Tag Archives: claims management

Keys to Limiting Litigation Liability

Over the last decade, businesses have placed tremendous focus on improving the safety of their products, their establishments and the services they provide to their customers. They have taken advantage of data, technology and enhanced risk management practices driving safety and quality. Yet we continue to see extreme verdicts, social inflation and “hell hole jurisdictions” in the liability arena. The question is, what more can be done?

In this paper, we will analyze the trends in liability and auto losses, both litigated and non-litigated, and provide guidance on tactics to manage those losses.

Key findings:

  • Nuclear verdicts continue to be a concern for the business and insurance community. Just one of these verdicts can have
    a major impact on individual programs. Media coverage and advertisement of these verdicts may motivate increased litigation that, in turn, creates an increased burden on carriers and companies.
  • Litigation costs continue to rise.
  • There are more attorney-represented claims at first notice of loss.
  • The “social inflation” factor is real and is likely driving some of the increasing litigation cost.
  • Litigation avoidance practices will reduce liability claim costs and increase control over the litigation rate.
  • Plaintiffs’ bar has become increasingly coordinated in approach and strategy in tort suits. An awareness of how plaintiffs’ strategies have evolved is a critical part of defending any claim.
  • Advocacy and early intervention are important factors in mitigating the likelihood that claims could evolve into more expensive disputes.
Figure 1

Despite GDP growth, we have seen an average decrease in general liability (GL) claims of 2.7% per year over the last five years (See figure 2). With the increased amount of transportation services (e.g., restaurant and retail delivery and ride-sharing services) and improvement in the economy, auto liability (AU) claims continue to increase in frequency. However, this increase is significantly less than the increase in related exposure growth.

Figure 2

Most liability and auto claims reach an amicable resolution without litigation or attorney involvement. When the parties cannot agree on resolution, the impact is substantial. The majority of the total paid for both GL and AU is attributable to disputed cases. In fact, 0.1% of all GL claims with total incurred losses over $500,000 make up 29% of total paid losses. For AU claims, 1% with values over $100,000 make up 60% of total paid losses. Clearly, even when litigation is a small fraction of the total claim volume, litigation and the largest value claims have a sizeable impact on ultimate values.

Given the impact that litigation and disputed claims have on results and incurred losses, the best outcomes for claims may be a case
of “timing is everything.” As claims mature through their life cycle, litigation rates increase. Several factors drive this result, including lack of communication, lack of understanding and poor resolution strategy. We will delve more into these drivers and the prevention and control tactics for litigation, later in this paper.

Litigation trend:

As a percentage of the whole, the litigation rate on new GL and AU claims is extremely low. (See figure 3).

Figure 3

As expected, however, the litigation rate increases significantly with claims that remain open after the initial year. (See figures 4 and 5). Despite this, the percentage of litigated liability claims has been declining in the last three years. (See figure 4).

Figure 4
Figure 5

As noted in figure 6, incoming litigation rates have remained flat
in the 0-12 month and 36-month development points while the 12-24 month and 24-36-month development points are seeing decreases. The two factors that favorably affected this include: the focus on resolving cases earlier in the life cycle; and the reduction in cases that continue in litigation past year three. Additionally, as already noted, there has been an increase in cases with attorney representation at first notice of loss. Although this has been viewed as a troubling trend, early attorney involvement can move cases to resolution earlier and makes access to information via discovery and negotiations quicker, resulting in faster evaluations and resolutions.

Figure 6

Perspectives on casualty litigation trends

In recent years, controlling the costs and outcomes of litigated cases, especially when left to juries to decide, has become increasingly challenging. At one end of the spectrum, the more egregious outcomes often referred to as “nuclear verdicts,” are commonly viewed as those cases with jury awards greater than $10 million. Another way to evaluate these cases is where the outcomes are “unexpected,” because the results were either not anticipated or considered a worst-case scenario. There are, of course, cases that have a true value of $10 million or more. But those are not the cases that are the focus of this discussion; it is the cases where a verdict is rendered far beyond what has been typical in similar circumstances.

Apart from large outlier cases, there are a growing number of cases that present unprecedented financial and reputational risk. And while these trial outcomes may be viewed as “affordable” to the defendants and insurers in specific cases, they are nonetheless often startling, considering their improbability.

In 2013, the insurance industry noticed a marked increase in auto loss frequency, which was especially concerning given that a 25-year decline in auto collision frequency was reversing. That 25-year trend was largely related to the increasing safety-related improvements in vehicle design. In subsequent industry studies, among 26 variables found to be correlated to the increase, the number of lawyers per million population was a significant variable. Since then and through 2019, plaintiffs’ lawyers continue to appear to be focusing on auto loss claims given the increased frequency. A detailed report by the Casualty Actuarial Society elaborates on this premise.

Industry-wide GL trends also reflect deteriorating conditions, with most GL costs attributable to litigated claims. It is noteworthy that, among four key drivers in a recent Milliman report on the GL line, two were related to litigation: litigation funding and the increase in jury award frequency and severity. The report noted that the ratio of non-economic to economic damages is increasing. In addition, Advisen maintains a large general and products liability loss dataset that reveals that plaintiffs’ attorneys have increasingly coordinated to create strategies that drive higher verdicts.

So how significant is the nuclear verdict risk? The chart below lays out the number of these verdicts for the past five years.
(See figure 7).

Figure 7

The total number of these verdicts has decreased over the past two years and is well below the five-year average. However, that decrease is countered by the increase in the value of those verdicts. According to one nationwide source of verdicts and settlements, for 2015, the largest verdict, in a wrongful death action in Florida, was over $844 million. By contrast, the largest verdict for 2019 was $8 billion for a Risperdal verdict against Johnson & Johnson in Pennsylvania (later reduced to $6.8 million). The next largest was for over $2 billion in a Roundup case (cancer allegedly caused by weed killer) in California.

So, the challenge with nuclear verdicts is not just about industry impact, but more about the impact an individual verdict can have on a business, insurer or individual. Additionally, the challenge is about the influence (including social inflation) these extreme awards have on other juries, who have become accustomed to hearing large award figures in the media and have had their perceptions changed.

See also: 5 Liability Loss Mega Trends

Many verdicts are reduced after trial by a court or by the parties through settlement negotiations. In addition, some jurisdictions have punitive damage caps or non-economic damage caps that can also come into play in reducing jury awards. Regardless, when the judgments are reported, often by eye-catching media stories, the damage may be done. It is the rare case where a reduction in a jury award will be front-page news.

In the report from the Institute for Legal Reform titled “Costs and Compensation of the U.S. Tort System,” the authors found that total costs and compensation paid in the U.S. tort system were $429 billion, or 2.3% of U.S. gross domestic product (GDP). Of this amount, 57% went to plaintiffs, with the balance being the cost of litigation, insurance and other risk transfer costs

Of the $429 billion:

  • $250 billion (58%) is attributable to commercial and general liability exposures;
  • $160 billion (37%) to auto exposures; and,
  • $19 billion (4%) to medical malpractice litigation exposures.

Florida had the highest costs as a percentage of GDP (3.6%). When measured as the cost per household, the states with the highest costs (California, Florida, New York and New Jersey) were greater than $4,000 per household (versus $2,000 for the lowest-cost states).

The Institute for Legal Reform conducted a survey of over 1,300 general counsel/senior litigators, who ranked these elements as the most significant indicators of the litigation environment in states:

  • Enforcing meaningful venue requirements;
  • Overall treatment of tort and contract litigation;
  • Treatment of class action suits and mass tort claims;
  • Consolidation suits;
  • Damages arguments;
  • Proportional discovery;
  • Effective use of scientific and technical evidence;
  • Trial judges’ impartiality;
  • Trial judges’ competence;
  • Juries’ fairness; and,
  • Quality of appellate review.

Additional Analysis

Not only are the loss cost and expense for litigated claims larger than non-litigated, as anticipated, the incurred amount for both damages and expense for litigated claims has been trending up for several years. This contrasts with the incurred trend for non-litigated claims, which has been on the decline in recent years for AU and GL. So, not only are litigated claims more expensive than non-litigated, they continue to get more expensive relative to incurred costs for non-litigated claims from previous years.

Figures 8 and 9 show increase in cost by % for each of the categories noted.

Figure 8
Figure 9

Influences

Social inflation, nuclear verdicts, trucking accidents, “reptile brain” and litigation funding are among the more common topics frequently discussed as drivers of current litigation trends. Industry trends are notoriously difficult to predict, given the lack of broad, readily available and consistent data across various jurisdictions, industries, lines of business and carriers.

Without a doubt, litigation has a measurable impact on overall claim outcomes. As already noted, litigation rates generally increase the longer claims are open. Not only are litigated claims more expensive than non-litigated, they continue to get more expensive when measured by incurred costs compared with previous years. Additionally, the duration of both AU and GL litigated claims substantially exceeds non-litigated claims, including the likelihood of adverse reserve development over time for litigated claims. As a result, the industry focus on avoiding and mitigating litigation
is appropriate, particularly because the trend of costly litigation
is accelerating across calendar years. The largest verdicts and settlements continue to represent a small percentage of the total claim volume, yet they also continue to have a significant impact on overall results.

Companies have a number of tools they can use to control litigation and avoid high-liability verdicts. The focus should be on resolving claims at an earlier date, particularly in the first 12 months of a claim. The risk and cost of litigation both increase dramatically thereafter. Use predictive modeling to identify claims likely to become litigated and ensure an aggressive workflow to push for defense and resolution if appropriate. Recognition by claims professionals of the risks and red flags for outlier verdicts is critical to ensure that defense counsel is prepared to manage these risks and to move cases through trial when necessary.

Because nuclear verdicts are so few and can happen anywhere, the ability to predict them remains challenging. Thus, the focus should remain on sound litigation avoidance tactics, proven litigation management tools and strong preparation for trial.

Emerging tactics and best practices for litigation

There are a variety of factors, strategies and tactics that can affect the exposure to outsized or unexpected results in civil litigation, as well as improve the outcomes of more routine litigation.

  1. Attorney selection — To have an effective settlement strategy, it is critical that counsel be willing and able to try cases. Use of data-based attorney scorecards and evaluations helps identify the best attorneys for various types of cases. Anecdotal opinions about counsel are not adequate for this challenging litigation environment—the data is critical to identifying the best counsel for each claim.
  2. Leveraging artificial intelligence (AI) and predictive analytics — The best way to avoid the risk of nuclear verdicts is to avoid unnecessary litigation. Using data to identify claims likely to end up in litigation and to focus early on those claims for settlement is a key to reducing litigation costs and risk.
  3. Attitudes toward corporations — One of the growing challenges with litigation is an increasingly negative perception of corporate defendants among some jurors. Millennials in particular are often identified as holding unfavorable views of these defendants. This must be accounted for not just in jury selection but throughout the life of the claim. Also, it is important at trial to ensure that corporate defendants have a “human face” either through witnesses or presence of a corporate representative throughout trial.
  4. Mitigating the “reptile brain” tactic — There is debate among defense counsel about whether this is in fact a new or exceptional concern. It is not a new theory — but does seem to have the focus of at least some plaintiff attorneys. The tactic is really about fear and using it to create a reaction in the jury. Identifying those plaintiffs’ attorneys that are planning on using this approach (this will often be apparent from discovery) and planning accordingly is critical.
  5. Mitigating anchoring tactics — “Anchoring” occurs when an individual depends on an initial piece of information to make subsequent judgments. This tactic can result in large awards based on a large damage number presented by plaintiff. It is worth considering whether it is appropriate for the defense to talk about the actual amount of damages at trial rather than try to defend against plaintiff’s number. This strategy is controversial, however, and it should be approached cautiously given the risk of a “split-the- difference” outcome.
  6. Mitigating “third party funding” tactics — This is an increasing trend in litigation in the U.S. and seems to be exacerbating the trend of larger verdicts. Some jurisdictions and courts have begun to allow discovery into these funding relationships, and defense counsel should be exploring that thoroughly when allowed.
  7. Case evaluation — One thing that seems to have clearly changed since the advent of the “social inflation” phenomenon is that the likelihood of a better outcome later in the life of a claim in terms of total cost has decreased. The days of a favorable settlement at the 11th hour seem to be the exception now. As a result, it is critical to have an early and thorough understanding of the case and its value.
  8. Settlement approach — The obvious and effective way to manage litigation costs is to avoid them. As noted above, it is critical to be prepared to try cases. However, it is just as critical to identify and resolve the cases that should not or need not be tried. The key is not to change how you handle cases, but how you think about them and to create a cost/benefit analysis of trial. This requires not only an appropriate case evaluation but an honest evaluation of the related issues. Key questions should include:
    • How long does it take to get a trial date in the jurisdiction?
    • How long do trials typically last?
    • How much will trial itself cost?
    • What pre- or post-judgment interest might attach to a verdict that might be appealed?
    • What are the other costs to the defendant, including business interruption, reputation, etc.?
    • Win or lose, what is the likely cost of appeals or additional negotiations if needed?
    • Is it likely a party will continue to litigate after a verdict?
    • Will there likely be attempts to impose a cap on damages or have it removed?

See also: COVID-19 Highlights Gaps, Opportunities

Summary

The bottom line is that some cases are appropriate for trial, and some are not. With the risk of nuclear verdicts, some that seem to shock even seasoned litigators, until there’s a clear understanding of what verdicts are likely to go “nuclear” it is prudent to have a plan in place to limit litigation only to those claims that should be litigated to verdict.

To free time to focus litigation efforts on cases that will go to trial, claims teams must improve their ability to identify cases for resolution and resolve them at the appropriate time. A case that gets to the eve of trial and settles then with no change in evidence or information is an outcome that should be avoided. That is a case that could have settled earlier.

Identifying cases to resolve requires focus by claims professionals as well as the effective use of data, predictive modeling, attorney scorecards and other tools. Timing is critical; once a claim has gone into litigation, even if the ultimate settlement amount is the same, the overall cost will increase due to litigation and defense costs.

In those cases that do go into litigation, a litigation plan must be developed and provided. Claim teams must take a direct hand. The “litigation plan” obviously must incorporate counsel’s evaluation of the claim, steps to take in the litigation process and, just as critically, a “resolution plan” to make sure that the discussion gets redirected back to conclusion—whether the case ultimately is tried or settled.

Throughout the litigation, the discussion of the claim should always include the resolution plan for those cases that should or could resolve. The resolution plan must have concrete steps, and not just follow an automatic path without a clear plan tailored to each case.

Risks associated with GL and AU claims can be managed to allow for predictable outcomes, even in an environment with “social inflation,” “nuclear verdicts” and tough jurisdictions. Numerous resources, tools and best practices are available to ensure that a very small percentage of claims do not drive oversized verdicts while ensuring an appropriate approach to dispute resolution.

Claims 2021 Planning: Making Good Bets

In most insurance companies, it is time to take out the 2020 budget and see where line items need to move for next year. Did the claims organization meet objectives? If not, what adjustments need to be made? What technology partners were aligned with the organization at the beginning of the year? And how do those initiatives need to be moved forward?

It sounds like a reasonable place to kick off from, right? Actually, the answer is probably “no.” If 2020 claims plans are the baseline for 2021, I conjecture that this is the wrong place to start.

SMA’s recently released report, Claims Transformation Reset: The Impact of COVID-19, lays out the case for why claims transformation and claims operations have a new performance baseline because of COVID-19. In most cases, many things changed, such as work-from-home (WFH) practices and interactions with customers that are no longer being done face-to-face. The pandemic’s impact is generally part of everyone’s view, but it is still evolving daily.

It is vital for claims executives to reassess other external forces affecting claims operations to effectively plan for 2021, not the least of which are workforce evolution trends and the rapidly changing digital connected world. Much has happened in these two areas, as well as three others outlined in the report. The environment that existed when 2020 plans were developed has dramatically changed.

In particular, an area with both a ring of familiarity as well as notes of a new operating world is the claims ecosystem. Even at the most basic policy level, claims organizations have extensive ecosystems: repair shops, contractors, healthcare providers, attorneys, law enforcement and agents/brokers, and the list goes on. Most claims organizations have traditional ways of interacting with the various segments of their ecosystem. Many of the traditional methodologies may be appropriate, but totally relying on tradition can have pitfalls. Instead, a new lens needs to be applied to the claims ecosystem.

  • How has the pandemic affected traditional players? Are organizations such as repair shops, independent adjusters, contractors and healthcare providers also working on a new COVID-driven playing field with related transformation initiatives? It is important that claims management reconnect with their traditional ecosystem partners and understand how innovation can improve outcomes on both sides of the transaction.
  • Are there new claims ecosystem players that should become prominent components of 2021 plans? Digital payment providers became mission-critical during the pandemic, but what should the next steps be in the continuing evolution of payments? Given the pace of change, are there new data providers that can surface business insights that should figure significantly in 2021 plans?

See also: COVID-19 Sparks Revolution in Claims

Having had many years of planning experience, I recognize that this time of the year can be challenging, to say the least. However, claims organizations have experienced business-altering change more than most others within corporate insurance operations due to the pandemic. Baselines of customer and employee expectations have been reset. It is not reasonably possible to go back to the comfort of 2020 and do what has been done in years past. In a risk-averse industry, no one is fond of betting, at least from a business perspective. However, given the right set of lenses and a thorough review process, there’s a good chance that bets placed by claims management will have outcomes that “beat the house” and prove valuable.

Claims and Effective Risk Management

The cost of claims has been at the heart of Total Cost of Risk (TCOR) since even before the inception of risk management as a separate function. The sheer magnitude of losses, insurable or not, defines so much of what risk managers focus on and tends to be what they report on most often, as well. The nature of mature and, by inference, effective risk management programs has claim management as a key focus. While risk maturity is directly correlated with risk effectiveness, this latter term encompasses a much broader perspective on things that matter. 

Not surprisingly, many components of risk management maturity have some connection to effective claim management. Accordingly, it is appropriate to understand what these components are and how they dovetail with a more comprehensive view into effective risk management. Admittedly, this perspective relates most to the traditional practice of risk management, focused on hazard risk, but failure in this realm will likely point to failure in other areas of risk management.

Components of Risk Discipline 

To instill risk discipline, and, by extension, maturity into claim management, one must set the tone for effectiveness across the spectrum of risk management activities and significantly feed overall risk management performance. This tone will influence the ability of risk leaders to act as “trusted advisers” to organizational decision makers. This should be a key goal for risk leaders, critical to long-term effectiveness and functional sustainability.

The starting point for this subject is two key things. First, how one defines “risk” and drives a consensus among key stakeholders about that definition. Claims are, of course, the outgrowth of risk and exposure. This direct relationship is the essence of why claims and effective claims management have a direct relationship to effective risk management. Whether this aspect of the discipline gets done by insurers (as part of the insurance contract), insureds (as a part of a self-administered claim operation) or through third parties (independent adjusters, third party administrators etc.) makes little difference. Effective claim management feeds effective risk management.

The second issue is both which risks are your focus and where on the loss curve they fall. This may sound simple, but the reality is that many risk leaders have responsibilities for only a portion of the risks that organizations face; often only the insurable risks. If that’s the case, the need to focus on claim management is clear; one leads to the other.

The Basics of Effective Risk Management Maturity

If you are a risk leader with broad accountability for risks, then the first question of “what is a risk to your firm?” requires total clarity. For the purposes of this article, a good definition of risk is “uncertainty” as it relates to the accomplishment of objectives. This simple definition captures the most central element of concern — uncertainty. However, the real challenge is determining the amount of uncertainty (such as frequency/likelihood), as well as the level of impact or severity. Each risk leader must make this choice and get it validated by his or her organization.

While many leaders focused on hazard risk look at risks at actuarially “expected” levels of loss, the challenge is how far out on the tail one should manage. While the possibility of loss becomes increasingly remote as you move out toward the tail of the curve, the impact of events becomes more destructive. Because the magnitude of loss in this realm can be catastrophic, the importance of both preventing and mitigating these events and their impact becomes critical. Central to after-loss mitigation is the claim management process. Related key questions that every risk leader must answer include:

  • What matters more to your organization: likelihood or impact, or are they equal?
  • What level of investigation should you apply to less likely risks?
  • How do we apply typically limited resources to remotely likely risks?
  • Do you have a consensus among key stakeholders as to what risks to focus on and how?
  • Do you have or need an emerging risk identification process?
  • Do you have a consensus on and clear understanding of how you define risk in your organization?
  • Have you educated your organization on the correlations between losses, claims and risk effectiveness?

These questions are the starting point for ensuring risk management maturity. From your answers to these questions, you can chart your course for what this will mean to your firm. The answers will define the process elements of maturity that will be needed to achieve your desired state. But we need to define what risk maturity is to track progress toward this state and to ensure that stakeholders are aligned around the chosen components necessary to get there. Understanding the attributes of claims and risk maturity includes:

  • Managing exposures to specifically defined appetite and tolerances;
  • Management support for the defined risk culture that ties directly to the organizational culture;
  • Ensuring disciplined risk and claim processes aligned with other functional areas;
  • Creating a process for uncovering the unknown or poorly understood (aka emerging) risks;
  • Effective analysis and measurement of risk and claims both quantitatively and qualitatively; and,
  • A collaborative focus on a resilient and sustainable enterprise, which must include a robust risk and claim strategy.

See also: Future Is Already Here in Claims

Examples of Risk Management Maturity Models

One thoroughly developed risk management maturity model (RMM) comes from the Risk Management Society (RIMS). While it was developed some 10 years ago, it remains a simple, yet comprehensive view of the seven most important factors that inform risk maturity. When well implemented, these components should drive an effective approach to managing all risk within your purview. 

The components of the RIMS RMM model include:

  • Adopting an enterprise-wide approach that is supported by executive management and that is aligned well with other relevant functions;
  • The degree to which repeatable and scalable process is integrated in the business and culture;
  • The degree of accountability for managing risk to a detailed appetite and tolerance strategy;
  • The degree of discipline applied to using the elements of good root cause analysis;
  • The degree to which a robust emerging risk process is used to uncover uncertainties to goal achievement;
  • The degree to which the vision and strategy are executed considering risk and risk management; and,
  • The degree to which resiliency and sustainability are integrated between operational planning and risk process.

Like all risk management strategies, no two are exactly the same, and there is no one way to accomplish maturity. Importantly, every risk leader needs to do for his or her organization what the organization needs and will support. 

Of course, RIMS is not the only source of risk maturity measurement. Others, including Aon, offer other criteria. Aon’s model includes these components:

  • Ensuring the board understands and is committed to the risk strategy;
  • Effective risk communications;
  • Emphasis on the ties among culture, engagement and accountability;
  • Stakeholder participation in risk management activities;
  • The use of risk in/formation for decision making; and,
  • Demonstration of value.

This is not to say that the RIMS model ignores these issues, they simply take a different emphasis between the models. 

Another model worth considering is from Protiviti’s perspective on risk maturity as it relates to the board of director’s accountability for risk oversight. A few highlights of the perspective include:

  • An emphasis on the risks that matter most;
  • Alignment between policies and processes;
  • Effective education and use of people and their place in the organization;
  • Ensuring assumptions are supportable and understood;
  • The board’s knowledge of asking the right questions; and,
  • Understanding the relationship to capability maturity frameworks.

Certainly, good governance is critical to ultimate success, and the board’s role in that is the apex of that consideration. If the board is engaged and accountable for ensuring their risk oversight responsibility is effectively executed, the successful execution of the strategy is likely and, by inference, risk and related claims will have been effectively managed, as well.

Another critical aspect of the impact of risk and claims that should not be overlooked is their impact on productivity. If productivity is directly related to people’s availability to work, then we can quickly agree that risks produce losses that affect both people and property, oftentimes together. We can readily agree that impacts to productivity are a frequent result of losses and the claims they generate. Further, productivity impacts are not just limited to on-the-job injury. Every car accident, property loss or general liability loss that includes personal injury has implications for productivity, in either the workplace or outside of the workplace. As a result, it behooves all risk and claim leaders to execute their roles by aligning their interests and driving their focus.

Finally, a few fundamentals that are important to understand in execution of these goals include understanding that:

  • how you handle claims will directly affect not just your TCOR but your overall risk management capability and effectiveness; 
  • there is no one right approach to managing claims or risks; each organization must chart its own course aligned with its culture and priorities;
  • risk and the claims they can generate must be treated as an integral aspect of organizational strategy;
  • risk and claim management should be a focus on additive value; and,
  • risk and claim maturity have shown that better results are achieved as a result.

See also: How Risk Managers Must Adapt to COVID

In its simplest form, risk management is about preventing (or, on the upside, leveraging), financing and controlling risk and loss. Effective risk management is dependent on many elements, not least of which is effective claims management. And while claims are naturally focused on negative events that have already occurred, this activity is centrally critical to comprehensive, effective risk management.

How you prioritize claims and related activities will have significant effects on how you can contribute to organizational success. Doing both well will enable both risk and claim management effectiveness, demonstrated by measurable maturity.

How to Use AI in Claims Management

How do you increase quality in claims assessment, management and administration? We share insights into an end-to-end, AI-powered, claims-automation approach to increase quality, improve processing efficiency and reduce cost.

In this blog series, I’ve spoken about how AI increases process efficiency, reduces costs and helps business solve problems. I also showed how it enables smart business transformation by creating intelligent processes at every step along the value chain and intelligent products and services in the market.

In my previous post, I illustrated how insurers can use AI-related technologies in underwriting and service management. Now, I’ll explain how AI helps insurers to manage claims more effectively and efficiently.

How can insurers use AI in claims management?

AI technologies make information systems more adaptive to humans and improve the interaction between humans and computer systems. By doing this, AI gives insurers an edge on how they manage claims—faster, better and with fewer errors. Insurers can achieve better claims management by using the intelligent technologies in some of the following ways:

  • To enable a real-time question-and-answer service for first notice of loss;
  • To pre-assess claims and to automate damage evaluation;
  • To enable automated claims fraud detection using enriched data analytics;
  • To predict claim volume patterns;
  • To augment loss analysis

What are the benefits of using AI for claims management?

In our  2017 Technology Vision for Insurance , we highlighted how Fukoku Mutual Life Insurance in Japan is using the IBM Watson Explorer AI platform to classify diseases, injuries and surgical procedures as well as to calculate claims payouts.

See also: Insurers: Start Boosting Your ‘AIQ’  

Our research has shown automated machine classification can be 30% more accurate than manual classification by humans and has the potential to increase productivity by 80%. AI-related technologies can enable higher quality in claims assessment, management and administration. It also supports improving the predictability of reserves and fraud.

Smart machines can pre-assess claims and automate damage evaluation. Machine learning enables insurers to classify claims via email in the case of an accident or if medical care is required. It’s fast, accurate, efficient and simple to use.

Case Study 1: Cognitive health insurance claims process management

We have conducted a pilot with one of our insurance clients on the application of AI to its health insurance claims processes. This insurer’s health claims management process took about 11.5 minutes from receipt of the claim to updating it and closing the record. Scanning the paper documents and uploading them into the portal where they were categorized were the first manual steps. It took roughly five minutes to analyze the data, another five to verify rejection rules and one and a half minutes to accept or reject the claim.

With our machine learning solution in place, a fully automated process was enabled and took only three minutes to do the same amount of work. This represents a 74% reduction in the claims settlement time.

Furthermore, the machine learning technology applied was able to process health claims with 80% accuracy. The other 20% are incorrectly processed owing to spelling errors or database limitations. However, machine learning technologies are able to store and recall those errors for more accurate claims processing in the future.

Case study 2: AI-powered automation of automobile claims processing

Accenture was recently part of a major client initiative to identify technologies and partner for an AI-driven automation journey. We proposed and built a solution to automate processes to extract and classify data from commercial automobile claims PDF documents.

The client faced many challenges, including having fewer than 400 records to classify 55 unique cases, and these records were mismatched and labeled inconsistently. The client also received scanned images containing text, owing to the redaction process followed to ensure data privacy.

We developed an on-premise solution using a combination of IBM offerings and open-source technologies that enabled a detailed analysis of training data. The solution also helped the client to identify quality and sparse/skew data and to test various approaches to maximize performance.

In the end, a blind data set of 207 claims documents was processed within a four-hour assessment window, and we were able to process claims PDF documents with scanned images as well as text, including several formats and layouts not part of training data.

See also: How to Use AI, Starting With Distribution  

We identified several pain points in the current claims management process:

  • Error-prone manual data extraction;
  • Inconsistent claim classification;
  • The need for additional downstream validation;
  • Increased time and cost for processing and resolution.

Solution proposed:

In the next post, I’ll look at how AI-related technology can be used to improve customer services and policy administration. Get in touch to find out how you can use AI in the entire insurance value chain, or download the How to boost your AIQ report.

3 Techs to Personalize Claims Processing

Claims is a people business – virtually every claims executive I have ever met believes this. If you have ever been in a vehicle accident, experienced damage to your home or business, or been injured in a work-related incident, one of the first things that comes to mind is: I need to talk to someone who can assure me that I have insurance coverage and that there will be resources, both financial and technical, to make me whole again. This reaction is a human one and is not likely to go away. Many claims organizations have tried to maintain staffing levels to ensure a human connection is available to all. However, this is expensive, and claims organizations are already experiencing a shortage of individuals to fill critical claims roles.

Claims executives are at a crossroads, and many questions arise. How do we maintain 1:1 people interactions and simultaneously manage skills gaps and expenses? Then there are digital expectations from all parties to the claim – insureds, claimants, distributors, service providers – how are those expectations met? Given all these weighty challenges, many claims decision-makers relate to the phrase: “There’s a light at the end of the tunnel, and it’s a train coming the other way.” But, for many claims organizations, the reality is that the digital train that is coming can provide answers to the people challenges they face.

See also: How Work Culture Affects Claims Process  

SMA’s recent research report, Claims Transformation: New Paths Forward for Reporting,  Verification and Communications, explores emerging technologies and trends in claims operations. Relative to the people business theme, there are several areas of innovation where concerns, expectations and answers merge.

  • Self-reporting via photo and video. Apps that facilitate the insured or claimant in providing visual representation of damage will speed the claim along versus waiting for an adjustor or inspector to do the same thing. Faster settlement clearly meets consumer expectations. Additionally, precious claims resources are preserved for more complex claims.
  • Self-reported photos and videos along with AI analysis. The resulting outcomes from AI analysis can facilitate the next-generation of straight through processing (STP), ultimately going well past the current glass and towing claims STP, as things such as machine learning evolve over time. Again, shorter time to settlement with little or no claims adjustor involvement – a win-win.
  • Telemedicine and digital health platforms blend consumer-accessed, personalized information with a collaborative environment for adjustors, service providers, medical professionals and other concerned parties. These technologies blend useful, self-service information with human access at the moment of need.

These are just a few examples of the technologies that claims organizations have at their disposal to transform processes and operations. The previously mentioned SMA research report covers many other areas.

Make no mistake, balancing when to insert adjustors into processes and when technology can facilitate desired outcomes is not easy to accomplish. One of the key success factors is to look at claims processes from the outside in. This is not intuitive for claims organizations that have spent entire careers managing the challenges and intricacies of the adjustment process with an internal lens to meet corporate compliance goals and tangential department needs within a regulatory framework that can be daunting.  However, looking at claims processes from the consumer perspective – outside in – can suggest ways of execution that fulfill the need for the customer to be compensated for their loss in the fastest way possible or to find the clearest path to wellness. Happily, these outcomes also preserve human claims resources for when an individual really needs it.

See also: The Best Workers’ Comp Claims Teams  

The technology vs. human paradigm will continue to change, probably forever. However, claims is one of the areas within insurance where expert adjustor skills can truly make a meaningful difference for individual outcomes. But the definitions will continue to change, and the challenge for claims executives will be to continually assess processes through a different lens. Optimistically, the light in the tunnel will be a source of inspiration.