Best's Review


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The Principles of Claims Transformation

Insurers must not derive a false sense of security if claims severities were mitigated amid the COVID-19 era.
  • Bill Pieroni
  • November 2022

We've explored claims strategies and the importance of successfully navigating claims transformation.

We previously calculated that the value potential of improving personal lines claims performance averaged $44 million per $1 billion of net premiums earned.

More recent analysis shows that this potential has declined to $32 million. There are two possible explanations: either low claims performers have caught up to their peers, and/or claims severity and frequency have recently declined.

Unfortunately, the answer is probably not organic improvement in claims capabilities or strategies. The period in question coincides almost exactly with the COVID pandemic era and, more recently, with significant fuel inflation. A material reduction in miles driven obviously reduced total loss cost in auto lines.

Claims severities were likewise mitigated in home lines due to the presence of owners and renters on their properties during quarantine and while working from home.

Related: App Helps Insurers Boost Claims Processing

These are transient benefits. Insurers must not derive a false sense of security from performance influenced by circumstantial, behavior-based change. The coming months and years will see insureds purchasing more cars, returning to the office and driving more miles—even if the “new normal” still falls short of pre-COVID levels. Insurers who have not developed state-of-the-market claims capabilities will once again fall behind.

A further complication is the lack of a robust market for solutions supporting best-in-class claims capabilities.

Despite claims consuming about 70 cents of every premium dollar insurers earn, less than 5% of insurtech investment is dedicated to improving the claims process. Insurers cannot solely rely on third parties to drive superior claims performance—they must transform from within. Claims leaders must navigate this transformation according to a set of proven principles.

Steps to Take

It begins with attracting, developing and retaining talent with high levels of both skill and will and complementing a strong in-house workforce with preferred third parties.

Claims require specialized expertise—even, for instance, experience with a particular model of car or type of roof. Decision-making authority should be co-located with domain knowledge.

Just as claims situations are unique, so are insurance organizations. Insurers must gather, screen and refine claims best practices to determine which processes and technologies are most applicable to their particular lines of business, operating geographies and customer segments.

They must also manage claims economics through explicit metrics and targets, informed by real-time data.

Related: Best's Market Segment Report: Workers' Compensation Generates Solid Profits but the Future Remains Uncertain

Technology Matters

Technology can drive efficiencies in process and organization by enabling the transfer of low-value-added tasks away from those with scarce expertise. Experts should focus on key high-value-added areas.

After identifying where those people are most needed, insurers can leverage technology to triage away less-essential tasks and make expertise more available.

Finally, data and analytics must be leveraged to support insights at the moment of value, to improve claims handling and customer experience throughout the entire claims process—not analyzed months later.

By transforming technology hand-in-hand with process, organization and strategy, insurers can reap the benefits of claims maturity.

Best’s Review columnist Bill Pieroni is president and CEO of ACORD. He can be reached at

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