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Solving the Claims Leakage challenge is now an imperative for US insurers

Chaz Perera
March 20, 2023

Inefficiency and ineffectiveness in an insurance claims department are a bit like a boat at sea that has a hole in the hull and is taking on water. The skipper is trying to move forward, but the leak keeps slowing it down.

An insurance claim may get off to a great start, but time constraints and complex processes can bog down the most experienced claims adjuster. Timing is of the essence. When adjusters cannot be agile, claims take longer and get more expensive. Before you know it, the costs of a claim are much larger than anticipated, resulting in claims leakage.

Technology can reduce claims leakage, saving insurance companies billions of dollars each year with the help of what we call Digital Coworkers.

Drivers of Claims Leakage

When a claim comes in, a claims adjuster’s first task is to gather all relevant information. Then, they need to project how much the insurance company will need to pay for the claim. When the final numbers come in, the insurance company compares the initial projection of costs to the amount ultimately paid.

Claims leakage occurs when the actual cost is higher than the projected cost – hurting, sometimes disastrously, a company’s bottom line.

Claims leakage represents roughly 6% of total claim payments across the industry, costing $67 billion a year for U.S.-based insurance companies alone.

Based on data from 2021-2022, claims costs are increasing by $18 billion year-on-year. This figure suggests the hole in the hull of the boat will only be getting larger.

There are two main reasons claims leakage occurs within claims departments – inefficiency and ineffectiveness.

Inefficiencies are often created when a claims adjuster knows they need to take action on a pressing matter but cannot address it quickly enough.

Think of a workers’ compensation claim where an injured worker’s doctor is asking for an independent medical examination. The doctor has requested approval for the procedure from the claims adjuster and said they will proceed with the examination in five days if they don’t hear otherwise. The adjuster was wrapped up in a series of complex litigation events on other claims and missed this request, so the Insurance company is on the hook for paying for a procedure that might be unwarranted.

Ineffectiveness is also all too common in the claims process. In a perfect world, an insurance adjuster would have all the information they need to process a claim on the first call. In reality, data dribbles in during multiple interactions. Not having all the right information up front can cause a claims department to underestimate how much it will cost to resolve a claim.

For example, say a homeowner stated they had water backing up into the basement. Because this is a common loss, the claim was assigned to a junior adjuster, who went through the usual steps. As it turned out, the actual cause of loss was surface water that seeped into the basement following days of rain. This is considered flooding and is not a covered loss under the policy. The time the junior adjuster spent working on the claim was lost.

In both examples, the company suffered claims leakage.

Narrowing Down the Problem of Claims Leakage

The examples show that there are two distinct problems with claims leakage – people and processes.

There is a 10% vacancy rate for hiring in the insurance industry. There are around 430,000 more jobs than workers to fill them.

Many of those jobs are in claims departments. When insurers cannot fill positions, claims adjusters have to increase their pending claims counts and potentially slow the resolution of claims.

The lack of time and staff contributes to errors and slow processing. Both issues highlight the need for coaching and training, but there is no time available for that, either.

The second problem with claims leakage has to do with how technology works to manage the flow of a claim.

A claims department that runs like a well-oiled machine has the right people working on claims at the right moments. While technology has come a long way, only a human has the expertise to handle certain tasks.

What insurance companies could do better is restructure their processes so a single claims adjuster is not wholly responsible for a claim. Rather, a team of claims professionals works together to solve problems. As part of the team, each has a part to play, and the group is collectively responsible for the outcome. Digital coworkers can be a part of the team that improves efficiency and effectiveness.

Overall, the problem with people has to do with having enough staffing capacity. The problem with processes is in having better technology to streamline the claims process. Digital Coworkers tackle both problems.

Digital Coworkers: A Better Solution

A Digital Coworker works behind the scenes to take on all those tasks that do not require the heavy degree of intellect that humans have. They are effective in large part because, when it comes to insurance processes, thinking can be highly predictable in many situations.

Things could have worked out differently if a Digital Coworker had been deployed in the two claims examples described above.

In the case of the workers’ compensation claim, the Digital Coworker would have asked a few more automated questions to determine if an independent medical examination was warranted. Depending on the answers, the Digital Coworker would have flagged the matter to a claims adjuster for immediate attention. Armed with more facts, the adjuster could more quickly approve or deny the request.

Regarding the water backup claim, a Digital Coworker might have asked more questions at the time the claim was filed and determined at that point that it was a non-covered flooding issue rather than a covered water backup claim.

Digital Coworkers can also manage basic communications, while learning from the data and making even better decisions going forward. It all works like clockwork. The end result is greater efficiency, improved effectiveness and a reduction in claims leakage for insurance companies.

Digital Coworkers are revolutionizing the insurance industry. Just one can do the work of four to eight human employees, improving the capacity of a claims department and enabling an insurer to process claims better and faster.

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