Australian insurers are facing rising claims costs. The recent floods have only exacerbated issues with tens of thousands of claims rolling in. As pressure mounts to compensate by cutting costs, dealing with claims leakage using low-code could help ease the pressure.
“Instead of relying on expensive core modernization initiatives or ‘rip and replace’ scenarios, insurers can leverage technology like low-code to unify their existing systems without data migration,” said Luke Thomas (pictured), Asia-Pacific vice president at Appian, the technology company headquartered in the United States.
Melbourne-based Thomas said this creates “a single engagement layer across their entire legacy infrastructure” and facilitates dealing with claims leakage.
“This allows them to access a single, 360-degree view of each claim and customer,” said Thomas.
Some industry estimates suggest claims leakage - the difference between the actual claims pay outs and what should have been paid out - accounts for at least 2-4% of insurers’ total claims cost. In some cases, the leakage can run as high 30%, say the estimates.
“Claims leakage is a major issue for insurers today,” said Thomas.
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He said the leakage can occur as a result of poor claims management and handling and can be exacerbated by manual processes that result in poor adjuster decisions and slower time-to-close.
“High spend on claims handling can also occur through using disparate, legacy technologies that lead to disconnected claims and policy systems. These outdated systems are expensive to maintain and require frequent manual intervention,” he said.
These systems do not offer a unified view of the customer, he said, which also contributes to higher claims payouts.
One issue with claims leakage, said Thomas, is that it isn’t easily visible.
“Few insurers have complete visibility into their exact level of claims leakage, so finding industry averages can be difficult,” he said.
Another estimate of leakage from the professional services company PricewaterhouseCoopers said it could be as high as 25% in the Australian life sector. Across the insurance industry the pressure on the claims space is currently increasing.
“We know as well rising costs and supply chain disruptions have been causing claims costs to rise for P&C insurers. Things we’ve been seeing like price hikes for construction materials to rebuild after a natural disaster and auto parts or rental car prices after an accident,” said Thomas.
He said inefficient processes and dated technologies are the biggest culprits behind claims leakage.
“Claims leakage is more likely to occur when inefficient processes lead to errors or inconsistencies in claims handling. For instance, this could be due to lack of real-time data or monitoring, insufficient review or documentation processes and incorrect assignment/triage of claims,” he said.
However, he said, the root cause of inefficient processes is often disparate or dated core systems.
“These systems typically aren’t integrated, making it difficult to access a unified view of the data and information needed to make informed claims decisions. Poor data quality has a huge impact on claims leakage for insurers,” he said.
Thomas said low-code and automation can offer a cost-effective solution to these issues.
“No longer do insurers have to plan around multi-year cost-prohibitive modernisation projects. With low-code and automation, work that once required months or years to complete can now be accomplished in weeks and at a fraction of the cost,” he said.
Thomas said using low-code can result in a “massive increase in agility for insurance organisations.”
“Low-code allows you to program a computer through a visual interface, such as by drawing a workflow diagram. It’s a much more intuitive and human way of interacting with a machine than coding,” he said.
The Appian tech expert said low code, by speeding development and “decreasing technical debt”, reduces IT backlogs and gives developers more time to create other operational efficiencies.
“With the right low-code platform, it’s easier to integrate, update, and modify enterprise applications, so insurers can adapt and evolve more rapidly,” he said.
He added that low-code helps reduce claim leakage because “all the data stays in one place” through an intuitive interface.
“So, there is no loss of information on customers or claims. This enables more unified operations, reduced claims leakage, and better fraud detection as claims teams benefit from a consolidated view,” he said.
In the case of fraud data, said Thomas, low-code helps insurers better manage data across a wide range of sources, including watch lists, external databases, and their own claims and fraud systems.
“All data can be viewed at once to more effectively detect anomalies,” he said.
According to a 2020 Novarica study, almost 50% of insurers are actually using or piloting low-code or similar platforms. The expectation, according to Novarica, is that within a few years, 80% of customer development IT projects in the insurance industry will involve this sort of technology.
“The beauty of low-code is there is less need for developers and IT teams to be involved in the development of an app or system and those that are going to actually use it can be involved in designing it,” said Thomas.
This eliminates many of the challenges of IT modernisation projects, he said.
“However, one of the main challenges all businesses - including insurers - face with digital transformation projects is that workers who have been using legacy approaches or systems can be resistant to change,” he said.
One advantage of low-code, said Thomas, is that by incorporating the old legacy systems it keeps employees on-side and makes it easier for them to support the new processes.
