivers. This information will provide a wealth of new information about cause and culpability. Telematics solutions potentially allow insurers to shift their business models from risk-based pricing and service models to hybrid models that employ risk monitoring and prevention services in order to reduce consumer claim frequency while substantially improving insurer economics. In fact, at least one insurer has found that the number one indicator for accident likelihood isn't age, gender or distractions from smoking or speaking on the phone—it is simply how hard and how often drivers apply their brakes.
Integrating Claims and IT
While the claims department can capture data, extracting the full business value requires help from the CIO. Many carriers have multiple, redundant data environments, a proliferation of IT and analytical tools across the organization, and escalating costs. Weak governance processes and the challenges of managing multiple data sets and environments can add to the complexity. The key to reducing waste is collaboration between the two sets of experts—claims and IT.
The heads of the two divisions might be most successful by initiating a pilot program to demonstrate how cooperation on existing technologies improves performance across data collection, analytics, dissemination and access. From there, the relationship can evolve into joint ventures on future systems.
There are three prerequisites for using information and technology to foster better performance. First, there must be clear alignment between departments and senior management about precisely what new business value can be created. That typically requires a lot of conversation, give-and-take, and detailed analysis.
Second, any proposed program or system should be consistent with the overall corporate strategy. Knowing whether or not the company is competing on the basis of cost, superior customer service, or some other factor should guide the effort before resources are mobilized.
Third, there must be sufficient resources and clear accountability to translate the effort into real results. More than half of the Digital IQ respondents said that business leaders other than the CIO control at least 30% of the money spent on IT. The advent of cloud computing and powerful personal mobile devices enables some functions to sidestep the IT department. If the technology leader lacks depth of vision into how the claims department is using technology, there will be problems in turning one-off investments into significant, long-term business value. Even if control of some IT spending lies outside of the IT department, the CIO needs to be kept aware of those investments and must help ensure that they are delivering maximum value.
If the conversations between claims and IT are all happening on the IT help desk hotline, it is time to elevate the discussion. An alliance between the chief claims officer and the CIO can maximize the return on technology investments.
Jamie Yoder is a principal with PwC's Diamond Advisory Services.