§Modernizing Claims Will Result § in Better Customer Service

By: Steven M. Callahan, CMC®, FFSIPractice Director

The Nolan CompanyManagement Consultants

www.renolan.com40 Years Serving Insurance Carriers

1

Overview and Objectives

§ Context:– Customers are more impatient and demanding than ever before. – Being a market leader means making claims a priority. – Not possible without a modern claims system.– Claims technology needs often ignored in favor of other systems.– Insurers are now seeing the benefits of how claims can positively

impact the bottom line and improve customer satisfaction.

§ Outline:1. Review of the environmental pressures on claims.2. Overview of claims Best Practices.3. Quick dive into value of analytics in claims.4. Brief comments on remote capabilities5. Sneak preview of recent industry survey results specific to claims.

2

PC Claims Severity

1. Industry Faces Challenging Times

3

Investments

RegulationMarket Exits

Technological Advances

Competition

Life Insurance Ownership

Combined Ratios Don’t Deliver The Same ROE

Combined Ratio / ROE

Source: Insurance Information Institute from A.M. Best and ISO data.

97.5100.6 100.1 100.8

92.7

101.099.3

100.9 100.0

106.4

95.7

6.6%4.6%

7.6%7.4%4.4%

9.6%

15.9%14.3%

12.7% 10.9%

8.8%

80

85

90

95

100

105

110

1978 1979 2003 2005 2006 2007 2008 2009 2010 2011 2012:9M0%

3%

6%

9%

12%

15%

18%

Combined Ratio ROE*

Combined Ratios Have to be Lower in Today’sInvestment Environment to Generate Same ROEs

A combined ratio of ~100 generated an ROE of ~

16% in 197910% in 2005

7.5% in 2009/20106.6% in 2012

4

Tough Economics + Cultural Shifts :Customers Are Increasing Their Expectations

Generational Differences

New Social Dynamics

Five Generations of Consumers, Large New Wave Coming(% of Total Population)

Ethnic Diversity

The Digital Generations- powerful consumers

5

5

6

Demographics And Diversity Drives Expectations

0

10

20

30

40

50

60

70

80

Milli

ons

GI Swing Boomer Gen X Gen Y

High TechLow Tech

Increasing Customers Demands• Immediacy / 24x7 access• Transparency• Personal service relationships• Language differences• Benchmarks within and outside the industry

Agent > Mail > Phone > Fax > Email > Website > Chat > Social (FB, Twitter)

7

Technology = Complexity

From:

To:Phone

Paper

Email

Text

IVR

Internet

Service Delivery Process

Self-Service

ResolutionChat Video

Transfer Dialer

• Technology driven – beyond paper and phone• Main sequence process the same• Tailored service approaches• Challenging to manage

Process = Requestà Process à Resolution

Claims OperationsNew↑ & Old↓Technology

New

Service M

ethods

Pressure On Claims:Reduce Loss Costs / LAE – Improve Service

88

“… a modest increase in customer experience will increase customer loyalty

and boost revenues by approximately $298 million for a $10 billion insurance

provider.“Forrester Research, February 17, 2010

“Nationwide Insurance found that a 1% increase

in customer retention increased annual

premiums by $1 million”Insurance Tech. - CRM in Global Insurance, Datamonitor, 2008.

“Reducing customer attrition by 5-10% can

increase annual profits by as much as 75%,

according to a study by the Wharton School.“

Eight Strategies for First Rate Customer Service, Cisco Innovators, January 2008

Today’s Customer Has an International Megaphone

Tens of thousands of positive service touchpoints a day, and yet one bad interaction…

And suddenly your company is at the top of the tweets list telling thousands followed quickly by a Facebook “Unlike” Fan Page.

9

Today’s Customer

It is more than Reputation:Strong Service Delivers Revenue

10

Strong Customer Experience Management =

Improved Revenue

Red = Lost Revenue / Customer TurnoverYellow = Incremental Revenue, Existing CustomersDark Blue = New Customer RevenueLight Blue = Net Change in Revenue

AverageBest-In-Class LaggardsNet Up $273M Net Up $84M Net Down $43M

Leading Companies Taking Action:Service Differentiation = Competitive Advantage

Expanding Accessibility 100%Accelerating Service Delivery 96%Increasing Hours and Days of Service Availability 82%Creating Different Levels of Producer Service 82%

Consolidating Similar Functions Across Divisions 75%

Creating Different Levels of Customer Service 63%Aligning Operations with Customer Markets 63%Consolidation of Call Center Operations 57%

Aligning Operations with Distribution Channel 57%

Consolidating Physical Locations 50%

RespondentsArea of Focus

1111

12

Changing Service Delivery Model:Blending Technology & Talent Management

One Size Fits All

§ Same service for all segments

§ Over invest in some, under invest in others

§ One model to manage

§ Differentiation created at company vs. segment levels

§ Easier to match capabilities

Evolving Model

§ Segmentation of needs and value

§ Service matched to segment needs

§ Appropriate service investment in each segment

§ More challenging model to manage but also …

§ Harder to replicate by the competition

§ Claims Processing Systems Built on Best Practices– Modular replacement if necessary; stepwise, wrap, LOB, or Bang– Integrated and adaptable business rules, distributable (n-tier)– Data adaptability, integrity/quality and accessibility

§ Ubiquitous Multi-faceted Analytics– Straddle claims + underwriting + pricing + servicing + external data– Integrated: FNOL, Adjusting, Subrogation, SIU, Recovery, Litigation– From workflow to predictive modeling, key to loss management

§ Empowered Remote Capabilities– Customer apps for point of claim FNOL data capture, mobile service– Adjuster toolsets: aerial imaging, photo capture, portable rules

base, client access, GPS routing & tagging, real-time connectivity

13

Three Immediate Priorities for Claims

2. Claims Best Practices: A Top Down View

• Resource Management• Process Workflow

• Financial Analysis• Operations and Service

• Vendor Management• Litigation Management

14

§ Staffing Models§ Claim / SIU Staffing analysis § Claim Productivity Reporting§ Workforce Utilization Management§ Management & Supervisory Analysis§ Personnel Turnover Analysis§ Business Unit Silo Elimination§ Structured Change Management Methodology§ Formalized Communication Plans

Resource Management

15

Claims Operations Best Practices

§ Claim service model design § Optimized organizational structure§ Process workflow analysis / automation tools§ Claim Unit process interdependence/Interaction maps§ Process alignment strategy between units § Claim cycle time minimization§ Documented & standardized technology work-arounds§ Inspection to-repairs-to-settlement cycle time§ Substitute rental vehicle cycle time & control

Process Workflow

16

Claims Operations Best Practices

§ LAE expense analysis & trending:– ALAE (DC&C)– ULAE (A&O)

§ Loss cost analysis & trending:– Averages / Trends– Paid claims, recoveries, leakage– Review of vehicle total loss process– Direct repair facility evaluation– Reinspection process and impact

§ Reserve management:– Averages / Trends– Redundancy / Deficiency– Methodology Review

Financial Analysis

17

Claims Operations Best Practices

§ Litigation management view§ Recovery management view§ Auto liability claim view§ Physical damage and property damage claim view§ Liability, Property, Workers Comp claim views§ Internal quality control process§ Claim manuals / guidelines § Fraud impact / SIU effectiveness tracking

Operations and Service

18

Claims Operations Best Practices

§ Legal Cost Management Process & Tools§ Independent Adjusters & Appraisers§ Medical Cost Containment Providers§ Medical Bill Review Vendors§ Damage Appraisal Software Vendors § Glass Vendors§ Direct Repair Facilities

Vendor Management

19

Claims Operations Best Practices

§ Litigation claim file review (sampling)§ Litigation management program review and analysis§ Litigation unit staffing / productivity analysis§ Legal cost containment process review§ Suit Log process and effectiveness§ Review of House Counsel operations§ Analysis of suit volume vs. results§ Pre-suit avoidance techniques§ Utilization of Alternative Dispute Resolution (ADR)

Litigation Management

20

Claims Operations Best Practices

3. Analytics More Critical Than Ever

21

Analytics Starts With Workflow:Identification, Segmentation, Prioritization

Optimized Claims Adjudication process.§ Using data mining to cluster and group claims by loss characteristics

(such as loss type, location and time of loss, etc.).§ Claims scored, prioritized and assigned per experience and loss type.§ Higher quality, more consistent, and faster claims handling.

Adjuster Effectiveness Measurement.§ Adjusters typically evaluated based on an open/closed claims ratio.§ Analytics for key performance indicator (KPI) reports of customer

satisfaction, overridden settlements and other relevant metrics.

Claims involving attorneys = 2X settlement and expenses. § Analytics to determine which claims are likely to result in litigation.§ Assign to senior adjusters to settle sooner and for lower amounts.

22

Analytics help shorten the claims cycle times. § Claims cost 40% more if FNOL is delayed by 4 days. § Auto accidents take average of 16.2 days to repair and return.§ Significant expense savings on rental cars, etc. for auto repairs.

Duration and Customer Satisfaction are directly correlated.

Analytics drive higher Customer Satisfaction and Lower Costs

Faster Processing: Lower Costs + Happier Customers

JD Power, 2007

27%36%

37%

772

854828

Over 2 wks.8-14 days1 wk. or less

% o

f Cl

aim

ants

Ove

rall

CSI I

ndex

JD Power, 2007

Satisfaction going downCSI of 854 to 828 to 772

23

Identifying Claims Fraud:A Tremendous Opportunity for Analytics

SAS Institute

About 10% of all insurance claims are fraudulent.Annual fraud losses for P&C industry total $30B in US alone§ Need to detect unknown patterns of financial fraud.§ Keep track of new fraud schemes.§ Unsure exactly what to look for.

Rules: Captures fraud on known patterns previously usedEx: Two claims in different time zones within short window

Anomaly Detection: Detect unknown patterns (ind & aggr)Ex: Statistics (mean, std. dev., uni/multivariate, regression)

Advanced Analytics: Detect complex patternsEx: Knowledge discovery, data mining, predictive assessment

Social Network Analytics: Determine associative linksEx: Knowledge discovery via associative link analysis (entity map)

24

Automated Fraud Detection:Analytics Escalates High Risks at all Points

FNOL EvaluateClaim

CloseClaim

Negotiate ServicesPredict duration

Forecast loss reservesOptimize fast track claimsPrioritize resourcesFraudulent scoringLitigation propensity

Prioritized investigationFocus on organized fraudMinimize claim paddingReduce false positives

Identify salvage and subrogation opportunitiesIndicate deviations from similar claimsReports on claims overrides

InitiateSettlement

SIU

Update Claim

Fraud Referrals

Re-estimate durationReassess loss reservingPrioritize resourcesFraudulent rescoringReview litigation propensity

Cross-sell options for satisfied customerCustomer retention program

Assign Claim

Fast Track Claim

Fraud Referrals

25

Common Barriers to Using Analytics

9%

4%

19%

20%

12%

23%

34%

35%

37%

20%

34%

26%

31%

39%

35%

34%

24%

32%

21%

20%

9%

26%

28%

17%

5%

2%

2%

2%

0% 20% 40% 60% 80% 100%

Fragmented Data

Inadequate Tech Resources

Lack of Business Expertise

Lack of Exec Sponsorship

Perceived Costs > Expected Benefits

Cultural Barriers to Data Sharing

Not at all Some Typical/Common Almost Always Exclusively

26

Guidelines to Implementing Analytics

All-executive panel agreed on three guiding principles:1. Have an executive sponsored roadmap that clearly outlines.§ What resources will be needed for how long, § Where and when predictive analytics will be used, § Which tools will be used, and § How will success be measured.

2. Use data that is comprehensive, accurate, and current. § Not necessarily 100%, some have used only 70%. Must be representative.

3. Staff with talented and engaged people. § Completely understand business problem and are proficient with analytics. § Every person does not have to meet both qualifications; a team can be used

with some experts on the business and others experts on analytics.

27

4. Enhanced Remote Capabilities

§ Cloud based web tools allow remote collaboration– Cat and FNOL are proving areas facilitated by cloud based apps– SharePoint, Office365 and Lync Online enable real-time interaction– Integrating GPS, Google Earth and similar apps with local

presence has enhanced claim reporting and reduced cost of detail data

– Direct connection to Home Office staff and systems puts full power of office systems in the field

§ Two-pronged strategy: first empowered clients – Leverage mobile technology to create local presence reporting– Add ability to request nearest contracted tow service & line up a rental

car, result delivers service excellence and operational efficiency – The cost and effort required to put this type of app in

place is less than imagined. – Numerous examples of FNOL Apps exist today for clients

who can choose to build one, like Allstate & AIG – or buyone, like Accenture & Guidewire.

28

Adjuster Toolkits: Accelerating Critical Service

§ Adjusters (and inspectors for UW) benefit from remote toolsets connected to the cloud and home office– GPS mapping, aerial inspections when needed, real-time photo of

accident scene, video for teleconference, preloaded rules for assessment– On client, street level views, coverage history, claims data, financial info,

loss details, incident histories, red flag indicators, contact info– Collection, submission, video review and determination possible on the

spot, even payout depending on available equipment (mobile deposits)– Accelerates FNOL, improves accuracy and timeliness, reduces field

adjustment burden, reduces data entry, collection and indexing– Add ability to request nearest contracted tow service

and line up a rental car, and the result delivers on both the service excellence and operational efficiencygoals set out at the beginning.

29

A Day in the Life of an Adjuster

§ Adjuster receives claim notification via email and an alert including contact information. – Direct to field process enables impressive, quick response to claims.

§ A call is made, appointment set, maps accessed and the GPS navigator engaged. – Upon arrival, accident scene and damage photos are taken, key

party info all fed directly back to the home office claims system. – One of several estimating tools is accessed

» Diagramming automated using laser measurements and square foot calculators» Depreciation allowances, location mapping and statements of loss created.

– Aerial imaging incorporates birds eye view into the claim data» Same aerial images available from home or regional claims centers to confirm

collected information or determine any need for manual refinements. » Historical pre-damage views might also be available for comparative purpose

§ These services are available today on bulkier laptops; pad or phone apps moves to more convenient level.

30

Apps Starting to Proliferate:More Lines of Insurance with a Field App

31

Construction estimating app Workers Compensation app

USAA Auto insurance app

Home inspectors app

Property inspection app

Two Other Examples in a Field of Possibilities

§ Award winning equine insurance app for racehorses– assists in determining coverage applicability and levels – submits FNOL information when a covered race horse is injured– includes the ability to search out the nearest qualified vet – provides contact information and a map from current location – only cost the carrier $25,000 to develop

§ Newly released HailSpot to capture immediate hail data– enter location and DOL, get up to 10 years of hail size and duration– geo-locates exact address mapped to weather history for spot– helps prevent paying for pre-existing damage based on exact dates– combined with rules base, recommends replace, repair or deny

32

Mobility Strategies:Have A Framework for Mobile Solutions

Audience:Who will use the mobile

device capabilities?

Devices:Target devices and device

ownership?

Data Security:What data will they have

access to?

• Drives Design Alternatives• Drives Deployment options

• Employees, Business Partners, Providers, Customers, general public

• Technical features may vary by audience (Email, device wipe, device profile ,MDM software)

Each different user group will require different security controls and access

• Drives Security Requirements• Drives Deployment options

• Company provided

• End user provided – devices specified by company

• End user provided – device independence

BYO – Bring your own – requires significantly more robust availability

• Drives Security Requirements• Drives Architectural Solutions

• Current application data? Historic Data?

• Policy / Claim History Information

• Data Sensitivity : payment and health information (PHI,HIPAA), PCI)

Must have the capability to secure and remove data in case of device loss

The organization’s mobile computing strategies must be developed for:

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DeliverableFrameworktailored to opportunity

DeliverableHigh Level Architectural Framework

DeliverableVision & Scope

STEP IIIEvaluate Functional Fit

• Evaluate form factor (smart phone or tablet)

• Identify security or functional requirements that are non-standard

• Evaluate deployment model for usability (e.g. mobile web, resident app)

STEP IVBuild Plan

Mobile Policies &Standards

Mobile Application

Deployment &Support Model

Device TestingNeeds

SecurityReview

• Mobile Specific build, deploy, and support needs for the finalized schema

STEP IISTEP IBusiness Case

Additional Considerations to address as part of the business case are:

• Audience Served (user)• Device Ownership• Supported Devices• Information Security

(where is the data stored)

• Project is submitted via the IT prioritization process

• CBAs validate• Business case is made to

deploy via mobile devices• Project is approved,

prioritized & scheduled

Select from Library of Usage Patterns

• Schemas are standard patterns used to guide mobile development choices based on the business case

Consumer 3rd Party/PartnerAssociate

SupportLevel

Company-Owned 3rd Party or Personally -Owned

1 OS/ 1 App2 OS/ 2 App2 OS/ 3 App

Smart Phone Tablet

iPhone/iPad Mobile BrowserAndroid

Push PullAndroid iStore WebCitrix*

No PCI/PHI Multiple PCI/PHIMy PCI/PHI

Application Device

Mobile App Mobile Web Desktop Web Virtual App

Public Store Internal Store Non-Resident

Idea forMobile App

Client SDLC

DeliverablesClient Standard SDLC Artifacts

ProductionMobile App

Low Level Reqmts

High Level Reqmts

Mobility Management:Use the Framework to Control Execution

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5. Property Casualty Industry Survey Results

Nolan Recently Concluded A Survey of Over 100 Property Casualty Insurance Senior Executives

Findings Are Being Reviewed and Compiled

The Following Claims Specific Findings Extracted

35

Underwriting Findings Consistent with Profit / Service Focus

36

4.09

3.87

3.31

1.44

0 1 2 3 4 5

Customer satisfaction

Expense ratios

Renewal retention

Increase profitability

4.3%

22.6%

47.3%

60.2%

78.5%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Policy services outsourcing

Usage Based Insurance (UBI)

Mobile Technology platform

New policy management system

Analytics program

2013UnderwritingObjectives(low #=top priority)

2013UnderwritingInitiatives(high #=top priority)

?

Claims Findings Consistent withLoss Management and Analytics

37

3.01

2.93

2.18

1.88

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

Improve customer service

Improve claim reserves

Reduce LAE

Reduce loss costs

27.4%

28.6%

40.5%

52.4%

52.4%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Mobile Technology

New Claims System

SIU Effectiveness

Litigation Mgmnt

Claim Analytics

2013ClaimsObjectives(low #=top priority)

2013ClaimsInitiatives(high #=top priority)

Claims Focus Mixed

38

6.67

4.58

3.75

3.50

2.47

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

Increase SIU resources

Improved litigation mgmnt

Effective claim audits

New technology (all types)

Process / workflow 2013ClaimsMost Improved By(low #=top priority)

5.33

4.42

3.45

2.99

2.04

1.79

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Mobile technology

Facsimile to company

Email to company

Company web portal

Agency operations

Claim contact center 2013Claims FNOLReporting Method(low #=most used)

?

39

32.5%

33.7%

65.1%

72.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Increase web claim reporting

Replace legacy claims system

Replace legacy policy system

Data warehouses & reporting

24.0%

33.3%

37.3%

0.0% 10.0% 20.0% 30.0% 40.0%

Underwriting

Claims

Distribution

2013 KeyTechnologyInitiatives

2013Mobile Initiatives by Function

?

THANK YOUThe Nolan Company

Management Consultantswww.renolan.com

Steven M. Callahan, CMC®, FFSI Practice Director

steve_callahan@renolan.comwww.linkedin.com/in/stevenmcallahan

@stevencallahan

40