Claims management
IMPROVING CLAIMS management processes is on the agenda for a growing number of European insurers. McKinsey spoke with Samantha Prymaka, a partner in the Vienna office, to understand more about how the process is changing and what the future of claims looks like for customers and insurers.
McKinsey:
What are the latest trends you’re seeing in claims management?
Samantha Prymaka:
Insurers increasingly recognize claims as the single most important area in which to achieve a sustainable competitive advantage. We see the potential for a reduction of 25 to 30 percent in loss adjustment expenses and three to five percentage points in indemnity spend. Across Europe, many insurers are transforming their claims operations using new digital tools and improved analytics. So far, however, very few insurers, if any, have reached best practice on the three elements that are critical to claims excel
A long-established insurance activity is seeing some surprising new practices.
satisfaction, efficiency, and effectiveness—in even a couple of markets, let alone across their entire footprint.
At the same time, insurtechs—as claims experts, specialist or niche providers, or fully digital models—have gained significant share in claims compared with other areas of the insurance value chain. For instance, Tractable and ControlExpert offer remote or automated loss assessment; telematics products, such as the Floow, can smooth the customer experience and prevent damages; and new software, such as Aureus, can detect fraud early. Insurers are increasingly partnering with or acquiring insurtechs to improve their performance in claims.
McKinsey:
How much weight should insurers give to these changes and efforts, right now?
Samantha Prymaka:
There’s no getting around it: claims is one of the oldsecond, est parts of the business. But it’s still critical to customer satisfaction and profitability. After an auto accident or a fire, customers with frayed nerves turn to the claims department. Their experience there will go a long way toward determining their satisfaction with the company. The claims experience is responsible for 25 percent of the total satisfaction in motor. Easy-to-understand and transparent claims handling is the key to a good experience.
Claims is even more relevant to the insurer’s bottom line. On average, claims costs represent about 80 percent of total costs. Improving claims management is by far the biggest lever to create value; that’s why so many insurers are overhauling their operations, aiming for a potential reduction of 6 to 7 percent in claims costs.
McKinsey:
How are leading insurance carriers doing it?
Samantha Prymaka:
Insurers that are doing well on the claims triangle of customer satisfaction, effectiveness, and efficiency say that it’s critical to work on all three at the same time and to fully exploit digital and analytics capabilities.
But the effort does not need to be exhaustive. In many cases, insurers that work on just five value levers—mounting a digital first notice of loss, directing policyholders to a specific third-party shop through steering, coordinating network activity and data in an ecosystem through network management, saving a partially damaged entity from further loss, and managing fraud—can realize 80 percent of the total potential of their claims triangle. On some of those levers, insurers may not have all the skills needed. But focused partnerships with service providers—who, in some cases, bring their tools and teams in-house—can help insurers get what they need.