Claims processing includes all the steps in which the insurer checks the necessary information about the loss, policy and the event in order to calculate and pay out its liability to the policyholder. It begins with the submission of the first notice of loss (FNOL) and ends with either the rejection of the customer’s request or the transfer of the money to the customer.
In this article, we will introduce the steps of claims processing and present the seven most important technologies that facilitate claims processing.
Why is claims processing important?
Efficient claims processing increases the profitability of insurance companies and the satisfaction of policyholders.
According to Deloitte, claims processing accounts for nearly 70% of insurance company expenses. Effective claims handling is linked to effective insurance fraud detection and prevention, as most of the fraud types like hard fraud or double dipping fraud occur at the claims processing related times.
However, fraudulent claims account for about 10% of total claims expenditure. So around 90% of claims handling is about solving the problem of a customer who has experienced a tragic incident. It is therefore not surprising that 87% of customers consider the effectiveness of claims processing as a criterion for switching providers.
What are the claims processing steps?
Figure 1: Steps of claims processing:
- Alert Insurance Company (FNOL): Claims processing begins with reporting the damage or theft to the insurance company. There are many ways to complete this step; for example, you can call the broker or use the insurance company’s website/mobile app to file the FNOL. Some insurance companies no longer require you to notify them since IoT devices can alert insurance companies regarding the loss immediately. However, the FNOL should still be filed which contains the data about the loss, incident and policy to determine the liability of the insurance company.
- Initial Claim Investigation: After the FNOL is submitted, insurers begin the initial investigation phase. The purpose of this initial investigation is to evaluate the approximate cost of the claim in light of the evidence collected through FNOL. For example, claims adjusters or computer vision models may evaluate photos/videos of the damage. This step also includes obtaining witness statements if necessary.
- Check Policy: Once the initial investigation is complete, insurers assess whether or not the insurance company should pay for the insured’s damages. For example, the insurance company might determine that the policyholder is committing a criminal act such as drunk driving. In such cases, the company does not have to pay for the policyholder’s damages and close the case. However, if the case meets the requirements of the policy, the company must pay all or part of the claim.
- Calculate Payment to Customer: To calculate the exact cost of the claim, insurers may need to work with experts such as engineers. At the end of this stage of the claims process, insurers often recommend some hospitals, dentists or vendors to solve the insured’s problem.
- Arrange Payment: Once the repair or threat is complete, insurers collect information about which contracted repair shop or hospital the insured worked with. Using this information, insurance companies transfer the money to the provider on the basis specified in the contract. In some cases, the insured may take the money directly as compensation. In such cases, both parties negotiate and agree on the details of the payment, including account numbers and the payment due date.
What are the top 7 technologies that improve claims processing?
In our analysis, we found that 7 technologies directly improve claims processing, namely: Chatbots, optical character recognition (OCR), computer vision, advanced analytics, blockchain, IoT/smart devices, and custom mobile apps.
Figure 2 shows which technology facilitates which step of claims processing. We place a check mark if the respective technology improves a certain step. The detailed explanation about how these technologies enable claims processing can be found below Figure 2.
Figure 2: Technologies that improve claims processing:
1- Chatbots
NLP-driven chatbots can facilitate the FNOL and payment arrangement steps of claims processing. Chatbots can be used in customer service, on the website or in the mobile application of the insurance company.
Chatbots can be the first point of contact for policyholders when they want to make a claim. They can guide customers to take videos and photos of the claim and inform them of the required documents they need to submit, speeding up the submission of the FNOL. Also chatbots can help insurers by contacting policyholders to arrange payment. Both ways, chatbots automates customer relations.
It is important to note that not all customers want to contact chatbots when it comes to claims processing. For example, 22% of commercial insurance customers prefer to be closely connected with brokers. Also, depending on the level of claims, customers may need human contact.
However, depending on the customer segment, claims handling via chatbots can improve customer retention. To find the optimal strategy, you can read our article on claims processing transformation.
2- Optical character recognition (OCR)
OCR is another NLP-based technology that derives meaning from handwritten documents and is used to categorize them. Consequently, it improves the initial claim processing and policy check steps of claims processing.
Both initial claims investigation and policy check involve processing handwritten documents such as witness statements, policyholder statements, police and medical reports, and more. Thanks to OCR, insurers can automate the extraction of data from such documents and focus on the parts of claims processing that require human intelligence.
3- Computer Vision
Computer vision models derive results from visual inputs such as images and videos. So, They can assist with the initial claims investigation step. Computer vision models can assess the cost of loss by evaluating data from videos and photographs taken by policyholders or claims adjusters. They can help insurance companies predict their liabilities and organize their financial resources accordingly.
Some insurance companies are also already using Autonomous Things (AuT) for the initial claim investigation. The intelligent drones, which are equipped with computer vision models, examine the insured object. Although such tools are rarely used in insurance practice today, McKinsey expects that by 2030 we will see more intelligent drones performing claims investigations.
4- Advanced analytics
Advanced analytics are algorithms that help users better predict the future. Such tools are good at finding and interpreting correlations, and are therefore useful for the initial claim investigation (2.), policy check (3.) and calculate payment to customer (4.) steps of claim processings.
Insurers can use adjusters’ and experts’ reports as input data for advanced analytics to predict actual claim costs. Advanced analytics are also effective fraud detectors because they can identify patterns between fraudulent acts. In particular, behavioral analytics can be used to assess whether or not the claim complies with the terms of the policy. Such tools check browsing histories, clicks, location, etc., and help insurers determine whether policyholders’ claims are trustworthy or not.
5- Blockchain
Blockchain is a specialized database system that records transaction data in real time while addressing concerns about security, privacy and control. Therefore, it is beneficial for many insurance practices. Above, we stated that blockchain facilitates the 4th and 5th steps of claims processing. However, blockchain technology can completely transform claims processing by eliminating the necessity for second and third steps.
Blockchain automates claims processing thanks to smart contracts, which are agreements stored on a blockchain that can be enforced by code. When certain circumstances occur, they automate the agreed processes including claims.
For the claims processing they can use the data flow from IoT/smart devices. Here is an example on how blockchain can change claims processing as depicted in Figure 3:
Consider an insurance company that agrees to pay for a policyholder’s roof damage if the hurricane’s speed exceeds 200 miles per hour. If an oracle sends data to the insurance company regarding the speed of the hurricane exceeding 200 miles, and at that time a policyholder completes an FNOL regarding her roof damage by taking some photos, or ideally her smart house automatically alerts the insurance company regarding roof damage.
After this point, claims processing jumps immediately to its 4th step and, depending on the expert report that determines the cost of the claim, the smart contract is activated and a predetermined amount is automatically transferred to the insured’s account without the need for further investigation.
Decentralized ledger of blockchain technology also eases payment arrangement and Money transfer since it was specifically built for this purpose and this is the one of the reasons why bitcoin is so popular today.
Figure 3. How blockchain speeds up claims processing:
Source: PwC
6- IoT/Telematics
The Internet of Things (IoT) is the networked universe of intelligent devices such as smartphones, smartwatches, home assistants, smart cars, smart manufacturing centers and many more. IoT facilitates the first, second and third steps of the claims processing.
Thanks to the IoT, notifying insurers for damage is easy. For example, if the airbags inflate, telematics can automatically alert the insurance companies. The same logic can be applied to smart homes, factories and even in the case of health insurance humans thanks to smart watches that monitor our health.
Also, as we mentioned earlier smart drones are capable of doing initial claim investigation and apparently, the frequency of such investigations will increase soon.
Insurers can also use the IoT to make policy checks. In the event of a car accident, insurers can determine the speed and location of the vehicle at the time of the accident by checking the smart car’s memory. If the driver exceeds the speed limit in that particular location, the case will be closed accordingly.
7- Custom Mobile Apps
Since 2017, mobile devices website traffic has exceeded desktops. Today, there are approximately 2.5 mobile devices per capita, and this ratio continues to rise. Consequently, custom mobile app development is a promising area for insurers.
Custom apps can facilitate the 1st and 5th step of claims processing, which requires communication with policyholders. Customers can fill out FNOLs, check claim status, and check repair status with a few taps on their phone. Such a process helps insurance companies deploy their employees to tasks that add more value.
No/low code platforms can assist insurers in quickly developing specialized mobile apps, since these tools require no or little coding experience.
The article was originally published in the AI Multiple website and written by Görkem Gençer on February 7, 2022.
Digitize your claims process with [VRS]™
[VRS]™ eases the claims processing. Customers can simply send real-time damage data by taking videos/photos, location with their smartphones to complete FNOL.
For instance, Virtual i team supports Braxtone a Middle East Africa based insurance company by offering them a cloud based video call inspection platform for effective claims processing. Virtual i Technologies offers this technology as an insurance-as-a-service implementation, without requiring a slow & costly IT integration project.