Moment of Truth

How well an insurance carrier looks after its customer – Handling the claims process expeditiously, arranging for vehicle repairs and rental cars, and making the consumers whole again – is pivotal both for the consumer and for the financial health of the insurance business.

Insurance carriers typically have just two opportunities to interact with their customers: at policy renewal time and when the driver needs to make a claim. Handling the claim with the speed, accuracy and professionalism clients expect determines customer satisfaction and, ultimately, behavior at renewal time.

Research from LexisNexis Risk Solutions finds that policyholders who make an auto claim are 35 percent more likely to switch carriers than those who do not. In Exceeding Expectations or Falling Short? U.S. Auto Insurance Claims Trends, Insights and Impacts Revealed – researchers found that among customers who had made a claim in the past 12 months, 94 percent of respondents stated they were very (67 percent) or somewhat (27 percent) satisfied with the overall claims process. Nevertheless, one-third of them subsequently considered changing or actually changed carriers. The findings suggest that while overall carrier performance is good, there is no room for complacency: a substantial proportion of an insurance carrier’s business is at risk following an auto claim. 

The findings come at a challenging time for auto insurers in the US. An industry that is historically cyclical is currently in “a really bad version of a down cycle,” beset by high costs, shortages of parts, replacement vehicles and labor, and costs related to litigation, according to Tanner Sheehan, vice president and general manager of U.S. claims at LexisNexis Risk Solutions.

Maintaining a healthy profit margin in this scenario is a challenge. It requires carriers to understand how they can improve the claims experience and retain customers while controlling costs. There is no silver bullet. Each carrier needs to develop a process that best fits its circumstances, including the right blend of automation and personal service, to fulfill its responsibilities to its customers.

One of the unexpected insights highlighted in the LexisNexis Risk Solutions study is that the risk of losing a customer following a claim is unaffected by age or how long a customer has been with an insurance carrier. In an analysis of 16.5 million policies with a claim and 150 million without, the likelihood of a switch was a uniform 35 percent higher after a claim, irrespective of age or length of tenure.  

This is surprising because the study illustrates that younger policyholders tend to switch providers more frequently than older individuals. But this behavioral difference falls away among those who have made a claim. “No matter the age, policyholders who experienced a claim switched at a rate 35 percent greater than their cohorts who had not experienced one,” the report notes. A similar pattern is found when assessing length of tenure: "Across the market, longer tenures are less likely to switch than shorter ones, but when these tenures experience a claim, the increase in switching behaviors is very similar.”

Jon Thornton, vice president of claims strategy and transformation at Westfield, the 175-year-old Ohio-based carrier, says the claims process needs to be made as easy as possible, particularly as the industry is already battling with a poor image, exacerbated by media stories and litigation activity.

 “We want to make those perceptions go away quickly and show that it’s actually a noble profession and that we’re there to help and fulfill the contract, and make it a pleasant experience,” he says.

The arrival of the Covid-19 pandemic in 2020 heralded a period of disruption for insurers. While lockdowns initially benefited carriers, the disruption to global supply chains and resulting inflation was an unprecedented challenge for carmakers and auto insurers.

While carmakers struggled to secure key raw materials and components, insurance carriers faced higher prices for parts, delays to repairs and longer replacement rentals – a situation further compounded by labor shortages in repair shops.

Thornton says rising costs of claims are “really hitting the industry, whether it’s auto, property or workers’ compensation.”

The result has been an unprecedented period of unprofitability for U.S. auto insurers, with losses reaching levels not seen for decades.

This, in turn, has led to rising premiums for insurance customers, a further challenge to maintaining strong satisfaction rates. January’s Consumer Price Index report from the Department of Labor showed premiums rising by 20.3 percent on average, the highest annual increase since the mid 1970s.

Another factor complicating performance is the high churn in the insurance industry itself. Sheehan describes the life of an adjuster as “brutal,” given that their working day is spent dealing with angry and anxious customers facing highly stressful situations. He recounts a conversation he had with one carrier executive, who said their company had to change its new employee review process to allow for career discussions to take place after one month rather than six – such is the speed at which employees were moving on. By the third quarter of 2022, the attrition rate in the insurance market was estimated to be running at 12-15 percent, compared to the 8-9 percent for the previous decade.

Thornton says that Westfield is weathering that storm better than some. He says the company’s supportive culture is helping to maintain manageable attrition rates. But a different personnel challenge is on the horizon: “We have our most senior technical professionals heading for retirement, so there’s a gigantic retirement cliff,” he explains.

This is an issue Westfield shares with its peers, with an estimated quarter of insurance professionals “looking forward to retirement within a decade,” according to leading trade publication PropertyCasualty360.

In common with many other industries seeking to mitigate rising costs and labor issues, insurance is looking to technology to produce solutions to at least some of its problems, while maintaining a workforce capable of providing the human touch many customers still expect.

The automation of processes, access to critical data streams and efficient communication can help to contain costs and improve the service delivered to customers.

The key to success lies in allowing both adjuster and technology to do what they do best, senior claims executives tell Tim Hearn, vice president of client engagement, claims, at LexisNexis Risk Solutions.

“Our solutions aren’t meant to eliminate human adjusters. That’s not the goal,” he says. “The goal is to allow them to focus on the parts of the job that humans are uniquely gifted at doing right, and that is solving extremely complex problems that require empathy and attention to human behavior.”

Frank Cesario, senior director of claims strategy and solutions at LexisNexis Risk Solutions, says that it’s essential to tailor solutions to each company’s needs.

“The first thing we do is look at their workflows. We’re trying to find which data is going to have the greatest impact,” he says. “So, if there’s a list of 10 things, but we know one of them is going to save them more than anything, we will focus on solutions that make a difference early on, then grow them out.”

Thornton says that one of the key moments is the first contact with a customer after their incident –called First Notice of Loss (FNOL) – when the aim is to show empathy and make them feel comfortable with a process that many will be going through for the very first time.

At that point, the availability of good data sets and information can be critical to avoiding early issues and setting the process on a smooth path. LexisNexis® Claims Datafill, a solution that can be used at FNOL and other times during the claims process, gathers data from external and insurance-specific contributory sources, and inputs them into carriers’ claims management systems in near real time, giving the adjuster critical information to begin the process immediately. 

“LexisNexis Risk Solutions has been a great partner for us, because its Claims Datafill product has eliminated a lot of that friction in that first call because by knowing information upfront, we can turn it into more of a validation conversation, rather than going through some scripted environment,” Thornton says. “Hopefully we can solve some of their immediate needs during that first call rather than transfer them around to different claims professionals.”

Besides Claims Datafill, the LexisNexis® Claims Compass suite can also incorporate information from police records, violations data, state taxes and fee calculations or title and registration information that further expedites the claims process.

“Our claims platform can bring in information insurers needs in terms of vehicle details, loan details in the event of total losses, details about the parties in the claim, details about injuries, past claims and past damage to a vehicle,” Sheehan says. “All of this insightful information can be applied to help insurers make important decisions that impact experience on the other end.”

Using information efficiently within an insurer's workflow is also key. The growing availability of automated claims processing tools such as LexisNexis® Claims Clarity, which aggregates data sets and injects them into improved workflows, further speeds up the process, leading to happier customers and helping manage loss cost as carriers continue to focus on profitability.

Cesario says that in total loss events, where the cost of damage to vehicles exceeds their value, the application of data and automated imaging reduces process times from 10 or more days to five days.

“Five days is an eternity, and the dollars correlated to those five days are significant,” he says.

The economics of auto insurance is likely to dictate that the industry continues a path to automation.

“Not only do the consumers seek automation, but now the insurance carriers, with a shrinking workforce, need the automation,” says Sheehan. 

While Hearn believes it’s possible that insurance adjusters could be redirected from the process in certain simple claims, the unanimous view is that adjusters play an irreplaceable role in the industry. The business of insurance will always require personal attention, whatever advances emerging technologies such as generative AI can bring.

Sheehan foresees a day when technology can take on enough of the “heavy lifting” so what remains for adjusters will be “the most important parts, which is reassuring, handholding, setting expectations, answering, having that third phone call with the person who just needs to make sure everything’s going to be OK.”