The Auto Insurance Triple Threat
Modern thinking and technology are required to overcome today’s challenges
By Rick Trevino
Property and casualty claims involve a delicate balance between pace and precision. If you move too quickly, then you may miss critical information. If you dive too deep, then you may wind up compromising customer experience and personal productivity, with no real benefit to anyone. Nowhere is this dynamic more evident than in the handling of personal auto claims.
Market forces today create a triple threat to auto insurers, and sustained performance and the ability to compete hinge on strategic adoption of digital technologies. While many insurers recognize these threats, not all are equally prepared to deal with them in a way that protects and bolsters the bottom line. But advance planning and sophisticated solutions can make a significant difference.
THREAT #1: Growing Claims Frequency and Severity Challenge Insurer Productivity and Financial Health
According to the National Highway Traffic Safety Administration (NHTSA), annual vehicle crashes have increased in the past decade. People are driving more, and at higher speeds. Lower gas prices have contributed to an increase in miles driven, and 41 states now have speed limits of 70 mph or more in certain areas.
Compounding the problem, dangerous distractions abound across all age groups. In a 2011 NHTSA survey, approximately 70 percent of drivers reportedly talk on their cellphones while driving and 42 percent read texts or emails.
It’s not just the number of auto claims that are on the rise, but also the severity. An improved economy has put more new and high-priced vehicles on the road that come loaded with sensors, cameras, and other expensive technologies. As a result, longer repair cycles and growing repair costs have added expenses for insurers.
Meanwhile, loss costs for both auto bodily injury and personal injury protection have increased substantially between 2005 and 2013, according to the Insurance Research Council, and this trend is likely to continue in the short term.
As the claims landscape becomes more challenging, insurers are leveraging automated technologies, with the power of telematics at the forefront. Sophisticated data-gathering capabilities built into most of today’s automobiles enable far greater automation of claims reporting to insurers. This translates into not only faster information, but also more accurate information.
Connected vehicles and mobile technologies have the potential to instantly transmit data—including the precise location of an accident, the nature and extent of damage, and the possibility of injury. Guesswork is largely eliminated. The process is streamlined and insurer resources can be mobilized more efficiently and economically.
Telematics data serves as the catalyst to large quantities of information, and the result is a fuller, clearer picture of the event and the parties involved—potentially in minutes instead of days or weeks.
A wide range of additional data and forensic tools is available that can help insurers cost-effectively deal with a deluge of complex claims. Through automated processes, damage images can be rapidly uploaded and compared to other prior losses to help achieve consistent and equitable settlements. Likewise, personal injury can be similarly evaluated in the context of an insurer’s historical records. The end result? Better-informed management of claims settlements in a timelier manner.
THREAT #2: Customer Expectations Are Increasing Faster Than Insurers Can Meet Them
While insurers struggle to process claims that are rising in volume and cost, customer expectations climb higher. However, one study by an insurance industry solution provider suggests that traditional insurance products, services, and processes fall short of what millennials and Generation Z—and even older consumers—are looking for from their insurers.
Digital, mobile technology has become the model experience for transactional businesses of all kinds, especially among millennials and Generation Z. But, in general, insurers have not optimally used these innovations to the customer’s advantage at the same pace as many other industries.
Millennials may shop for cost, but they stay with a company for service. They expect a fast, convenient insurance experience that makes getting claims paid as easy as downloading their favorite games or music. Insurers that best leverage digital tools to enhance the customer experience will be clear winners in the quest for customer acquisition and renewals.
To deliver the kind of experience customers seek, insurers must adopt a customer-first mindset and continually reimagine how to provide service. Data is abundant, and the need to quickly analyze large quantities from multiple sources is critical to serving an insurer’s customer base. Digital data collection and analysis are the catalysts transforming the staid world of the claims department, enabling touchless claims where checks are cut and received by customers in record time.
The same telematics technology that benefits insurers can benefit insureds. Connected cars make it possible to have accident information forwarded instantly, significantly reducing traditional first notice of loss lag time—and that means faster resolution of claims for the customer. An increasingly digital-savvy customer base can play a key role, using simple apps to stream video or send photos of damage straight to claims professionals, streamlining the process.
The use of artificial intelligence (AI) is another way insurers can ultimately facilitate service to customers. Through a combination of advanced imaging technologies, artificial neural networks, and the right data, AI can automatically determine repair costs and settlement amounts. As a result, a body shop can begin work sooner and get a vehicle road-ready and back to the customer more quickly.
THREAT #3: Mounting Fraud Hurts Insurers’ Profitability
The challenge of fraud is a constant in the insurance industry, and there are indications that it’s only getting worse. At its current levels, fraud is already significantly impacting insurers’ bottom lines, in addition to contributing to a rise in premiums. A 2016 report by the Coalition Against Insurance Fraud found that 61 percent of participating insurers suspected an increase in fraud—up from the 51 percent that cited a suspected increase just two years prior.
Auto insurance is particularly vulnerable to fraud, with the National Insurance Crime Bureau (NICB) indicating fraud in this area is the greatest component of all insurance fraud. According to a 2017 NerdWallet survey conducted by The Harris Poll, 10 percent of Americans who have ever had auto insurance provided false information when buying a policy. And the purchase side is only part of the problem. It’s estimated that almost 25 percent of bodily injury claims resulting from auto crashes are fraudulent, while auto insurance property and casualty claims have a fraud rate around 10 percent.
It’s no surprise that virtually all insurers employ some kind of anti-fraud technology, with the bulk of their efforts focused on claims fraud. But often, IT resources are insufficient to maintain and expand capabilities as needed. Some fraud systems can also generate false positives, resulting in errors, wasted hours resolving the problem, and slowdowns in processing claims.
Speed in claims processing does not have to come at the expense of accurate fraud detection. Effective automated fraud detection involves a combination of robust data and processing power to help quickly distinguish the questionable from the meritorious claims. Information such as prior claims losses, claimant velocity, police reports on the policyholder, and other data delivered in real time can help create early alerts to potential suspicious activity.
With the appropriate technology platform, claims can be automatically assessed through company-specific business rule sets and algorithms. Powerful automated scoring systems have the ability to compare incoming claims with an industrywide loss history database to flag proven fraud indicators, assigning weights to various characteristics. Claims requiring further investigation can be forwarded to special investigation units while legitimate claims quickly move through the system.
While most insurers are already using predictive analytics in their fraud-detection efforts, the opportunity exists to further integrate analytics and make it a more insightful tool for the triaging, routing, and resolution of claims. Along with improving loss and expense costs, such technological enhancements can significantly improve decision-making and reduce claims processing cycle time.
With auto insurance claims increasing in frequency and severity, customer expectations growing, and fraud on the rise, the landscape is rapidly changing. Carriers that integrate evolving technology with streamlined processes enable their human resources to deliver greater speed, productivity, and cost savings in their operations while, at the same time, ensuring quality and service for a superior customer experience.