The insurance industry is full of metaphorical dinosaurs. Despite overseeing a whopping $3 trillion in claims payments per year, it overwhelmingly relies upon outmoded payment methods like checks, which are slow, lack transparency, vulnerable to fraud, and therefore prove ten times more expensive for insurers to manage than digitized payments.
It’s no secret that consumers hate waiting and confusion—feelings that become especially acute when they need to pay for necessities under stress. If a flood destroys the flooring of your home, that event triggers a laborious construction project, but also a more complex process to get your insurance provider to pay for it. While the claim is going through the system for up to six to eight weeks, the insured could be spending thousands of dollars on temporary accommodations.
A faster claims lifecycle must fight a myriad of bottlenecks: adjusters are used to sending payments by checks; financing partners, such as mortgagees and lienholders, often need to approve payments; third-party vendors are typically needed to remedy damage, so they are involved in the payment workflow as well. These inefficiencies stack on top of one another while too often, customers remain in the dark about their progress.
Insurance has always been known as a slow-moving industry for technology, but we are at a tipping point where rapid innovation is beginning to fuel widespread disruption. COVID-19 drove insurers to adopt and utilize digital claims, which reduced the average time from submission to payment by 5.5 days and drove a record-highs in customer satisfaction scores, according to the 2021 U.S. Property Claims Satisfaction Study. Digital claims processes are also helping to reduce the time to cycle, leading directly to a lower loss ratio and lower allocated loss adjustment expenses.
First notification
It’s time for insurers to build on that progress by implementing innovative claims processing technology throughout the entire lifecycle of a claim, with integration and automation deployed from First Notice of Loss (FNOL), to streamlined adjusting processes and finally, to more flexible digital payments disbursement.
The claims lifecycle begins with the customer’s First Notice of Loss (FNOL), which is the notification the insurance provider receives after an insured asset’s loss, theft or injury. Customers may digitally initiate claims as soon as the loss occurs, creating consistent workflow and efficiency that flows all the way through to payments.
Thereafter, the ongoing claims adjusting process is an integral part of insurers’ ability to cement a relationship with its policyholders. In this second phase, insurers investigate and determine the right coverage and legal liability and for settling a claim. Digitizing claims adjustment renders several benefits at this stage because now, data compiled via virtual adjusting can be done anywhere. Video collaboration and mobile apps can inspect claims remotely, while photography and roof inspections can be completed via drone. These new advances make it faster for adjusters to work through the claim, determine the severity implied, and ultimately move the process forward to payments disbursement.
Time is money
Finally, a significant driver of the bottlenecks in the claims process continues to be the disbursement of payments via checks, as mentioned above. 75% of P&C carriers’ claim payments are still mailed via paper checks, the payment method most frequently subjected to fraud attacks in 2019, cited as a risk at more than double the rate of most other payment methods, per AFP’s 2020 Payment Fraud Report.
By teaming up with insurtech providers, carriers can achieve seamless digital inbound-outbound payments, working to disburse claims payments to customers with faster, near-real time technology and complementing those upgrades with enhanced customer communications tools like interactive voice response. These methods are also provided to enable vendors, lien holders, mortgagees and other parties and policyholders because when all parties use payments technology, all parties get paid faster and the claim process. Digital disbursements also have the added benefit of implementing secure payments tools like virtual cards, tokenization and multi-factor identification to ensure that much-needed claims payments don’t fall into the wrong hands.
Delivering these benefits and delivering a faster, more efficient claims process for their policyholders and vendors is a clear win for carriers in terms of customer retention and network development. Significantly, a more efficient claims process also has a knock-on effect of driving down the allocated loss adjustment expense (ALAE), the cost carriers incur on investigating and settling an insurance claim. Here, it is true to say that time is money: every day that a claim is outstanding, the ALAE rises, cutting into underwriting margins and ultimately, carriers’ profit.
On the way
As insurers seek new ways to manage ALAE, reduce severity and keep operational risks down, those who are still tied to legacy and older core systems can partner with third-party insurtechs allows them to leverage new payments technology without the upheaval of a complete systems overhaul. By starting to digitize aspects of the claims lifecycle today, insurers will be on their way towards faster processing at a higher volume, meeting customer expectations more consistently—and especially in moments of their greatest importance—while keeping overall costs down.
