The Claims Quandry

Part 1 of How AI is Improving Workflows in Property Insurance Claims

There’s nothing scarier in the insurance industry than unexpected losses. According to a report by S&P Global, loss ratios for Q3 2022 were at 98%, exceeding that of the previous four years. At this same time in 2019, loss ratios were at 59.2%, and have ticked steadily upwards since.

And it’s no wonder, either. 2022 was a year of unnoticed, forgotten, secondary perils. Instead of the news-dominating back-to-back hurricanes and wildfires with which we’ve (unfortunately) come to be familiar, 2022 was peppered with hailstorms, severe weather, and tornadoes. The year capped off in its final weeks with a devastating winter storm and cold front across the central and eastern U.S. which left over one hundred dead and over one million without power. In sum, there were 18 separate billion dollar weather and climate disasters in the U.S. alone.

Globally, Swiss Re estimated that there were $115 billion in insured losses in 2022, coming in well above the 10-year average of $81 billion. And although Hurricane Ian was the single most costly event of the year with upwards of $50 billion in insured losses, secondary perils like flooding and hail storms cumulatively rose to the challenge, incurred over $50 billion in losses, too.

The uptick in severity of the events, resultant of climate change, has happened alongside the overall human migration to more and more risky locales. People love living by the coast, for instance, and in secluded forested areas. The continued urban expansion of metropolitan areas into the wildlands and along bodies of water has put more people and properties in the path of potential climatic activity.

This brings us to today. 2023 is already off with a bang. Flooding caused by record rainfall in California, tornadoes in Oklahoma, and snowstorms in Los Angeles. Earthquakes in Turkey, droughts in Argentina, and polar vortexes blurring the lines between New England mountaintops and the surface of Mars. And we’re still in the first quarter of the year.

This dangerous combination of climate change and human behavior has made for a complicated quandary for insurance claims professionals: how do you reduce losses in a more risky world, where there are more policyholders in risky areas?

Stifling Mother Nature is a lost cause, but carriers can decide what knowledge is best to incorporate into their preparation and response, especially as catastrophic events are occurring. By managing resource allocation wisely, prioritizing speed and experience in the claims cycle and making smart choices, carriers can focus on maximizing efficiency while reducing costs. Not only does this help with reducing churn by creating satisfied policyholders, but it also has the potential to create champions: policyholders who will stay and drive further business through word-of-mouth, encouraging others to join.

Optimizing claims starts with data and technology that can help you decide with intelligence. In the rest of this blog series, we’ll cover:

  • Unpacking the power (and problems) that come with using data;
  • Discovering how AI can help across the claims cycle; and
  • Learning what the future holds for claims technology in P&C insurance

Next, let’s get into the big headache of big data, and how insurers can tame it to their greatest advantage.

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