The claims process, why is it perceived to be slow?

In 2017, Lloyd’s want to focus on the claims process, chiefly to make it more efficient and a better experience for both insurers and customers. In order to fix the issues within claims handling, it is important to realise why the process can be perceived as slow and ineffective. The claims process can be slow but it has historically been engineered and re-engineered to be that way on purpose. “Every claim goes through the same process – it will be investigated, quantified and validated by insurers before being paid. And you can get holdups at any point in that process.”[1] The changing of hands throughout the claims process is done for a reason, ensuring that different people can view the claim and that it can be deemed to be legitimate. This is understandable and typically expected for larger claims. In addition, in many cases insurers replace objects instead of paying out cash, making the supply chain longer, and as a result the process more time consuming. Where Lloyd’s and the London market fall down is that this drawn out process is used for every claim, regardless of size. This makes the system appear full of bureaucracy and ineffective. This, along with the desire to improve customer experience, is why in 2017 there will be a focus on reform within the claims system.

What are people trying to do to speed up the process?

It is not just the London market seeking to change the way claims are handled. Within the US, companies are working on better automation of their claims systems, using more advanced artificial intelligence and processing claims at a speed that makes Lloyd’s look dated. Notably the New York firm Lemonade has broken the record for the fastest claim in just over 3 seconds. The algorithms used by Lemonade mean that they can supposedly avoid fraud and misuse of their system[2], and whilst this may sound like the breakthrough technology that the market needs, they have only been in the insurance industry for one year and therefore do not have the legacy baggage that the majority of the London market has.

“Many of the front-runners are new start-ups or ‘greenfield’ operations, who have the advantage of being able to build a digital claims process from scratch. For routine claims, customers benefit from a fast and straightforward process, while the insurer is able to run the operation with fewer people and at lower costs than their conventional counterparts.”[3]

Equally the culture and practice of the London market and its reluctance to adopt and trust these automated systems mean that adapting and competing with these newer systems can be difficult. In addition to this, dealing with only one type of claim and with relatively small pay-outs, they can afford not to look at each of their claims in detail whereas many firms handling larger claims prefer to take their time over more expensive claims at the risk of being labelled slow.

What are the pitfalls of going too fast?

The search for greater speed and more efficiency does not always go seamlessly. The reason that claims management has not become more automated in the past is largely due to the nature of claims itself. Insurance claims are naturally targeted by fraudsters and people seeking to abuse the system. For example, a firm called GEICO previously tried on a large scale to reduce the time taken to pay claims, stating that they could do it in under 24 hours. Whilst this became a unique selling point for them in the market, it was quickly figured out by organised crime networks that they were not checking claims under $500, a mistake that cost them being defrauded thousands of dollars. Lemonade have avoided these pitfalls by combining both speed and pragmatism; they don’t purport to use their 3 second system on every claim. When it is identified that the algorithm doesn’t fit, they will simply use this as a claim notification service, still improving the processing time of the claim and therefore the claim experience for the customer.

Is there a need for instant claims or is there a middle ground?

The main issue that Lloyd’s and the London market face is the drive behind these changes. In reality, speeding up claims to such short period of time is ineffective on a large scale and too vulnerable to abuse. Lloyd’s needs to find a middle ground when reforms to the claims process are brought in. For some, the apparent overly bureaucratic process needs to be addressed. However, any increase to the speed with which claims are handled needs to be balanced with any potential negative impact to the quality of the validation process. As we saw with GEICO, if the focus is on claims being handled quickly, insurers can leave themselves open to exploitation. Equally the speed at which claims need to be managed is dependent on the class of business itself (this can have differing impacts on the customer experience) and if any speed ups or workarounds are available for that particular part of the market. The market is moving in the right direction and insurers are being innovative with the way that they are handling claims. For example, companies such as Ageas and AVIVA have utilised people and drones with cameras to send to areas with flooding so that damages can be assessed in less time and thus making the claims process quicker.[4] Equally in the motor insurance market, black boxes have become more prevalent, recording when an incident occurs and triggering the claims process immediately or very soon after an incident.

Equally, other advances in technology are pushing forward change, such as video with back office assessment, mobile technology in the hands of the policyholder, innovative resourcing models (to bring visits forward) as well as web portals for improved customer interaction. Insurers have been seeking to make their processes smarter in many ways and automation is playing a huge role in driving change for the London market. However, this technology does not support all types of claim. For different market segments with different claim complexities and values, there will undoubtedly be different solutions.