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Sponsored: Liberty Mutual Insurance

The Importance of Claims Innovation for Insurance Buyers and Brokers

A dedicated team of professionals is just one of the key elements of an effective claims innovation program.
By: | December 14, 2015 • 5 min read

Innovation is dominating the headlines today, sounding more like a science-fiction novel than the news. Technology advances are making devices like infrared cameras and drones more accessible and enabling advancements in business processes that help reduce costs and improve customer service – all of which begs the question, ‘Can innovation help control cost in the commercial insurance industry?’

Liberty Mutual Insurance believes it can, and has invested in tools to help better manage general liability, property, commercial auto and workers’ compensation claims. The insurer has a dedicated team of data scientists and predictive analytics modelers, as well as a devoted innovation team whose full-time job is to explore how innovation can be used to improve service and reduce costs.

“It’s one thing to say you want to be a leader with analytics or innovation, but to make it a reality you must dedicate teams to data analytics, predictive modeling, and innovation,” said Glenn Shapiro, chief claims officer of Liberty Mutual’s commercial insurance operation. “With the rate that technology is changing, dedicating resources to innovation makes perfect sense. It provides the opportunity for us to think differently about our business and deliver clear benefits to buyers and brokers.”

Liberty Mutual’s Glenn Shapiro reviews the value of innovation for buyers and brokers.

Seeing is Believing

During an inspection of a commercial insurance water damage claim, a Liberty property adjuster wondered if an infrared camera would allow him to better understand and more accurately assess the extent of damage. And with that one question, Liberty’s innovation team set out to look into the technology and test it. As a result, infrared cameras were deployed into the field.

“One of the first test cases was a large gymnasium with water damage,” explained Shapiro. “Everyone who looked at it believed the entire floor needed to be replaced. But with the infrared camera, it was determined that actually only a quarter of the floor had water damage. Not only did this technology save considerable cost, but the customer was able to get back to business quicker with a less involved repair.”

Armed with portable infrared cameras, Liberty’s commercial property adjusters are able to examine the extent of damage, rather than ripping out walls, floors, and ceilings to find it—an expensive and time-consuming endeavor.

Another great example of Liberty’s innovation team reducing costs and improving service is in post-catastrophe situations. The most trying time for the insured and the insurance company is waiting for access to the catastrophe zone. In some cases, authorities won’t allow access for many weeks. So Liberty’s innovation team was tasked with ‘how can we gain access and assess damage sooner.’ Their answer: Drones.

Drones and satellite imagery allow the insurer to get an early view of the loss and quickly assess the rough scale of damage in order to make initial payments and deploy field claims resources. For the insured experiencing the loss, this quick action and movement towards recovery is a huge help in a very difficult time.

Glenn Shapiro highlights the value of drones and infrared cameras in better managing total claim costs.

Putting Data to Work

One of the benefits of technology is the ability to gather, analyze, and trend data. Many predictive analytics models have been developed to allow insurers to point to possible problems, but often in a very general way. Liberty’s predictive modeling team has taken this to a new level with laser models, allowing for a very specific action at a specific point in time.

Glenn summarizes the importance of predictive modeling in managing claim costs.

“I often explain this like the ‘check engine light’ on your car dashboard,” said Shapiro. “When this light comes on, it could be a range of different problems. But if it said ‘right front tire is low’ you would know immediately what needs attention.”

Liberty was the among the first Property & Casualty insurers to bring the sophisticated data analytics that are standard in Group Health insurance to workers’ compensation claims management. More recently, Liberty has developed several laser models for workers’ compensation claims that accurately identify cases in need of specific action. The insurer’s compensability model can identify cases with 90% accuracy that require deeper compensability review. Another model can identify potential fraud, and another can detect possible opportunities for subrogation recovery. Many other laser models are being developed to use data to focus in on specific issues faster.

The result of Liberty’s systematic focus on claims innovation helps better control the total cost of claims. In fact, Liberty Mutual/Helmsman closes workers’ compensation claims 20% faster than other insurers, and its 10-year ultimate average cost of workers’ compensation claims is 10% lower than the competition, according to an internal analysis of Schedule P filings valued as of the end of 2014.

Technology Creates Opportunity

What’s come of this is an environment within Liberty where questions are asked and solutions are sought, where data, analytics, and innovation come together. Data, predictive analytics, and innovation teams work interchangeably to turn ideas into actions.

The keys to successful claims innovations, according to Glenn Shapiro.

“The claims process that we had 20 years ago or even five years ago is long gone,” said Shapiro. “We have to continually seek out innovation if we expect to compete with not only other insurance companies, but other services that people consume every day. Innovation isn’t just looking at new ideas; it’s making them come to life that makes the difference.”

Glenn Shapiro can be reached at [email protected].

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty and workers compensation.

More from Risk & Insurance

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Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]