11 minute read 24 Aug 2020
EY - Hang glider just after launch

What is the COVID-19 reality for claims?

Authors
Anthony Tempesta

Principal, Insurance Business Transformation, Ernst & Young LLP

Insurance Strategy & Business Transformation Leader. Global experience in helping clients transform their business and people.

Charlie Mihaliak

EY Americas Insurance P&C Transformation Leader; Principal, Strategy and Business Transformation, Ernst & Young LLP

Husband. Father. Teacher. Problem solver. Team builder. Mentor. Happy warrior.

Jim Kremer

EY Americas Claims Transformation Co-Leader; Managing Director, Insurance Consulting, Ernst & Young LLP

Complex problem-solver. Common sense advocate. Husband. Father. Servant leader. Avid traveler. Voracious reader. Proud UW-Badger alumnus.

11 minute read 24 Aug 2020
Related topics Insurance Financial Services

A road map of risks and opportunities for claims operations.

Three questions to ask

  • Where are claims leaders focusing energy and effort?
  • What are the key risks and opportunities?
  • What are the right actions to take now, next and beyond?

It’s clear that the COVID-19 pandemic accelerated many societal and business trends that were well underway before it struck in early 2020. That’s certainly true of the insurance industry in general and the claims function in particular. That’s most obviously true relative to the need for more digital capabilities and more extensive process automation, as well as the need to compete for scarce talent.

The good news is that most claims operations were able to establish remote operations, transition their people and teams to virtual working and maintain operational resilience. Looking ahead, though, the priorities are shifting and intensifying, particularly those related to cost and quality. With market pressure to right-size expenses combined with the premium and claims frequency impacts, many claims leaders justifiably wonder, “Now what? How do we prepare our people and operations not just to survive the ongoing crisis but also to thrive in the new COVID-19 reality?”

They are seeking the best way to navigate the ongoing uncertainty of risks of widespread remote working and simultaneously improve cost and quality in the next 12-24 months. In assessing their priorities, claims leaders are asking themselves which actions are truly urgent now and which can wait a quarter or two? These are the right questions to ask, especially given how important it is for claims functions to maintain discipline on the cost of losses, as well as on operational expenses.  

To help find answers in the immediate aftermath of the crisis, the EY insurance team conducted 10 interactive online workshops with senior claims executives from some of the largest insurance companies in the US. These sessions were designed to help leaders:

  • Define the many complex risks and opportunities they face 
  • Assess and prioritize those risks and opportunities
  • Define proactive steps and action plans to move forward

This article will present the insights and perspective gained from those sessions, in which more than 100 insurance industry professionals participated. Specifically, it will describe the six most common and significant themes regarding the impact of COVID-19, as identified by EY analysis of the session outputs. As a whole, they represent the most meaningful risks and opportunities for claims operations:

  1. Managing employee engagement, performance and retention in remote working environments
  2. Accelerating digital capabilities
  3. Monitoring and maintaining quality through increased volumes and remote working
  4. Effectively and proactively managing vendor performance and risk   
  5. Preparing for legal, regulatory and legislative action
  6. Rapid upskilling and reallocation of resources

Individually, these six areas represent a framework for action. Collectively, they represent huge financial stakes for insurers. Carriers that form the right near-term response strategies and long-term action plans will be able to protect their margins and manage their costs more effectively.

Those that delay action or lose focus on these factors may risk lower customer satisfaction, operational disruption and reduced claims quality at a time of extreme economic uncertainty. Getting the right answers and taking the right actions at the right pace in these areas will be essential. 

Where claims leaders are focusing energy and effort

The claims risk workshops covered all lines of business, and participants identified 137 risks, ranging from technology and people to operational capacity and productivity to risks specific to certain lines of business. Taken as a whole, the risks identified reflect the massive amount of uncertainty across the industry even after six months of the pandemic.

However, it’s important to note that the impact across industry subsectors will vary considerably. Personal and automotive lines are dealing with reduced claims volumes, for example, while commercial lines are seeing a large spike in contentious business-interruption claims. 

The sessions were built around a risk taxonomy framework that EY leaders use to accelerate and enrich strategic planning dialogues with senior insurance executives. The six focus areas that emerged from the discussions demonstrate how claims leaders are prioritizing their efforts and investments in the months to come. They also reflect plans to sustain performance into 2021.

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Chapter 1

Managing employee retention and performance in a remote working environment

Remote working is here to stay, which leaves insurers to manage a new set of risks, from increased cybersecurity threats to organizational and cultural concerns.

In the very early days of the crisis, it made sense for insurers to focus on employee safety. The same can be said of implementing accurate metrics to evaluate employee performance and productivity in the new environment. 

Claims leaders understand how important talent is to future success. A full 60% of workshop participants have already turned their attention to updating processes for hiring and training new employees. A slightly larger percentage see effective strategies to attract and retain employees as an immediate-term focus.

Employee retention will be key to sustaining performance over the long term, and to prevent competitive “poaching” of top employees now. While working remotely, skilled and experienced workers may feel less appreciated and less connected to their coworkers, which could prompt them to explore other opportunities or lead them to be recruited away. This threat will continue to be an issue as the period of remote working continues, because now employees can work for companies anywhere. Geographic barriers have fallen in the war for talent. 

Looking ahead, managing remote employees’ efficiency, productivity and engagement will become the priority, according to 80% of workshop participants, while 75% pointed to concerns over employee morale as a critical risk. Insurers that actively work to promote mental health and prevent employee burnout are more likely to keep their best people and, thus, return to pre-crisis performance levels sooner.

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Chapter 2

The acceleration of digital capabilities

For several years running before the crisis, insurers were pushing toward straight-through processing for an increasing number of claims.

That required the extensive use of automation (e.g., of first notification of loss) and artificial intelligence (to flag anomalous and potentially fraudulent claims). COVID-19 will only accelerate these trends. 

Here again, insurers will have to navigate a unique matrix of risks and opportunities. For instance, they must take into account the implementation risks for e-signature and e-payment applications, as well as the risks of automating processes, which was cited by more than 70% of workshop participants as a focus area. There are also limited opportunities to test emerging technologies before deployment. In fact, as the pandemic struck, many carriers embraced digital channels earlier than planned and without full testing. At the most basic level, insurers must make certain that workers are equipped with the right tools, including both hardware and software, to work from home productively. 

On the human front, maximizing the return on digital investments requires managing the engagement of workers, as well as those of key suppliers and vendors, some of whom may fear that automation will eliminate their roles. In fact, nearly 90% of workshop participants cited this as a priority concern now. The impact on service levels must also be considered, as some customers will likely be looking for an empathetic human touch during a time of uncertainty. A full 60% of workshop participants expect this to be a priority in the coming months. 

There’s no doubt claims operations will be more digital in the future, which means insurers will need to choose the right technology. It is also true, if somewhat counterintuitive, that insurers also need people with the right skills and mindset to get the most out of the shift to digital and higher returns on their investments in technology. The focus must be on leveraging technology and data to deliver higher-quality customer and claims outcomes.

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Chapter 3

Monitoring and maintaining quality through increased volumes and remote working

There’s no doubt that COVID-19 has put the insurance industry in the spotlight relative to its social purpose of providing protection to people, businesses and communities. Maintaining claims quality and accuracy is one way insurers can live that purpose now.

The first step has been making certain the capacity is in place to resolve catastrophe claims, which are expected to rise. Because COVID-19 is severely limiting field inspection and adjustment of claims, insurers must develop the ability to virtually adjust such claims, which means deploying new technology and training people for new skills. Quality must be the goal for all claims, but especially for virtually adjusted claims, particularly in light of the financial stakes and the likelihood of potential spikes in claims volumes. 

Looking ahead a few months, the attention of claims leaders will turn to assessing the quality of repair shops for automotive claims, according to 83% of workshop participants. That’s true because of the prospect of prolonged durations due to parts availability issues caused by supply chain disruptions and reductions in salvage values. Because quality comes from attention to detail, claims leaders who do advance planning are more likely to navigate these issues successfully.

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Chapter 4

Effectively and proactively managing vendor performance and risk

Managing vendors is yet another concern for claims operations in the post-COVID-19 environment.

The list of concerns starts with data security, which was cited as a near-term concern by nearly 90% of workshop participants. Three out of four are also focused on selecting the right vendors for collaborations on emerging digital capabilities. 

Looking outward a few months, the top concerns are data quality improvements on vendor populations (cited by 75% of workshop participants) and the ability to locate parts and complete repairs efficiently (60%). Claims leaders are also aware of their reliance on independent appraisers and adjusters and the resilience of key suppliers and vendors in the face of pandemic-related adjustments. Claims operations that are most effective at managing vendors and suppliers may have better results overall.

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Chapter 5

Preparing for legal, regulatory and legislative action

Insurers are likely to face intense regulatory scrutiny and myriad legal challenges relative to COVID-19 claims.

Trials in the court of public opinion are also likely. In terms of near-term focus, 83% of participants cited managing disputed claims as a major business risk.

Most workshop participants viewed new avenues of liability, new legislation focused on the industry, and the potential increase in lawsuit volumes as significant longer-term concerns. Many insurers are actively planning for such developments and preparing for litigation, some of which is already underway. Proactive adherence to evolving legislation and consistency in response to shifting rules and regulations will help insurers navigate the uncertainty.

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Chapter 6

Rapid upskilling and reallocation of resources

Workshop participants recognize the clear — even obvious — need to recalibrate their resources in response to shifting volumes; nearly 90% of workshop participants cited scaling virtual capabilities to recalibrate resources (e.g., from auto to property) as a near-term priority.

More than 60% are focusing on managing staffing and excess capacity in the coming months if claims volumes and frequencies remain depressed in some lines of business.

This will be easier said than done. Before they can adjust and reallocate staff effectively, insurers must find ways to rapidly upskill and cross-train workers — a daunting challenge in a remote working environment. Coaching, mentoring and traditional training programs must also be modified and adapted to digital channels.

In the medium term, claims leaders are monitoring their ability to auto-adjudicate inspections and resolution channels. Here again, claims leaders must balance both the technology-enabled and human-driven parts of their operations.

Taking the right actions now, next and beyond

Pre-COVID-19, forward-looking claims leaders had a full and diverse strategic agenda, from digitizing claims for straight-through processing to defining workforce strategies for the future to using claims analytics to promote quality and minimize leakage. Post-COVID-19, these objectives are more urgent than ever due to the financial, customer and risk pressures that the pandemic has amplified. To move their organizations forward, senior claims leaders must assess and prioritize their approach to these risks and opportunities, define action plans and execute changes quickly, with an eye to driving rapid adoption by employees, agents and customers.

On both the technological and human dimensions, it’s about mitigating the downside in the near term and seizing the upside over the longer term. The steps insurers take now will determine just how well claims operations manage through what comes next and beyond. We believe the aggregated insights from all of the sessions are invaluable to other insurers seeking to find the right way forward.

Summary

When the COVID-19 pandemic struck, most claims operations succeeded in quickly transitioning their people to remote working and maintaining operational resilience. Looking ahead, however, the priorities are now shifting to managing costs and increasing quality. And even as claims leaders continue to manage the risks of widespread remote working, the pressure to deliver is intensifying.

About this article

Authors
Anthony Tempesta

Principal, Insurance Business Transformation, Ernst & Young LLP

Insurance Strategy & Business Transformation Leader. Global experience in helping clients transform their business and people.

Charlie Mihaliak

EY Americas Insurance P&C Transformation Leader; Principal, Strategy and Business Transformation, Ernst & Young LLP

Husband. Father. Teacher. Problem solver. Team builder. Mentor. Happy warrior.

Jim Kremer

EY Americas Claims Transformation Co-Leader; Managing Director, Insurance Consulting, Ernst & Young LLP

Complex problem-solver. Common sense advocate. Husband. Father. Servant leader. Avid traveler. Voracious reader. Proud UW-Badger alumnus.

Related topics Insurance Financial Services