Critical Design Elements and Challenges in Claims Operating Models Prior to COVID
Operating models answer a very fundamental, yet most substantial question: How to deliver profitable and differentiating services to customers. Amid changing customer expectations, a rapidly evolving digital technology landscape and altering cost and profit bases, executing a strategically aligned, “fit for vision” operating model has always been a taxing goal for insurance leaders.
Before we discuss transformation initiatives, however, let us first define the construct of an operating model. Organizations are complex systems that deliver value. An operating model breaks this system into components – such as people, process, technology, location, suppliers and customers – showing how it works. It helps leaders identify key focus areas and problems that are causing underperformance and need investments to thrive in future. Insurance Chief Experience Officers (CXO) address key focus areas consistently to formulate and execute holistic strategies for growth and improvement.
According to a Global Insurance CEO Outlook Survey published by KPMG in 2018, which focused on the design elements of operational transformation, 36% of CEOs cited emerging technologies as a top-of-the-mind concern in redrafting their current operating models; 33% highlighted operational risks; and 27% indicated talent as the key component.
Building on our longstanding experience working with senior leaders in strategy, technology and operations for insurance organizations, we have identified six elements common to traditional insurance company operating models (see Figure 1): Customer Journeys, Operations & Processes, Digital Technologies & Systems Landscape, Data Analytics, People, and Location. These interlinked and variably integrated elements together determine an insurer’s ability to serve customers profitably.
Over the years, insurers have invested in transformation initiatives across these elements to support their strategies and build a more agile, adaptive and disruptive target operating model. Within this mix, the claims function remains a critical moment-of-truth in the insurance value chain.
In a 2019 research study by KPMG ACORD involving 60 global P&C carriers, claims was ranked as the value chain area of highest priority wherein some sort of transformation was planned or underway. This was followed by policy servicing, underwriting and distribution. Over time, the value proposition of claims has evolved in line with the changing needs of insurers and customers.
Similarly, claims takes higher precedence where customer journeys are concerned. In a customer research and segmentation market survey conducted by a leading global insurer, brokers and commercial lines customers were asked to rank various stages of insurance value chain (research and evaluation, purchase, follow up and servicing, renewal and claims) across two parameters, overall experience and importance. Claims emerged as the stage with highest importance yet with least satisfaction, thus marking its significance as the front runner in all large transformation agendas.
In Pre-COVID times, general insurers (GI) faced five common challenges that drove prioritization of claims transformation, as follows:
Before the pandemic, insurers were already behind the curve in terms of desired gains from key initiatives, including process standardization and redesign, alternative sourcing, legacy systems fixes, operational automation, lower cost channels, etc. After COVID-19, the industry faced completely different themes and inhibitors.
Impact of COVID-19 on GI Claims Ecosystems
COVID-19 presented the insurance industry with a unique and uncertain set of financial and operational difficulties that will change the desired end-state of operating models moving forward. Likewise, long-term trends are also starting to emerge across product lines that will further revise how insurers approach certain design elements of the operating model.
Beyond current business continuity and operational issues, we expect COVID-19 to have both short- and longterm behavioral and economic impacts on GI claims handling.
- Motor – Near-term, reduction in claims with reduced driving; long-term, faster shift to Omnichannel and digital media
- Home – Increased propensity of higher claims volume due to risk profile, as people work from home under social distancing guidelines
- Travel – Hardest hit line, short-term, as existing in-force policies experience a tidal wave of claims; future impact depends on pandemic inclusion in policy coverages
- Higher probability of opportunistic fraudulent cases due to increased financial burden
- Core Coverages – Potential exposure from business interruption coverage, lesser volume in motor and property segments, increased allegations of negligence or injury in casualty
- Professional Liabilities – Potential increase in litigations, uptick in cyberattacks and higher risk of healthcare professional liability could result in elevated claims activity
- Specialty Lines – Lower activity in certain specialty markets, such as aviation, marine and construction, until global trade fully resumes
These factors will influence legacy claims operating models and transformation themes, as COVID-19 alters both near- and long-term priorities under a new challenge landscape as follows (refer below exhibit):
Legacy operating models will be under constant pressure given these challenges. As insurers navigate recovery, certain decisions will have direct and indirect implications on business processes, customer journeys, technology and data enablers, and the workforce in upcoming months. Having a clear vision regarding the end state and journey will differentiate the leaders from the laggards.
Case for Next-Generation Operating Model: Why Insurers Need a Clear Vision Now
Future-proofing claims requires having a clear end-state in mind. The journey towards a next-generation operating model should address these three questions from the start:
What are the key attributes to consider in futureproofing post-COVID claims?
Organizations must view key opportunity areas as integrated, rather than siloed. Integration supports increased resilience against risks and competitors, reduces expense and indemnity, enables contact-less, customercentric service and facilitates digitized operations. Having a well-conceived, integrated target operating model up front will provide the framework for sequencing strategic initiatives and prioritizing plan objectives.
What key investment decisions are needed for an integrated transformative program?
Program investments should be thought through with long-term cost-benefit implications in mind. Unprecedented cost-pressures demand that the right mix of individual capabilities and solutions be selected to drive next-gen operating value. Investing in such capabilities requires careful planning across all available options, including service providers, insurtechs and fintechs, platforms and tools.
How do we execute for maximum value?
Deploying transformation initiatives at optimal speed and scale can greatly influence whether the next-gen operating model results in a success or remains simply another enterprise aspiration. To unlock maximum value, the model should provide complete clarity on anticipated changes across design elements, include an effective change management program, and serve as a roadmap for commencing target segments.
Next-Generation Operating Model for GI Claims: Resilient, Future-Proof, Agile and Customizable
As every insurance carrier is unique, every claims operating model should account for such defining attributes as organization vision, product mix, customer base, markets served, intermediaries and risk appetite. Regardless of the end design selected, the following set of building blocks will help ensure success:
- Target end-state characteristics: Resilient, futureproof, agile and customizable
- Anticipated degree of change: Required for every design element
Each design element will undergo different levels of transformation in order to achieve its ideal end-state for claims operations.
1. CUSTOMER JOURNEYS FROM FNOL TO CLAIM CLOSURE/SETTLEMENT
Increased customer queries, demand for faster settlements, potential changes in the future product mix and the ability to provide a seamless experience throughout the customer journey amid fluctuating operational capacities have accelerated the need for insurers to shift maximum volume towards “physical, contact-less” ways of operating. Carriers who had invested in acquiring an omni-channel service model built on an effective self-service claims platform with ENOL (electronic notification of loss) capabilities are navigating this crisis in a resilient manner, with reduced costs and customer churn.
One insurance company allows claimants to submit lost property claims via video messages from their mobile phone. The message is then reviewed using anti-fraud algorithms and cross-referenced with the claimant’s policy before auto-transfer of appropriate funds to customer’s bank account (most appropriate for certain low-risk claims). Another self-service platform allows motor claimants to control the pace of the process and engagement channel, eliminating wasted time on phone. The portal is not restricted to office hours, which also enables data, documents and multimedia transfer between policyholders and the insurer’s online claims architecture seamlessly.
Offering “optimal” channels options tuned to customer segments, intermediaries and product mix remains a crucial differentiating factor industry-wide.
A next-generation model includes offering products, services and delivery through fully digital channels. Selfserve capabilities, such as digital virtual agents, chat bots, conversational IVR and auto-letter generation can be finetuned to achieve higher straight-through processing and identifying early fraud. Focused acquisitions, insurtechs, fintechs and other digital natives may help advance innovation and integration of these capabilities at scale.
2. OPERATIONS AND PROCESSES
The claims value chain spans across intake, setup, triage and assignment, investigate, settle, pay and close process areas and is dependent on certain crucial pillars. COVID-19 has exposed those pillars of claims Business-as-Usual (BAU) operations overnight.
Once insurers have secured the present via business continuity measures and move to recovery phases, incremental changes will be required to strengthen those pillars. The claims value chain spans across intake, setup, triage and assignment, investigate, settle, pay and close process areas and is dependent on two crucial pillars – Segmentation of incoming volume and end-toend Quality Management. Claim segmentation set the foundations to claims teams organization, responsibilities pertaining to various roles (claim handlers, support, administration, experts etc.), number of customer touchpoints per case and overall lifecycle duration of caseload. Quality management defines the effectiveness of claim organizations to conduct business within targeted financial and business parameters such as regulatory guidelines, expense ratios, indemnity, and customer complaints.
Segmentation: Visibility into the end-to-end digital claims process requires segmentation of incoming claims transactions by volume, severity, frequency, complexity, risk exposure and indemnity. In the next-generation operating model, machine learning capabilities de-clutter the claims handler’s desk by automatically filtering out certain volumes in the queue right after intake. Processes must be designed and criteria must be set to achieve that filtering, resulting in three broad transaction categories:
- No Human (Straight-through processing): For higher frequency/low severity cases, such as motor windscreen, property glass, electronic devices, animal damage, etc. To increase share and scope, establish rules for selecting eligible claim types and set pre-requisites for authorized suppliers and cash settlements.
- Thin Human (Low-touch claims): Minimizing customer touchpoints required for decisionmaking. Newer triage rules can help eliminate nonvalue- add touches, such as no verification of photos for private liability claims, no claims in X years, claim is <$X, insured vehicle hit while standing, simple building related claims, etc. Human and bot orchestration will further automate the downstream parts of the process leading to reduced cost to serve and faster resolution.
- Heavy Human (Complex claims): Triaged to experienced handlers, armed with enough investigation support via underlying technology and embedded analytical models to process the claims.
Robust Quality Management: The COVID outbreak revealed meaningful insights regarding short-term claims dynamics, specifically regarding the ability to maintain policyholder interests in the face of economic uncertainty. Quality assurance frameworks on two fronts can help buffer claims organizations from increased scrutiny in the future:
- Proactive Fraud Management: Does a bad economy increase crime? During the 2008 recession, the Coalition Against Insurance Fraud saw an uptick in different types of fraud, including motor give-ups, arson and vandalism. COVID may also increase bad behavior, as opportunistic fraud rises alongside unemployment. It will take a combination of people, processes, technology and analytics to counter any such movement. Arming handlers with data-driven analytical models, such as fraud propensity, litigation susceptibility, indemnity spend and liability assessment for reduced lifecycle and leakage, will lead to more accurate outcomes. Though insurers were leveraging these solutions in some shape and form in pre-COVID times, integrating them into claims management systems moving forward will be a vital to success.
- Tighter Regulatory Compliance: GIs have traditionally addressed regulations reactively in silos. With regulatory intervention and scrutiny expected to increase worldwide, claim organizations must improve transparency in their claims management processes, reporting capabilities and interaction with other operating functions. Policy coverages, claims settlements, financial hardship applications and premium deferment cases will receive increased regulator attention. Augmented quality assurance via increased use of technology, analytics and enterprise risk management capabilities will provide comfort to regulators and policyholders alike.
3. PEOPLE, FUNCTIONS AND ROLES
Fluctuation in claims volume, potential changes in coverages and products, and increased use of technology will impact transaction types, along with operational roles and workforce management.
Several claims ownership models exist currently across insurers. However, the combined effect of deploying an enhanced segmentation model (mentioned above) with modern operational capacity variations will lead to strategic changes in claims functions and roles. Further, expanded use of automation and analytics will change how digital vs human workforce tasks are identified and assigned, including:
- Redundancy in administrative functions (mailroom, claim assistance, invoice validation, payments, etc.)
- Increased capacity within vendor management functions due to deployment of end-to-end supplier management platforms
- Higher inclusion of claims analytics roles into reporting functions
- Centralized model for recovery and settlement functions with higher-scale use of carrier-to-carrier platforms and liability identification models at FNOL
- Claims handler role optimization by de-cluttering desks through increased share of no-touch/lowtouch claims
- Capacity and role changes for claims quality management with higher use of smart solutions targeted at improving quality and regulatory compliance for higher volumes
Given the workshare parameters stated above, fundamental guiding principles for case ownership in the next-generation operating model should include:
- Ensure employment of right expertise and skills
- Ascertain clear accountability
- Avoid handovers to drive efficiency
- Ensure single point-of-contact wherever possible
Uncertainties regarding relaxation of global travel restrictions and lockdowns at major cities and service centers persist. In addition, fluctuating claims volumes across product lines have challenged operational capacity at onshore and offshore locations. As digital and contact-less business models become foundational to resilience planning industry-wide, location-based strategies will become less relevant. Already, insurers and service providers using flexible, agile remote processing capabilities have been able to achieve up to 85% capacity.
For best results moving forward, business continuity planners should focus on the following three locationspecific priorities in context with other operating design elements:
- Updating BCP Strategies for Current Service Locations: Lessons learned relevant to process resilience, human motivation, ways of working, security measures and technology shortfalls during COVID will be instructional when determining additional steps for improving speed and resilience in future events. More resilient cybersecurity protocols across offshore service centers serves as one case in point. Any effort spent reviewing workforce flexibility options will help improve workfrom- home decisions, office layouts and health monitoring after restrictions ease.
- Revising Outsourcing/Shared Services Scope and Supplier Strategies: Incoming demand variations and changing products and coverages will impact certain claims transactions and processes. Operating designs and distribution of processes across onshore and offshore locations should be based on well-conceived triage rules and skillsets appropriate to location availabilities. This would not only require amendments to existing provider service agreements, but also require a workflow redesign leveraging a customized, automated work management solution.
- Setting Targets for Higher Virtual Workforce Mix: Adding digital solutions to the current workforce mix will affect many physical and digital components. Existing functions will have to be modified to optimize roles and eliminate redundancies. In locations where high administrative and back office functions occur, attended/unattended automation solutions will be required to implement effective distance work models. Digital labor solutions will also help to offset productivity losses in new operating environments.
In summary, service providers with higher domain expertise and experience in serving insurers will share higher complexity work with insurers, while low-touch transactions are transferred to self-service channels.
5. DATA AND TECHNOLOGY
This design element is the essential foundation for any effective next-generation operating model. Nearly every other design element will achieve its end-state with some intervention of digital solutions, across the value chain and in the workplace. In short, digitization in future models will be shaped by two key COVID-generated trends:
Increased Use of Analytics and Technologies (Plug-and- Play): Most insurers have developed a 12-to-18-month roadmap of key initiatives related to automating back-end claims processes, fixing legacy claims management and supplier management systems, embedding analytical models, digitizing front-end processes and how to support all the above. More than half have indicated that they are behind target. After COVID, the rush to establish resilient, day-to-day operations has prompted an increased use of plug-and-play products, specifically:
- Rapidly deployable products – Solutions with shorter implementation lifecycles
- Superior cost-benefit investment decisions – Investments that improve efficiencies and deliver cost savings
- Easily scalable – Across different teams in various locations
Higher Control Testing of Underlying Applications and Platforms in the New Operating Model: COVIDgenerated disruptions have tested tech resilience to a large extent. Core claims applications and platforms were exposed by increased remote functioning and additional risks, such as information security. These risks will continue to exist in future models unless insurers implement a robust and periodic control testing mechanism. Identification of key controls and regular assessment will help keep regulators at bay.
In summary, next-generation operating models will require digital components in every process area of the claims value chain to deliver business and customer outcomes. These components will serve to:
- Digitize intake throughout the claims lifecycle
- Optimize claims handler tasks
- Enable end-to-end digital FNOL
- Enhance all claims processing
- Synthesize the continuous loop of data to claims insights
Combined, these themes will help identify digital solutions applicable in each process area (see below):
How EXL Supports End-to-End Claims Transformation
EXL provides end-to-end claims management services to more than 12 global insurance carriers across commercial and personal lines through the combined efforts of more than 4,000 dedicated, insurance-savvy professionals. We have built solutions and frameworks to drive rapid outcomes for insurance claims and are helping several large insurers address COVID-19 challenges. We have become a strategic digital transformation partner for our clients by leveraging the following solutions across the claims lifecycle:
For further details about EXL’s COVID-19 response and claims-related digital solutions, please feel free to contact the author, Rohan Regis, at email@example.com or on LinkedIn at www.linkedin.com/in/rohan.
1. https://assets.kpmg/content/dam/kpmg/xx/ pdf/2019/09/2019-ceo-outlook-for-insurance.pdf
2. https://assets.kpmg/content/dam/kpmg/xx/ pdf/2019/03/operational-excellence-report-2019.pdf
3. https://www.ey.com/Publication/vwLUAssets/ EY-claims-transformation/$FILE/EY-claimstransformation. PDF
4. https://www.mckinsey.com/~/media/McKinsey/ Business%20Functions/McKinsey%20Digital/Our%20 Insights/Introducing%20the%20next-generation%20 operating%20model/Introducing-the-next-genoperating- model.ashx
Insurance Industry Solutions, EXL
Senior Vice President and Global Co-Head, Insurance P&C, EXL
Insurance Industry Solutions, EXL