We are living in unprecedented times, experiencing a black swan event the likes of which most of us have not seen (and likely will not see in future) in our lifetime. The COVID-19 pandemic is causing unprecedented human suffering and fatalities. Since this is a novel virus there isn’t a therapeutic treatment or vaccine; consequently heeding to calls from local, state and national health care officials, businesses around the world are taking dramatic steps to “flatten the curve” and reduce community transmission in regions hardest hit by the pandemic. Although, this phenomenon is expected to be temporary, the timeframe for recovery seems uncertain at this point; while brilliant scientists around the world work on a vaccine, the availability is potentially 18 months away. Most companies are trying to adapt to the new reality and fine-tuning their business models and processes with the goal to best serve their customers in this challenging environment while ensuring the ongoing safety and health of employees at the same time.
Impact on P&C Industry
The cost of the much needed “social distancing” is fairly dramatic, the economic slowdown is likely to be widespread and deep as a result of direct impact to some industries (small business, travel and leisure) but more importantly second and third order impacts to a number of other industries. As unemployment rises, the P&C insurance industry will likely be impacted in terms of people’s ability to own cars or homes and consequently purchase insurance. We will likely see some decline in earned premiums for most carriers in the short to intermediate term, as acquiring new customers becomes more challenging.
On the flip side, there’s also likely to be an unintended consequence of reduction in churn as more people with insurance will resist change in these uncertain times. Also, with reduced driving across the board, the number of claims is likely to be significantly lower resulting in lower losses for carriers during this phase. Although personal driving is expected to be lower, it’ll likely be balanced by somewhat increased delivery service drivers (many of them individual gig-economy workers with personal insurance). In the bigger picture though, the overall impact on the combined ratio for insurance carriers may be limited to a large extent. Notwithstanding that, insurance carriers carry the huge responsibility of social distancing and ensuring the ongoing safety and health of employees as well as customers; figuring out how to serve customers remotely and virtually is the key to differentiate themselves in this tough environment, digitization efforts by carriers will also accelerate as a result of the current environment. A number of services and functions in a customer lifecycle are already being performed digitally and virtually (with minimal physical contact); marketing, underwriting, quoting, policy and billing are prime examples where minimal physical contact is being practiced already, systems and processes are in-place to run the business smoothly. By far, claims remain to be the most contact intensive part of the insurance customer lifecycle.
Adjudicating Claims in the New Environment
There’s a limited choice for insurers, but to adjudicate claims virtually (contactless, remotely) in the new environment. As you might imagine, there are several challenges in getting all (or the vast majority) of claims adjudicated given that certain activities within a claims lifecycle are contact centric. Activities listed below require adjusters, third-parties, vendors and claimants to meet each other in order to accurately arrive at the truth:
- Coalescing inputs from experts and various parties
- Systems and processes are not geared for virtual Inspections, investigations and triaging
- Communication channels are not mature and geared to enable virtual adjudication causing delays in obtaining and processing information
- Managing and validating vendors and their estimates
- Inspection of the physical damage
- Verifying statements from witnesses and claimants
So, How Do We Get Over These Hurdles?
Most industries and businesses are pivoting and adapting their business processes in order to figure out how to serve their customer’s needs utilizing contactless delivery, virtual mechanisms, etc. Adjudicating claims virtually is not new, insurance carriers have taken steps in the past towards auto-adjudication (low-touch, no-touch) and continue to innovate and move in that direction. The current situation necessitates the acceleration of this phenomenon from a currently small portion (<10% of claims) to significant and substantial part of overall claims, because of COVID-19 and consequently social-distancing. This trend will likely continue well beyond the current situation and become the new norm for leading insurers and way for insurers to differentiate themselves. There are a number of approaches and steps that can help achieve this goal, following are some of the key elements:
As you can see, opportunities exist for carriers to shore up their efforts in adjudicating claims virtually, recent technological innovation has provided a tremendous platform for carriers to leverage and achieve their short term and long term goals.
The Road Ahead
The current COVID-19 situation is one of the most disruptive exogenous event of our lifetime, the human suffering, economic and social disruption are enormous. Every such disaster also brings an opportunity to retool and reinvent to make things better for humanity overall. In order to be prepared for similar or worst situations in the future, carriers need to significantly enhance their current digitization and virtualization of services programs. Accelerating a move to the cloud and AI is the need of the hour and focused spending on technologies that strengthen customer relationships, reduce expenses, and protect employees. For insurance carriers, this is also an opportunity not only to achieve short-term goals like social-distancing by adjudicating more claims virtually, but also achieve longer term business goals of bringing efficiency, speed and expense reduction in their claims operations.