Property and casualty insurers tackle indemnity in litigated claims

Property and casualty insurers are seeking new strategies to enhance their claims litigation processes.

In brief

• Root causes of major leakage within insurers’ claims processes include missed settlement opportunities and inappropriate litigation strategies.
• Insurers are investing in strategic litigation prevention, modernizing segmentation models, incentivizing defense counsel and more to improve claims outcomes.
• With comprehensive assessments, insurers can create strategic roadmaps to address issues.

In an increasingly litigious environment, insurers are spending more than $23 billion a year¹ on defense and cost containment within the claims process and $27,000 in indemnity per injured party in third-party bodily injury claims, an 8.3% increase since 2023 and 38% increase since 2020.² To mitigate soaring property and casualty (P&C) claims costs — and avoid hiking premiums to pay for them — carriers are looking for solutions to drive these costs down.

Where should insurers invest to mitigate financial leakage?

Carriers have recently focused their investments in six key areas to achieve more successful claims outcomes and reduce financial leakage. These include:

1. More strategic approaches to prevent litigation

Insurance carriers are increasingly focusing on early resolution efforts that aim to address claims before they escalate into costly legal battles. By fostering a culture that prioritizes closing claims over a process-oriented approach, insurers can streamline operations and reduce litigation costs. This includes considering defense costs during negotiations for more aggressive pre-litigation settlements on appropriate cases.

2. Modernizing the segmentation model

Insurers are pulling back from escalating claims to a new adjuster when a suit is filed toward more exposure ownership. Additionally, in the current data-rich environment, insurers are moving away from traditional segmentation points (financial exposure, attorney representation, etc.) toward considering the specific characteristics of each case to align the most complex claims with the resources best equipped to effectively resolve them.

3. Quality assurance and performance management

Carriers are placing increased emphasis on aligning measures of success with their overall P&C business objectives, focusing on efficiency, outcomes, productivity and experiences. This includes refreshed metrics and a new quality assurance approach centered on open claims, indemnity outcomes, negotiation and evaluation accuracy vs. process adherence.

4. Reimagining the role of the supervisor

Carriers are reimagining the claims management supervisor role to foster a more strategic and proactive approach. Supervisors are now expected to engage in open-file practices, providing real-time feedback before adverse outcomes occur. This proactive stance enables targeted training and quality assurance so that claims are handled effectively from the outset. There’s also a growing emphasis on establishing formal feedback processes for pre-litigation adjusters on escalated claims so they can review the eventual outcome of litigation on claims they initially managed. 

5. Defense counsel sourcing, assignment and incentivization

The sourcing, assignment and incentivization of defense counsel are critical components of the claims litigation process. Insurers are developing incentive structures based on outcomes to align the right firm with the right case. This strategic approach not only enhances the quality of legal representation but also streamlines the overall litigation process. Additionally, the internal counsel operating model is being refined to support these efforts so in-house teams are equipped to manage complex cases effectively.

6. Optimizing the P&C claim workflow

Insurers are re-emphasizing a culture of critical thinking to enhance decision-making processes, instead of relying on case evaluation technology that can increase avoidable litigation. The balance between voice-to-voice interactions and digital communications is being carefully considered because both play a role in effective claims management. Furthermore, settling claims prior to defense counsel assignment is becoming more formalized and a priority, allowing insurers to resolve disputes more efficiently and reduce overall litigation costs.

Insurance industry outlook

While the insurance industry is experiencing more adversarial societal views, especially with younger generations, and more extensive regulation, we see positive developments on the horizon, including:

Why EY Claims Transformation?

Increasing claims payouts are not out of insurers’ hands. The EY Claims Transformation practice has helped insurers realize improvements in mitigating leakage and overall effectiveness.

Through comprehensive claims management assessments, we identify root causes of financial leakage at the claims file level and maturity gaps at the operational level in P&C claims and litigation, enabling carriers to pinpoint opportunities to enhance their efficiency and effectiveness. We combine our findings with industry insights about where insurers are investing to help clients reach more successful outcomes.

Our dedicated team comprises experienced technical claims professionals who have worked as front-line complex claims professionals, supervisors, regional managers and in home office leadership roles. We provide a strategic blend of operational and technology skills, with P&C industry experience from global and North American insurers, third-party administrators and self-insureds, including engagement experience with seven of the top 10 US P&C carriers.

Our team’s industry experience, combined with working with clients on casualty and litigated claims assessments over the years, allows us to maintain a recent and diverse repository of leading practices. Through our experience and accelerators, we can prioritize opportunities and recommendations through the following deliverables:

• Baseline assessment and maturity benchmarking against industry-leading practices of peer insurers
  
  
• File quality and leakage assessment, including root causes of adverse performance
  
  
• Performance management strategy, KPIs and a quality assurance framework to evaluate staff and internal and external counsel
  
  
• Implementation roadmap outlining quick wins, strategic initiatives and proofs of concept