The insurance industry is rapidly evolving, and the adoption of new technologies is spreading from underwriting departments to claims. As a new landscape emerges, carriers face new risks and challenges, but there are also opportunities for claims departments that prioritize, strategize, and implement new methods effectively.
Here are the top industry trends that are creating both challenges and opportunities for carriers and claims departments.
Technology Investments
Insurtech and digitization have traditionally focused on the front-end, consumer-facing side of the insurance business, from quoting and binding to underwriting. Now, these digital advancements are shifting to the claims side. Claims adjusters are able to benefit from a comprehensive digitized strategy when policyholders file a claim.
For companies to implement a streamlined claims process and reduce loss adjustment expense, the digitized claims side must start with drawing insights from data to determine the right insurtech solution to implement. Artificial intelligence (AI) and machine-learning (ML) algorithms are processing more data than ever to boost decision-making to the highest degree of accuracy, allowing claims professionals to predict potential risks and make more informed decisions. The benefits are plentiful.
Carriers that are paving the way in digitizing claims with a proactive focus are leveraging data through analyzing historic metrics. As they build out data models for various uses, however, they must discover what works and what does not, and this requires vetting, testing, and leveraging third-party data solutions to refine their models.
In addition, with new technological investments seamlessly merging with daily business practices, cybersecurity is no longer just a technology risk, but also a business risk. As more insurance companies explore new technology investments to reduce costs and improve customer satisfaction—such as AI, process mining, virtual agents, and intuitive user interfaces—protecting data must be a top priority. Claims departments must safeguard clients’ personal information and protect policyholder data by implementing robust security measures and increasing investments in cybersecurity.
Workforce Talent Shortage
The insurance industry—claims departments included—faces two challenges at once when it comes to the persistent talent shortage. The industry is projected to see nearly 25% of its labor force retire in the next three years, and 2020 PwC statistics show that 50% of CEOs say they are held back on innovating effectively due to employee skill shortages. At the same time, the next generation of workers does not currently see insurance as a desirable career path. A recent Pew Research Center study found that only 4% of millennials are interested in working in insurance.
Generation Z and millennials are transforming the workforce with new passions and demands, impacting all industries. Work-life balance has become a key topic among working adults, with a 2022 Forbes survey revealing that 90% of employed respondents say it is important. Insurance is a highly demanding industry, making it challenging to achieve optimum work-life balance, so leaders must focus on creating environments and cultures that promote and nurture this balance to meet the needs of today’s employees. As insurance companies seek to implement digital transformation strategies, their talent strategies must prioritize technology, analytics, and actuarial roles with flexible work arrangements aligned with business priorities.
Rather than sourcing new talent from an already scarce employee market, employee upskilling and reskilling are imperative. To bridge the skills gap and equip employees with digital know-how and tools, leaders must be proactive in training employees with a long-term goal in mind that is based on a mission of lifelong learning.
Finally, with rising expenses and increasing talent shortages, more companies will look to create partnership ecosystems. These ecosystems could be created by diversifying service providers and methods of claims handling, or by enabling strategic insurtech solutions that allow for greater efficiencies and end-to-end solutions to keep the consumer at the center of the claims experience.
Rising Indemnity Expenses
Per Kiplinger’s Economic Forecasts, the annual inflation rate was at 6.4% at the beginning of 2023. With inflation at an all-time high and with the severity and frequency of catastrophic events increasing, carrier indemnity expenses will continue to rise throughout the year. According to the Insurance Information Institute, property and casualty lines experienced an over 16% cost increase as of last spring. This brings higher renewal rates and drives consumers to shop for policies, putting brand loyalties to the test. According to McKinsey research, these rising prices have led to loss costs increasing by approximately $30 billion in 2021, with almost all lines of insurance experiencing a rise in claims costs.
While indemnity expenses have increased due to inflation, they can be somewhat controlled by increasing the speed of service with insurtech solutions. If carriers can better triage claims by improving self-serve, desk, managed repair, and field response, they can better align severity and adjuster resources, and anticipate the likelihood of a claim escalating. This saves valuable time early in the claims process, but requires implementing changes that sometimes get stuck in the discussion stage.
Consumer Demands
Consumer demands continue to evolve, and speed and transparency now top their list. A Label Insight study found that 94% of consumers will remain loyal to a transparent brand, and 75% are willing to pay more for products or services from a brand they view as genuine. Unfortunately, many in the insurance industry are failing to meet the mark on these expectations.
However, by leveraging data and insurtech, carriers can begin to drive personalization and consumer engagement from new policy takeout to claim response. It is important that carriers personalize claim responses and tailor them to policyholders’ needs, preferences, and specific losses. Carriers must be mindful to not seek a one-size-fits-all solution, as it will end up missing many consumers’ needs. With the right insurtech solutions, companies can meet consumer demands with speed of service and adjuster efficiencies.
While 2023 is a year of challenges for claims departments, it is also full of opportunities for significant movement and growth. Implementing the right insurtech solutions will help carriers make strides in strategies while allowing them to remain agile. Carriers that stay ahead of the curve will continually analyze trends and evaluate the risks and opportunities. From digital advancements moving to the claims side of the business, to workforce shortages, to a rise in indemnity expenses, to shifting consumer demands, there are many opportunities to grow through the challenges.