A totaled vehicle accruing storage costs in a tow yard. Medical bills or demands pending review. An undetected coverage issue arising due to ride-share. A claimant who hasn’t been contacted in over two months. These are all examples of typical claims handling mistakes made by adjusters while handling insurance claims.

While the resulting losses are often seen as a “cost of doing business,” insurers actually stand to lose millions of dollars annually due to these “non-issues.” According to our estimates, the U.S. P&C insurance industry overpays or overspends on 10% to 15% of claims paid every year, amounting to over $70 billion, as a result of small and often inadvertent claims handling mistakes. With insurers continuously trying to do more with less, it’s becoming less tenable to ignore this issue.

Addressing Human Error

A key characteristic of claims handling is that it’s a very human-involved process. With the exception of straight-through-processed claims (such as auto glass claims), most claims require adjusters to apply judgment, discipline and rigor. With such heavy reliance on the human touch, it’s no wonder that mistakes are made, even by the most experienced adjusters. The situation is likely to get worse as the insurance industry faces a massive talent crisis due to low unemployment rates, at least before the pandemic, and older workers reaching retirement age.   

Historically, insurers’ first line of defense to this problem has been their front-line claims managers, who are expected to monitor claims in their portfolio. However, a manager review is typically triggered for limited reasons, such as a claim surpassing a specific age. This leaves a majority of claims exposed to the risk of error. 

Another line of defense lies with the compliance and quality organization that employs auditors to review claim files. These auditors comprehensively audit a small sample of claims, measuring them against the insurer’s claims handling blueprint. But to make the most of limited audits and to assess end-to-end claims handling, QA teams often audit closed claim files. Mistakes are identified, claims are scored, and feedback is passed to the field. However, by the time leakage is detected, the money has already been lost. 

Modern claims administration systems offer some assistance for deterring leakage. However, the core focus for these systems is workflow automation and case management. They open only a limited window into potential missteps on in-progress claims, especially one that is focused on successful outcomes vs. mechanical steps. 

The fact remains that insurance companies struggle with evaluating claims in progress. Their current approaches are manual, sample-based and after-the-fact. 

Adding Technology into the Equation

Technology, led by advanced analytics and natural language processing, can help insurers evolve the claims review process to become real-time, automated and comprehensive. It can replicate the work of the insurer’s best claims auditor, but at scale. With our Open Claims Audit product, insurers can shift from a post-payment sampling of claim files to a near real-time review of files. All files can be pre-screened against insurance industry best practices and insurer policies. By reviewing flagged files in near real-time and issuing automated alerts, the product enables insurers to reduce financial leakage and drive process improvements over time. 

The effectiveness of this product has been proved in the auto claims business for one of the largest commercial insurers in North America. The insurer had an established blueprint of claims-handling best practices but struggled with ensuring adherence to it. Because the business’s approach to identifying leakage and quality issues relied on manual and sample-based claim file reviews, it was only able to review less than 10% of its claims.  This resulted not just in inaccurate claim settlements and avoidable expenses, but also in costs associated with misses in regulatory compliance, customer complaints and inefficiencies in claims handling

Improving Outcomes

Using Open Claims audit, the insurer can now monitor all of its auto claims in near real-time and influence claims outcomes. The business is able to identify claims with leakage or quality issues with over 70% accuracy, 80% of which would have been missed in business-as-usual. The solution is also expected to help compress the time spent on file reviews by 25%.  

Through near real-time audit checks, the solution ensures the adjuster has done the following:  

  • Made timely and meaningful contact with the insured or claimant. 
  • Complied with Medicare requirements.
  • Analyzed and applied coverage appropriately.
  • Documented a strong settlement plan for the claim. 
  • Met Department of Insurance state-specific requirements for issuing delay letters. 

By catching issues early, insurers can turn what has long been perceived as a “cost of doing business” into a new value lever that delivers benefits to all parts of the claims organization – from claims leadership to front-line claims managers, claims quality assurance teams and, ultimately, adjusters. Insurers benefit from reduced claims costs, more satisfied customers and lower premiums.

Aditi Saraf

Aditi Saraf

Aditi Saraf is Venture Leader for Cognizant’s Open Claims Audit in the Industry Solutions Group in Cognizant’s Insurance Practice. With over 13... Read more