Raghu Aithal, Vice President and Head of Claims at ValueMomentum

The claims function reflects about 70 to 80% of the spend for an insurance company today. That’s actually the loss ratio component of the insurance company. It is also that high-touch moment from an insurer’s perspective when that engagement happens with the insurance company and it can make or break the reputation of the insurance company itself. Therefore it’s a very important function.

But the way it has been looked into — the way the industry looks at it — it’s more of a reactive cost center. We believe that it’s a significant lever for creating value for insurance companies and that’s the perspective that one needs to consider when you talk about claims.

Although a lot of carriers have modernized their core platforms, the transformation hasn’t happened right. Still there is a huge amount of manual intervention in those processes. So it’s like putting old wine in a new bottle kind of a scenario. Really the business processes have not transformed and it is reflective in huge amount of manual processes that are in the claims management workflow as well as resulting in very poor customer experience — both in terms of the digital experience that they need as well as the transparency that they need and they expect today from their insurance company.

On the other side the overall trends on the combined ratios are increasing. The loss ratio is a major component that is contributing to it. There are two things that are really increasing the loss ratio. Obviously there are losses — you have to pay for it — good. But then the way you handle those losses: if you are proactive about it, if you are proactive of how you handle your fraud, if you’re proactive about how you handle your litigation and also proactive about how you handle catastrophes, we believe that a lot of claims leakage that is happening today can be avoided.

The second component of the combined ratio or the loss ratio is the loss adjustment expense. There’s still huge amount of manual processes that are there and this process is not able to scale. It sits at 10 to 11% of overall percentage of the dollar that’s being spent for the last several years and that’s a reflection that this process is not scaling and it’s just throwing people at the problem rather than innovating, automating and making it more effective and efficient.

By addressing these challenges insurers can improve the cycle time of their claims processing, reduce average cost per claim, improve on the customer experience and customer satisfaction in that process.