CIA Quebec 11 Sept 2015 Presentation C Louis Final

DIGITALIZATION OF THE CLAIMS PROCESS
INCREASING THE EVIDENCE ACTUARY’S VALUE PROPOSITION IN THE
FACE OF CLAIMS PROCESS DIGITALIZATION
Strategic Insurance & Risk Solutions
Canadian Institute of Actuaries: Actuarial Evidence Seminar
Québec, Québec
September 11, 2015

INTRODUCTION
CLAIRE LOUIS
President
Strategic Insurance & Risk Solutions
Boston, Massachusetts
2

AGENDA
3
Strategic Insurance & Risk Solutions in collaboration with the Canadian Institute of Actuaries
All information contained in this presentation is proprietary to SIRS. Copyright © 2015 SIRS. All rights reserved.
The P&C Insurance Claims Operation
Digitalization: A Not-So Tranquille Claims Process Revolution
Key Digital Technologies Impacting Claims
How Digital Is Changing Claims Management & Loss Prevention
The Future of Claims Post-Digitalization
Evidence Actuaries: A Valued Claims Advisor
Compliance and Legal Risks
Evaluating and Reserving Liability Claims

THE P&C INSURANCE CLAIMS OPERATION
4
Fraud
Investigation,
Reinsurance
Collection
CLAIMS PROCESS
CRM Channel
Management
Customer
Relationship
Management
Pricing,
Reserving,
ERM
SUPPORT SERVICES
SUPPLY CHAIN
MANAGEMENT
Management,
Monitoring,
Optimization
Selection and
Contract
Negotiation
Requirements
and
Solicitation
Investigate &
Manage
Triage and
Assign
FNOL
Third-Party
Recovery
Payment
Evaluate,
Reserve, &
Resolve
Claim Closing
ACTUARIAL
ACTIVITIES
ANCILLARY
ACTIVITIES
Analytics, Monitoring, Reporting
Organization & HR
IT
Finance & Accounting
CHANNEL
MANAGEMENT
Regulatory
Relationship
Management
REGULATORY
COMPLIANCE &
RELATIONSHIP
MANAGEMENT

KEY COMPONENTS OF LIABILITY CLAIM EVALUATION
5
 Apart from coverage, the two primary components of liability claim evaluation
are (1) liability and (2) damages.
 Liability is evaluated based on the law (statutes and case law) and the claim
investigation (statements, official reports, ISO ClaimSearch, photos, diagrams,
and expert opinions).
 The liability analysis considers the comparative or contributory negligence laws
of the jurisdiction at issue. Most states apply some form of comparative
negligence: pure (1% to 100% fault allocation) or modified (no recovery if > 49%
to 51%).
 Damages may be “general” (loss of consortium, pain and suffering,
disfigurement) or “special” (wage loss, medical and hospital bills, property
damage). Evidence Actuaries provide opinions on special damages.
BECAUSE THEY ARE SUBJECTIVE, GENERAL DAMAGES COMPLICATE CLAIM EVALUATION.

SETTING CASE RESERVES FOR LIABILITY CLAIMS
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 Case reserves may be based on one or a combination of the following:
 Adjuster or management experience with similar claims
 Claims committee discussion that may yield a consensual value based on
group discussion
 Defense counsel’s opinion of settlement value and jury verdict value
(generally considered worst case)
 A multiple of special damages (typically three or five times)
 Case values generated by valuation software or other models; these should
be considered as a benchmark only and should be vetted based on expert
opinion, experience with similar claims, jurisdictional settlement values,
and other factors.

SETTING CASE RESERVES FOR LIABILITY CLAIMS
7
 Other factors affecting case value and case reserves:
 Case venue (specific court where case is to be heard) and jurisdiction
(unique legal authority, e.g., state v. federal)
 Applicable negligence laws
 Plaintiff’s demeanor as a witness
 Plaintiff and defense counsel’s abilities as litigators and trial attorneys
 Egregiousness of claim facts
 Risk of punitive damages
 Jurisdictional verdicts
THE ACCURACY OF CASE RESERVES IMPACTS INSURER RATES, SURPLUS, AND PROFITABILITY.

Digitalization Drivers
 Declining resistance to technology
among industry leaders
 Low investment returns for prolonged
period
 P&C industry consolidation
 Customer-centricity
 Regulatory uncertainty
 Legacy systems that lack flexibility and
are costly to maintain and integrate
 Pervasiveness of connectivity
Business Challenges & Opportunities
 Efficiency in capital management
 Claim operational redundancies
 Velocity of brand relevance
 Regulator emphasis on information
management as key to compliance and
enterprise risk management
 Exponentially increasing amounts of
data and dearth of tools and processes
to leverage them
 Competitive differentiation through
excellence in interaction across the
entire customer journey
8
DIGITALIZATION: A NOT-SO “TRANQUILLE” REVOLUTION

9
Sources: Towers Watson, Celent, SMA, Marsh
TOTAL GLOBAL P&C INSURER IT SPEND IS EXPECTED TO REACH $177 BILLION BY 2016.
P&C INSURERS
ARE
INVESTING IN
TECHNOLOGY
Top 3 CRM investments by
P&C insurers in 2014:
• Web self-service – 62%
• Agent/broker email/web –
53%
• Web/mobile app – 41%
In 2014, about 50% of P&C
insurers were in the
computing Cloud. The Cloud
allows insurers to store and
leverage massive amounts of
data.
68% of insurers have
function-based KPIs (BPM).
71% of insurers use
performance dashboards for
Claims and other functions
(BPM).
Insurers are using Predictive
Analytics to detect fraud
(28%) and segment claims
handling (19%) (PA/BPM).
In 2013, Claims ranked 5th in
terms of overall P&C insurer
technology spend.

DIGITAL TECHNOLOGIES UPENDING INSURANCE CLAIM OPERATIONS 10
Omni-Channel Customer
Experience
Business Process
Management (BPM)
Predictive Analytics Internet of Things (IOT)
Internet of Things will be a
major disruptor, moving
insurers to a prevention and
loss control business model.
CISCO estimates that by
2020, the number of
connected things will reach
50 bn. Examples are auto
telematics, Fitbit, and
energy usage sensors. Some
claims will diminish, but
new claim types will emerge.
Predictive analytics capture
relationships among
variables to assess risk
associated with certain
conditions. Insurers use
predictive analytics to pre-
dict litigation, detect fraud,
and identify recovery poten-
tial. In 2014, Towers Watson
found that 43% to 61% of
commercial insurers used
predictive modeling.
BPM automates claims
management, optimizes
customer service, reduces
settlement timeframes.
and expands reporting
capabilities. BPM in Claims
allows an insurer to co-
evolve with a dynamic
business environment by
being able to make
routine app changes with
little, if any, IT involvement.
Insurers are shifting from a
policy-centric model to a
customer-focused one. CRM
solutions give insurers a 360-
degree customer view. They
see the products their cus-
tomers have, product fea-
tures, submitted claims,
and all their touch points
and interactions. This allows
them to more quickly
resolve claims.

11
PREDICTIVE ANALYTICS PROMOTE EARLY INTERVENTION &
RESOLUTION
ResolutionClaim TieringClaim ScoringData CleansingData SamplingData Analysis
 Implement
validated business
logic
 Collect and identify
target data sets
 Apply data quality
checks
 Implement
algorithms
 Cleanse data
 Analyze claims
based initially on
single variable,
then on multiple
variables
 Claims are scored
as high, medium or
low
 Claims with high
scores are moved to
resolution
 Claims with low or
medium scores
require further
work
 Validate business
logic &
requirements
 Reserves are set or
validated
 Claim is assigned a
settlement value
based on insurer
data and adjuster,
expert, attorney
evaluation
 Claim is resolved
High
Medium
Low

12
INTELLIGENT BUSINESS PROCESS MANAGEMENT FOCUSES CLAIM
ACTIVITIES ON HIGH-RISK CLAIMS EARLY IN THE CLAIM CYCLE

13
OMNI-CHANNEL REDUCES CLAIM COSTS, SHORTENS THE CLAIM
CYCLE, AND INCREASES CUSTOMER SATISFACTION
Late one night, a water
heater in Guy’s basement
fails, causing water to
discharge continuously.
Your Insurer instantly spots
that Guy’s water meter,
which it can monitor
remotely, is running
unusually fast, indicating a
potential problem.
Your Insurer calls Guy,
alerting him to the problem.
The insurer advises him that a
specialist plumber is already
en route to his home to deal
with the situation and that a
loss adjuster has been lined
up to visit first thing in the
morning.
Guy is delighted by the rapid
response, but is in another
city on business and cannot
be home to let in the plumber
and adjuster. So he provides
the password to allow the
Insurer to print off a set of
keys with a 3D printer.
The next day the loss adjuster
arrives first thing, having been
instructed electronically and
provided with full details of
Guy’s property coverage. He
captures all the relevant data,
including photos and video,
on an iPad and uploads it to
Your Insurer’s claims portal.
1 2 3 4
Your Insurer’s claims handler,
the loss adjuster, Guy, and
Guy’s insurance agent are all in
different locations. But they
work collaboratively through
the claims portal to settle the
claim rapidly. The payment
goes into Guy’s bank account
real-time, and all the details are
filed in Guy’s electronic
document vault.
5
Source: Capgemini Consulting

14
IOT PREVENTS AND MITIGATES LOSS
“Smart Vest”
Insurance Journal, Sept. 3, 2015 Insurance Journal, Nov. 4, 2014
“Fleet Telematics”

15
LAWS AND REGULATIONS ARE EVOLVING WITH THE NEW DIGITAL REALITY
Bad Faith/Class
Action
Litigation
Market
Conduct/Unfair
Trade Practices
Privacy Discrimination
COMPLIANCE
RISK
TORT
LIABILITY

Good Faith
 Insurer decision based on objective and
reliable information prepared by and
expert
 Claim not covered under the policy
 Insurer’s decision based on bona fide
coverage dispute
Bad Faith
 Failing to thoroughly investigate claim
 Exploiting financial vulnerability of
policyholder
 Making unreasonable settlement
demands
 Forcing policyholders to litigate
 Failure to pay full claim value
 Conditioning payment
16
INSURER GOOD FAITH IN CLAIMS HANDLING – TORT LAW

 Enacted as law by most states
 Some key provisions:
 Failing within a reasonable time to:
 Admit or deny coverage to a policyholder
 Reserve rights
 Misrepresenting to a claimant a material fact or policy provision related to
coverage at issue
 Failing to attempt in good faith to effect a prompt, fair, equitable claim
settlement with respect to which the insurer’s liability has become reasonably
clear
17
INSURER GOOD FAITH IN CLAIMS HANDLING – STATUTORY
NAIC Model Act – Unfair Claim Settlement Practices

 Regulatory settlement related to auto personal injury claims (2010)
 Insurer used software program as basis of valuation of settlement offers
 Issues:
 Inconsistent insurer management and oversight of program by underwriting region
 Insurer did not properly consider medical bills, lost wages, job loss when evaluating individual
claims
 Insurer did not consider pain & suffering
 Some key settlement provisions:
 Insurer must ensure consistent claim handling across its organization
 Insurer must advise claimants of basis of any settlement offer
18
INSURER GOOD FAITH IN CLAIMS HANDLING – REGULATORY
Market Conduct

 Goal of trade practices laws and regulations in insurance is to protect the consumer.
 Insurer use of social media is subject to state insurance laws governing unfair trade
practices
 Discrimination concerns revolve around whether (1) insurer’s use of information
involves a protected class, e.g., gender and age, and (2) net effect of information use
is discriminatory, even if not intended
 U.S. insurers are subject to various privacy laws, including Gramm-Leach-Bliley, the
Fair Credit and Reporting Act, and the Fair and Accurate Credit Transactions Act
 Key privacy issues include whether (1) insurers take appropriate safeguards to protect
policyholder and claimant information and (2) the information is shared in violation of
privacy policies.
19
INSURER GOOD FAITH IN CLAIMS HANDLING – STATUTORY
Unfair Trade Practices/Discrimination/Privacy

20
LARGER
SHORTER
NEW
TYPES
LESS
LITIGATION
FEWER
NEXT GEN
CLAIMS
PERFORMANCE METRICS

21
Claim Ass’n.
Membership
Ins. Conf.
Speaker
LinkedIn
Claim
Groups,
Thought
Leadership,
Discussions
Internal
Carrier
Workshops
Networking
w/Sr. Mgmt.
and Next
Gen Mgrs.
EVIDENCE ACTUARIES: ADDING VALUE TO CLAIM OUTCOMES

KEY TAKE-AWAYS
• Claims digitalization is on the march: while it presents significant
opportunities for insurers to reduce claim costs—administrative,
indemnity, and expenses, it raises a number of compliance and
bad faith concerns.
• As carriers change their Claims operating models, so might
Evidence Actuaries (EAs) wish to reimagine their business model.
• Future business opportunities for EAs lie as much with non-
litigated claims (which are increasing) as litigated claims.
22

KEY TAKE-AWAYS
• Insurers are not accustomed to working with EAs on non-litigated
claims.
• Because we are at the outset of the shift toward fewer litigated
claims, insurers may be more open to inviting EAs to partner with
them on non-litigated claims. This is even more likely to occur if
the EAs have built strong direct relationships with insurers.
23

KEY TAKE-AWAYS
• EAs may wish to consider stepping up their direct marketing
efforts and relationship-building with insurers to become valued
claim advisors.
• In this way, EAs may increase the likelihood of their commercial
success as claim operations become more and more digitalized.
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BIO – CLAIRE LOUIS
• President, Strategic Insurance & Risk Solutions
• 25+ years of executive management and advisory experience with PwC,
Capgemini Consulting, and others for global and North American insurers,
reinsurers, self-insured organizations, regulators
• Clients: Zurich, AIG, Fairfax, RSA, ACE, XL, GE, Bank of America
• Services:
• Leading practices-based assessment of insurer and claim administrator
claim practices
• Claim operations alignment with enterprise strategy
• Claim valuation
• Claim advocacy, litigation support, expert witness testimony
• Claim program design & oversight
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THANK YOU!
27

CIA Quebec 11 Sept 2015 Presentation C Louis Final

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