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Boosting the bottom line with insurance claims process transformation

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Up to 75 percent of insurance companies’ premium income goes to pay claims. That’s why reducing the cost of claims processes offers insurers the best opportunity to impact their bottom lines. Companies that achieve operational excellence and differentiation in claims management can realize a competitive advantage resulting in better claims outcomes, reduced costs, and greater efficiency. By carefully evaluating and optimizing end-to-end claims processes, managing the quality and cost of the claims supply chain network, and capturing and sharing meaningful data analytics, insurers can transform the claims process to succeed in today’s market.

Transforming the legacy claims process

Traditional legacy claims processes are not optimized—and as a result, they cost insurers dearly. Those costs are not just financial, but also include opportunity costs and reputational damage. Even beyond the costs associated with such claims processes, they also disadvantage insurers because they do not utilize new technologies that are now available to improve business processes. These processes are ripe for optimization.

Typically, a single claim might go through multiple touch points, with varying input and decision factors. At each stage of the claims settlement cycle, value leakage or value creation can impact business outcomes. Unlike other functions, the claims department works with multiple vendors and internal and external stakeholders to settle a claim. With all of the different parties involved, the process can break down or communication can falter at any stage. That creates inefficiency, which increases costs and often delays the settlement time, leading to decreased customer satisfaction.

By optimizing internal processes, insurance companies can improve claims outcomes, reduce the costs associated with loss and expense cost, and achieve greater customer satisfaction. A high-performing claims process can create a competitive advantage.

Isolating a high-performance claims process

To build a high-performance claims process, an organization must have a clearly defined claims vision and strategy, along with a target operating model, and these must be aligned to drive business outcomes. Handling claims effectively requires a proper balance among claim efficiencies, claim effectiveness, and customer satisfaction. The claims process must be agile — efficient, effective, consistent, compliant with regulations, and responsive to customer needs — in order to produce the most favorable claims outcomes for all stakeholders. In addition, an efficient claims process must leverage technology solutions and analytics insights if it is to deliver significant business benefits.

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In fact, a number of factors have become triggers for change in the claims space. Companies that avoid addressing those changes and needs risk becoming inefficient and losing their competitive edge. These triggers include:

  • Changes in business strategy. Competition is driving carriers to become more innovative in product design and flexible in underwriting. Every change will have a cascading effect on the claims function.Integrating new products, lines of business, and acquired companies into the business process is critical for success, but making ad hoc changes will result in variations in the claims process and unpredictable process outcomes.
  • Financial/Economic cycles. Mergers and acquisitions are increasing, along with aggressive growth targets driven by strong capital adequacy.
  • Digitization and new technologies. The race for technology is changing the process across all facets of the industry, including the claims process. Mobile technology and digitization are driving the desire to access information anytime and anywhere while the use of robotics, telematics, drones, and 3-D printingis bringing radical changes to the claims process.
  • Access to big data. More data sources and types are now available to help build proactive claims operations and improve the claims decision-making process. These advanced analytics capabilities can influence claims segmentation, fraud identification and prevention, liability decision and subrogation recovery, customer communication and experience, and CAT loss management.

With all of these changes influencing the insurance industry, the case for claims transformation is clear and compelling. But simply addressing commonly perceived issues and plugging in off-the-shelf technology solutions may not generate strong ROI.  Instead, the critical foundation for successful claims transformation is to identify the unique challenges and solutions specific to each organization.

Implementing an impactful solution

Effectively transforming a company’s claims process requires taking an enterprise-wide view of the process, and studying value drivers and gaps across the claims value chain. It’s vital to engage the right approach, framework, and people to help build an effective transformation road map. 

Keep in mind that transforming the claims process can transform a company’s bottom line: According to McKinsey, reducing the claims cost by 1 percent is equivalent to a premium income growth of 25 percent. And the claims process is intricately linked with customer satisfaction. Genpact experience shows that less than a third of insurance customers worldwide rate their customer experience as positive, with poor claims handling often cited as a major factor. It is clear that the claims process plays a significant role in driving customer experience.

There are various approaches to making the transformation to a new claims paradigm. For instance, strategy consultants usually focus on business- or product-level changes with an advisory approach. Technology consultants will advise on technology architecture and application design, but offer limited process consulting. Process reengineering, however, is an innovative, bottom-up approach that offers a focused look at designing and implementing IT and analytics that is tied to strategy.

There are usually three steps to a process reengineering solution, including:

1) Diagnostics and analysis
Start with a diagnostic assessment to optimize process, analytics, and technology. This includes cost-benefit analysis as well as industry benchmarking and developing a transformation roadmap.

2) Design
Next, process reengineering consultants design a new targeted operating model, focusing on processes, workforce, and organization. This includes building business intelligence and advanced analytics in addition to automating and enhancing the system’s functionality.

3) Transformation
Finally, the new process, analytics, and technology solutions are implemented, with a focus on change management and project management. As the new system takes hold, process improvements can be documented and business outcomes will be improved. Insurers looking to improve their claims process can do so by using an objective diagnostic view of the claims process and data problems that map directly to potential solutions. By successfully diagnosing and improving claims processes, it is easier for claims process leaders to see their problems, evaluate opportunities, and make the right decisions about process optimization. As part of the process, they can then objectively monetize the costs and benefits associated with transforming the claims function.

For more information, contact, insurance.solutions@genpact.com and visit, genpact.com/what-we-do/industries/insurance

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