Driving claims insights for insurance carriers
Strategic claims segmentation diverges from the traditional ways of managing claims, promoting a more detailed, data-driven approach. Traditional segmentation only considers the monetary value and data points such as the cause of loss and the exposure. Strategic segmentation considers the individual merits of each claim, ensuring more accurate and efficient adjudication, a major priority in today’s environment marked by increasing loss costs and expenses. By taking a data-driven approach carriers can harness a deeper understanding of ‘claims like this’ to enable proactive decisions and handling strategies to influence the trajectory of the claim effectively.
Carriers can employ claims segmentation to shape strategic direction and business priorities, identifying focus areas ripe for the investment of advanced capabilities, either as a standalone initiative or as a precursor to any significant transformation.
The value proposition of strategic claims segmentation
Strategic segmentation can drive several benefits for claims organizations.
- First, as a quick win, it serves as a catalyst for controlling operational costs by allowing more efficient allocation of resources and promoting a leaner operating model.
- Secondly, it enhances customer satisfaction by ensuring claims are managed by the right claims handler, and that claims that do not require human touch as certain touchpoints can follow a dedicated route.
- Thirdly, carriers using strategic segmentation can better manage their loss exposure and payment accuracy, aligning highly skilled claims handlers to claims that have a propensity for adverse development or that are contentious.
Carriers that leverage this approach effectively can impact their loss ratio by 1-3 points based on business mix and foster a more robust feedback mechanism with Underwriting and Actuarial informing risk selection and pricing strategies.
Navigating business adoption and implementation
Implementing a strategic segmentation approach involves several steps. It begins with data discovery, where risk and claims data is analyzed to understand the book’s demographics and underlying perils more holistically through a severity and complexity assessment. Next, segmentation scenario models are developed with claims experts, and the hypotheses are validated in a test environment to ensure that the carrier’s risk appetite is successfully met. A key objective is to ensure that claims not only at FNOL, but also throughout the life cycle, can be segmented and re-segmented based on any development that may occur on an individual claim or portfolio level.
Technology and data science play a crucial role in the design and implementation. Many carriers have found success in blending third-party data sources with their operational data to create more sophisticated approaches to segmentation, although it is not a requirement for getting started and depends on the quality of a carrier’s internal data.
Building a cross-functional team is also important, encouraging collaboration and diverse insights blending quantitative skills with qualitative insights from managers and claim experts on the front line. Continuous improvements and maintenance of the segmentation strategy is a key component, ensuring the strategies used remain effective and up to date on an annual or semi-annual basis to remain in line with the trends in the market. Leading carriers leverage AI technologies instead of rule-based coding for the deployment, which means that the segmentation model learns over time and can be amended more easily.
Typical roadblocks carriers experience
Carriers that struggle with implementation typically have less mature capabilities, but recognize that segmentation represents a foundation to advance other capabilities by making them more effective. Issues such as data quality and resistance to change can arise. To address these, carriers can invest in improving their data infrastructure, cleaning up their business processes to focus on data quality, and communicating the benefits of the strategy. Carriers that have invested in moving their data to the cloud have an advantage in allowing the business to consume data at scale and deepen the quality of their segmentation and related insights.
Measuring the ongoing success
Success in strategic claims segmentation can be measured using various key performance indicators, such as reduced claims costs, increased customer retention, and improved risk management. Continuous monitoring and adjustment are necessary to maintain the strategies’ effectiveness. Please reach out to Matthew Madsen if you’d like to discuss further.
