Sure, insurtech sounds great – who doesn’t want to modernize labor-intensive and time-consuming insurance processes, from underwriting and distribution to claims and customer service? But the truth is, this naturally risk -averse industry will adopt changes only cautiously and strategically, and very few new technologies have been road-tested enough to demonstrate lasting impact.
And of course, regulators will have a significant say on what is permissible.
But while the trend unfolds, automation has been proven to cut inefficiencies and streamline workflows. The industry’s administrative functions are undeniably laden with overhead costs associated with paper-based processes that demand copious time, labor and materials.
Why not pick one essential process – reconciliation – where automation can make a significant impact on the bottom line and reduce the risk of compliance misses and mistakes.
“In the insurance industry, every fraction of a cent that can be saved in time, resources, processing and operations goes directly to the bottom line,” said Renata Sheyner, senior product manager of Frontier™ Reconciliation, the end-to-end reconciliation and certification solution offered by Fiserv.
“Additionally, the more data that insurers add to their business and analyze through relatively untested insurtech innovations, the greater the need for automated, reliable transaction-level operational and balance sheet reconciliation.”
Most companies currently reconcile their books with two tools — a highlighter and a spreadsheet.
“I have seen conference rooms filled with filing cabinets to be sorted through,” Sheyner said. “Sometimes I ask potential clients, ‘How many different colored highlighters are in your desk drawer?’ Because that’s how it’s done without automation – highlighting items on printed reports, or using Excel spreadsheets to keep track of everything.”
Without automation, reconciliation at the transaction level can be a time- and labor-intensive process that leaves more room for human error. And errors increase the risk of running afoul of regulations. Reducing the risk of error in the books can save companies thousands in non-compliance fines when it’s time for an audit.
“A lot of CFOs are now personally liable for misrepresentation of financial statements. There are some pretty significant implications of non-compliance and not having your books complete,” Sheyner said. “There’s a huge benefit in incorporating all of your documentation into a system with built-in internal and external audit controls.”
In an intensely regulated industry, the importance of accuracy and transparency can’t be overstated.
Integration of data and matching transactions using an automated solution can cut the risk of error by as much as 50 percent, while allowing a more holistic and transparent view into the financial close process. An automated system with built-in audit controls can also ensure that standards dictated by Dodd-Frank and Sarbanes-Oxley Act are met.
A centralized view of transactions and the overall reconciliation lifecycle also makes it easier to mitigate the risks of fraud and write-offs related to unexplained exceptions. End-to-end reconciliation automation, combined with data agnosticism, identifies and resolves more exceptions. This can lead to an overall 75 percent reduction in write-offs.
“Insurers need a data-agnostic tool that can pull in massive amounts of disparate data around claims, policyholder details, equity fund balances, payment and disbursement statuses and more, and funnel it through an automated matching system to pair the right data with the right transaction,” Sheyner said.
Frontier Reconciliation provides that very detailed transaction matching, and can match data fields on a one-to-one, one-to-many, or many-to-many basis. Transaction-level matching with multiple fields reduces the need for manual intervention, “which allows employees to spend their time on value-added tasks like managing or investigating exceptions,” Sheyner said.
Among Frontier Reconciliation users, reducing manual tasks and implementing automated reconciliation can experience a 60 – 80 percent gain in efficiency.
The cost savings are also hard to ignore. On average, financial companies using an automated reconciliation solution save 25 percent on audits by providing electronic access to accounts and required approvals.
Taking paper out of the equation also saves the costs of buying paper and printing materials, reduces the manpower and hours needed to process records, and can speed up financial close by two to four days, on average.
“We frequently help accounting and finance teams build a strong internal business case for automated reconciliation and certification to present to senior management,” Sheyner said.
In addition to mitigating risks from non-compliance, fraud, and write-offs, an automated reconciliation process can also head off reputation risk.
“The reputational risk from restatement may not be monetary initially, but over time can certainly hurt an organization pretty severely within the market among their policyholders, peers and regulators,” Sheyner said.
Several large multi-line insurers in the U.S. rely on Frontier Reconciliation, including a top 10 multi-line carrier with over $43 billion in direct premiums written (DPW) who has trusted Frontier Reconciliation for the past 10 years.
“When they implemented Frontier Reconciliation a decade ago, they had a team of 40 people working on 300 reconciliations a day using Excel worksheets. Since automating the process, they’ve been able to refocus the team to eight who now manage more than 3,000 reconciliations a day,” Sheyner said. “And those other employees have been able to focus on other valuable strategic projects – ones they were hired to manage.”
Frontier Reconciliation also helps this leading Fortune 100 carrier match policyholders with premium payment data —like what type of payment was received, who received it and in what form (check, ACH, direct debit) — and track other information like claims data, coverage and payout limits, and outstanding disbursements.
“They can see in real time exactly how many outstanding payments there are and how many disbursements have been made. They can check on aging claims, which is important because the longer the claim sits open, typically the more expensive it gets,” Sheyner said. “If something is outstanding for 30 days, they can ensure processes are in place to bring those files to a close.”
Stronger compliance, reduced costs, and potentially faster claims closing … these are the insurtech promises that an automated reconciliation solution can bring to the industry today.
To learn more, visit: Frontier Reconciliation for Insurers.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Fiserv. The editorial staff of Risk & Insurance had no role in its preparation.
For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.
Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.
Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.
“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.
“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”
According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.
No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.
At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.
“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.
“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry
“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.
Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.
One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.
Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.
“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.
“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”
Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.
However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.
“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.
“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.
In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.
This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.
“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.
VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.
“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.
“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”
Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.
“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.
“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”
Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.
Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.
There is no doubt, however, that VIS use will increase among insurers.
“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.
In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.
“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.
The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.
Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &