In August, Dan Reynolds, the editor-in-chief of Risk & Insurance, caught up with Oded Barak, the co-founder and CEO of Five Sigma. What follows is a transcript of that discussion, edited for length and clarity.

Risk & Insurance: What was the founding idea behind Five Sigma?

Oded Barak: The founding idea was to address a critical gap in the insurance industry. We recognized that there was a significant opportunity to leverage advanced technologies, such as artificial intelligence and machine learning, to revolutionize the way insurance companies operate.

By harnessing the power of these cutting-edge technologies, we believed we could streamline processes, improve efficiency, and ultimately deliver better outcomes for both insurers and their customers. Our vision was to create a platform that would enable insurance companies to make data-driven decisions, automate routine tasks, and provide a seamless, personalized experience for policyholders.

Before founding Five Sigma, I witnessed firsthand the inefficiencies and archaic systems in the commercial insurance industry while working as a CFO for an energy company in the UK. Upon returning to Israel, I teamed up with deep tech experts to identify real-world problems that could be solved by leveraging data effectively.

We focused on the claims process, as most investments at the time were directed towards risk mitigation, customer-facing solutions, and distribution, such as MGAs like Lemonade, Next, and Hippo. Existing solutions for claims were point solutions, like Tractable for computer vision-based damage assessment or fraud detection, but nothing encompassed the entire claim process from start to finish.

At Five Sigma, we provide an end-to-end, AI-native, cloud-based claims management platform for the property and casualty market, covering a wide range of insurance types, from personal property and auto, to commercial general liability and specialty lines, such as cyber, pet, and travel insurance. Our goal is to empower adjusters, the “quarterbacks” of the claims process, by automating administrative tasks and providing them with the right data at the right time to make better decisions.

R&I: How long ago did you launch the company?

OB: We started about 6 years ago. It took us approximately a year to start zooming into claims and then around a year and a half to really build the platform.

R&I: What types of companies are most enthusiastic about your offerings, and where are you seeing the strongest reception?

OB: The reception to our offerings has varied over the past five years, depending on the stage of the market cycle. In the early stages, we saw strong interest from smaller, more agile carriers looking to differentiate themselves through innovative solutions.

As the market matured, larger carriers and TPAs began to take notice and express interest in partnering with us to enhance their own offerings. More recently, we’ve seen a surge in enthusiasm from reinsurers seeking to leverage our capabilities to better understand and manage their risk exposures.

R&I: What was your strategy for targeting customers in the early days of Five Sigma, and how has that evolved over time?

OB: Consciously, in the early days, we made the decision to go after the lower tiers and MGAs. As a startup, it wouldn’t have made sense to target large carriers right away, as they would want to see a proven track record and balance sheet first.

Even just 5-6 years ago, the big insurance behemoths would have laughed at the idea of fully moving their core systems to the cloud. But we knew this shift would accelerate faster than they expected.

By targeting lower tier carriers, MGAs, Insurtech companies, and others who shared our cloud-based vision, we were able to have an easier sell and shorter sales and deployment cycles. This allowed us to quickly build credibility, references, and key performance indicators to address the broader market.

Today, about 70% of our business is in the US across carriers, MGAs, TPAs, and self-insured customers of various sizes. This includes some of the most technologically advanced players running their claims handling, or parts of their business, on our platform.

The remaining 30% is in Europe, the UK, and we’ve recently penetrated Australia with a few customers. So we’ve expanded considerably from those early days focusing on smaller, cloud-friendly customers.

R&I: How does the quality of work life for claims adjusters impact the claims adjusting process?

OB: The quality of work life for claims adjusters is a significant factor in the claims adjusting process. It has a direct impact on the efficiency and effectiveness of the entire claims handling workflow.

When adjusters have a positive work environment and feel supported, they are more motivated and engaged in their work. This leads to better quality claims handling, faster resolution times, and improved customer satisfaction.

On the other hand, if adjusters are overworked, stressed, or lack the necessary resources, it can negatively affect their performance. This can result in delays, errors, and a poorer overall claims experience for customers.

Therefore, ensuring a good quality of work life for claims adjusters is crucial for success in today’s work environment. It required a focus on providing the right tools, training, and support to help adjusters excel in their roles and deliver the best possible outcomes for both the company and its customers.

With the Five Sigma platform, and our new product Clive, adjusters are freed from manual, repetitive tasks through AI and automation, and can focus on the parts of claims adjusting that makes work meaningful – customer service and decision making.

R&I: What kind of feedback are you receiving from companies about the impact your platform has on adjusters and their work life?

OB: The feedback we’ve received has been very positive. Our platform is so intuitive that it takes an hour or two to fully train a new adjuster, which is crucial in situations like catastrophes where many adjusters need to be brought on quickly and work effectively.

One person even told me that his wife, who works on a different platform, was jealous because our platform actually helps adjusters do their job instead of making them work for the claims system. Our vision is evolving from assisting adjusters to having the platform run the entire claims management process, with adjusters only intervening when needed.

Each adjuster will essentially have an AI assistant, we call him Clive, who provides the experience and knowledge of the most seasoned adjuster in the company. Clive recommends the best next actions, highlight discrepancies, and keep the adjuster at the top of their game.

We want adjusters to feel like they’re working in a tech company, boosting their energy and confidence. The end result is greater efficiency, fewer errors, and ultimately, higher customer satisfaction for policyholders and claimants.

We also help leadership by providing supervisory oversight.

R&I: For a company working with Five Sigma, where does the biggest return on investment come from? Is it primarily from efficiency gains, such as reduced time to settlement or less time spent by adjusters on each case?

OB: The return on investment for our clients comes from several key areas. First, our AI-native claims management platform significantly reduces the time adjusters spend on each case by automating many manual tasks and providing intelligent recommendations. This allows adjusters to handle a higher volume of cases more efficiently.

Second, we help insurers reach fair settlements faster through our advanced analytics and decision support tools. By streamlining the claims process end-to-end, we minimize delays and optimize outcomes for both the insurer and the claimant.

Finally, our platform provides unparalleled insights that enable insurers to make data-driven improvements across their claims operations. By identifying trends, bottlenecks, and best practices, insurers can continuously optimize their processes and resource allocation for maximum impact. Taken together, these efficiency and effectiveness gains lead to substantial ROI for Five Sigma’s clients.

R&I: What are the key benefits of improving claims processing efficiency and accuracy from your perspective?

OB: From our perspective, the benefits are threefold. First, there’s the obvious efficiency story – the loss adjustment expense (LAE). It’s about how fast claims can be processed and the throughput per person.

Second, we know there is a high correlation between the longevity of a claim and the eventual indemnity payment or overall costs. The longer a claim goes on, the more expenses tend to get inflated. For example, in auto insurance, the longer your damaged car is in the workshop, the longer you’ll need a rental car, driving up costs for the insurer.

Third, from a coverage decision-making standpoint, you can miss a lot of subrogation opportunities. Every a small miss across the many points in the claims lifecycle can amount to a lot of money. There’s an inflation element, accuracy, and also error reduction.

Additionally, there’s what I call the “duplicates” or the intervention of leadership too many times. Imagine at the point of triaging, if you give a complex claim to someone who’s not suitable for it – you can imagine what’s going to happen from that point on, or vice versa. We save a lot of overhead costs.

R&I: What is your perspective on indemnity and overall leakage in terms of expenses that can be avoided?

OB: From an indemnity perspective, we look at overall leakage in terms of expenses that you can avoid paying throughout the process based on past data. It’s about identifying unnecessary costs and finding ways to prevent them from occurring in the first place.

By taking a proactive approach to expense management, we aim to minimize leakage and optimize our indemnity processes. This involves carefully analyzing each step of the process and determining where efficiencies can be gained and costs can be reduced without compromising the quality of service or the outcome.

R&I: What are the main benefits of using AI technology in claims processing, and how does it help adjusters handle the increasing complexity of insurance products?

OB: One of the primary gains from using AI technology in claims handling is error prevention. This includes reducing errors in coverages, reserving, assignments, damage assessment, and liability. Our AI technology tackles this by using automation to avoid human errors in typing, and also by suggesting, recommending, and surfacing important insights to the adjuster throughout the claim process.

This is especially crucial given the shortening tenure of adjusters and the growing complexity of insurance products. With numerous exclusions, limitations, exceptions, coverages, and liabilities, it’s nearly impossible for adjusters to fully grasp all the intricacies. Modern technology can provide real, tangible support in this area.

Adjusters face two main challenges: handling a high volume of claims and dealing with increasingly complex products. They are expected to be knowledgeable about these complexities and are held accountable for any mistakes. Simultaneously, they are often working with outdated systems that require extensive manual labor, such as reading through documents and entering data.

AI technology can alleviate both of these challenges. It can assist adjusters in navigating the complexities of insurance products while also automating labor-intensive tasks, allowing them to focus on more critical aspects of their job.

R&I: How does Five Sigma’s technology impact the role of insurance adjusters and their job satisfaction?

OB: Five Sigma’s technology – including our full CMS and Clive, our new AI Claims Adjuster – allows adjusters to focus on the aspects of their job that make their work meaningful and require a human touch. By automating repetitive and manual tasks, which can take up over 30% of an adjuster’s time, Five Sigma frees them to engage with customers, make decisions, and truly adjust claims.

This shift in focus can significantly improve job satisfaction for adjusters. Instead of spending their days on tedious data entry and other grinding tasks, they can dedicate their time and energy to the parts of the job that leverage their skills and expertise.

Ultimately, this increased job satisfaction can lead to better retention and longer tenures for adjusters at insurance companies. By making the role more enjoyable and fulfilling, insurers can reduce turnover and the associated costs of constantly replacing and training new adjusters.

R&I: How confident are you that your platform can keep up with the increasing complexity of the world and help roll out more relevant policies and products?

OB: I am 100% confident in our platform’s ability to keep up with the increasing complexity of risk and help roll out more relevant policies and products. We design our platform to be future-proof and easily adaptable to different lines of business and business models with no-code configuration.

For example, our first AI module focused on underwriting, risk understanding, and risk mitigation. While it took time for companies to adapt and trust it, I believe we are now at a point where we are making the claims team smarter than the underwriting part of the business.

The level of data digestion, infusion, and understanding that our platform provides allows for a much finer understanding of claims in their entirety, including their depth and complexity. This understanding can then be fed back into the underwriting and policy creation process, leading to greater consistency within the company.

We are working with specialty insurance companies like Indemnity National, helping them with unique claims and bespoke handling processes, pretty much out of the box.

Our aim is not to pitch companies on cutting their adjuster or headcount by 40-50%. Instead, we focus on making their teams smarter, better, and more focused on the right things, ultimately leading to better decisions overall.

R&I: What does the current environment look like for carriers at the tier four and five levels in terms of building claims management systems in-house versus utilizing external teams and solutions?

OB: The current environment is divided when it comes to claims management systems. Some carriers philosophically believe in building everything in-house, only to realize a year later that they are stuck with a bunch of non-functional tools, sunk costs, and a high risk of misperformance.

These carriers are then looking for experts to handle the technology, allowing them to focus on managing claims. At Five Sigma, we pride ourselves on combining insurance domain expertise in claims with deep tech understanding. When we talk to chief claims officers, it’s our team members – who used to be chief claims officers themselves – understanding the pain points and translating them into practical value creation with our platform and Clive.

Today, companies are trying to realize the value quickly through vendors, sandboxing, or pilots. They are looking for tech experts more than trying to build software in-house, which is the majority trend.

Our new product, Clive, works on top of any CMS, providing immediate AI capabilities and technology that are not available in legacy systems. This allows carriers to enhance their existing CMS without the risk of a complete system overhaul.

R&I: What are the benefits of using a Clive with a carrier’s existing system?

OB: Integrating AI intelligence and automation on top of your existing claims management system create a major impact, even if you don’t get all the benefits of a full cloud-based CMS like Five Sigma. It can be a game changer for the entire industry. It allows you to leverage the power of cutting-edge technologies while still utilizing your current infrastructure.

This approach enables organizations to enhance their capabilities and efficiency without completely overhauling their systems. By combining the strengths of AI and automation with the familiarity and stability of their existing CMS, companies can achieve significant improvements in their operations and customer experiences immediately. Implementing Five Sigma takes weeks, not years.

R&I: Is there anything about Five Sigma or your product that we didn’t cover that you think is important for our readers to know?

OB: It’s crucial to understand our vision and what we’re trying to build. Traditionally, claims handling has been a manual, heavy, and joyless process. Many players have thought about automation only in terms of straight-through processing, which ultimately covers about 1% of claims.

At Five Sigma, we look at it completely differently. We believe that 100% of claims can be automated for the most part, with maybe 80-90% automation and not necessarily straight-through processing. Our approach is to build automation capabilities for 90-100% of claims, rather than solving for the 1% that can be fully automated.

We’re trying to solve for the majority of claims that can be partially automated with human involvement for critical decision-making. This is how we build our products and vision. Clive, our new product, enables even junior adjusters to leverage AI and automation to make quick decisions with the experience of a super adjuster.

We call our approach “Automation First.” Everything that can be automated, is automated, across the entire claim lifecycle. From a gain perspective, this offers a much bigger ROI to insurers. &