The term “claims leakage” is well-known among the insurance industry and one which poses a large and long-lasting challenge for insurers. Widespread leakage hinders productivity, earnings and customer experience. Over time, claims leakage goes from merely hindering these outcomes to becoming an extreme and major issue for an insurer. The money lost through claims leakage affects everyone. There are several causes of claims leakage, and the preventions aren’t always easy to achieve (especially without expertise).
First of all, what is claims leakage?
Claims leakage primarily refers to the difference between the final settled amount paid out by an insurer, and the amount that they could’ve paid had the claims process been more efficient. Various areas of the claims process can cause leakage (see below) – and, annoyingly, claims leakage is only discovered after the claim is settled. Here are some primary causes:
Human error and claims leakage
Many basic claims processes often involve several humans from FNOL through to final settlement. More complex claims that take a long time can include scores of humans working on it. There can be lots of room left for human error here. Mistakes made, information left out or inputted incorrectly and hold up the process and cause the claim to be more expensive than it should’ve been in the first place.
Lack of visibility in the claims process
With so many people often getting involved at various stages of a claim, it can be difficult to see the process of the claim as a whole and where blockers are occurring. This lack of visibility can mean the process is slowed down and over-complicated at differing stages. Both poor software and culture can play a part in the lack of visibility for the claims process as a whole.
Dependence on manual processes
Inertia when it comes to automating processes, moving to the cloud or exposing data to a wider audience is not uncommon. Unfortunately, and somewhat ironically, this cultural blocker to invest causes the expense that insurers so badly want to avoid. Manual processes, as mentioned above, are a huge vessel for human error. Additionally, any lack of monitoring the claim in real-time also leaves room for the cost to accrue. (Due to poor processes and software).
For those who are adopting something more modern than manual, the training can be left at the bottom of the priority list. This means when people who know the software leave the business, new recruits aren’t trained properly. Claims leakage can occur when people aren’t fully equipped to use the tools designed to combat it.
The above reasons are the top causes for how claims leakage can happen. However, most of these reasons are due to circumstance – whether it’s failure to invest, or hesitation to adopt new systems. Having a digital transformation partner with experience and expertise will save insurers millions of pounds in the long term when it comes to claims leakage. It is common for very complex claims to accrue leakage; some of it cannot be avoided. However, if it can be reduced, why wouldn’t insurers pursue methods to do so?