This is one of a set of seven interconnected themes or forces that are expected to drive the traditional claims function into a new future of customer-centric, digitally-enabled, value-driven service and efficiency.

Client preferences and experiences should be at the core of every insurer’s business and supported by a clear set of values that organizations — and their suppliers — live by every day. In today’s fiercely competitive environment, achieving a strong and trusted reputation will go far in attracting and retaining business while avoiding unwanted regulatory attention. Today’s industry has reached a point at which it must enhance client and regulatory trust. A new approach to reducing and managing conduct risk is in order.

The conduct of insurers and the wider financial services industry has, of course, faced increasing scrutiny in the wake of the shockwaves caused by the 2009 global financial crisis and more recently on insurers’ response to pandemic related claims.

These events forced regulators and policy makers to take action to address these issues. In the UK, for example, the Financial Services Authority (FSA) was split into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in 2013 to build financial stability in the UK financial system and address conduct by protecting clients, market integrity and promote competition. There has also been an increase in the development and introduction of regulations and policies such as Solvency II, the Enterprise Act, Insurance Distribution Directive, Renewal Transparency, Operational Resilience, and Senior Managers and Certification Regime, to name a few.

Unfortunately, many claims organizations today, are still reacting to compliance and conduct issues after they arise or are prompted by regulatory scrutiny. Recently, insurers’ conduct has been questioned through the FCA’s Business Interruption (BI) test case , pricing review and the FCA consultation paper on a Consumer Duty , with similar initiatives being taken in other global markets such as the US and Australia.

Trust in the market is at an all-time low and the UK’s BI test case and Consumer Duty consultation paper highlights the importance of aligning robust controls and capabilities to assess coverage and a client centric culture. And as insurance products evolve to cover intangible risks, this will become more important. Clients and brokers alike will demand improved certainty around policy wording and coverage so that there is full transparency on what is and is not covered.

Data and analytics could help manage future risks and costs

Traditional models that many claims organizations have today, invest significant resources to monitor and manage risk, conduct and compliance. But these models are under increasing scrutiny and future best practices should look quite different. Risk and compliance teams that embed data specialists and modern processes could set the gold standard, delivering optimized risk and compliance management.

In this model, the heavy lifting across the entire value chain, both internally and across the supplier network will be completed through real-time data analytics that eliminates costly, time-consuming manual processes. Machine learning will support the identification of emerging business risks and prompt remedial action or new processes before any damage is done.

With today’s increased regulatory — and environmental — standards and reporting, it is imperative that claims organizations invest in the right risk-operating model, harnessing data use to help increase process efficiency and reduce operating costs.

Risk management demands a deeper understanding of business processes

Transparency and rock-solid business processes are as important to today’s claims organizations as capital allocation and liquidity. Systemic claims or risk management failings, or regulatory breaches, can produce severe consequences, including the suspension of an insurer’s authorization to write new business. Insurers developing a deeper knowledge of their business processes will be in the best position to meet today’s ever-evolving expectations and needs.

As artificial intelligence and algorithm-based decision making continue to emerge, understanding how decisions are calculated will also be heavily scrutinized. Claims organizations need to consider establishing models that are consistently ethical, and that specific groups are not discriminated against, while maintaining a robust vetting of decisions. Protection of vulnerable or disadvantaged clients and customers is high on the agenda of many regulators and governing bodies around the world. Insurers need to respond accordingly.

Foster collaboration and accountability to align suppliers

Claims organizations continue to hold regulatory responsibility — and reputational risk — for the actions of their suppliers and third-party networks. We expect to see supplier panels becoming more community-based in some contexts and utilizing the gig-economy model to enhance local service to clients. There are many advantages to this, but also challenges. Overseeing supplier service delivery could become increasingly difficult amid the widening array of suppliers in play today. Insurers are wisely charting a new path as claims teams focus on transforming supply chains to enhance overall agility, transparency and efficiency.

This article is featured in the Claims Transformation article series.

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Claims organizations need clear processes in place that articulate how each supplier will provide services and adhere to all regulations. A comprehensive set of service metrics and performance targets should also be in place. Monitoring of third-party performance and regulatory compliance in a robust, seamless and integrated way will be key to managing reputational and business risk.

Approaching supplier management with such a clearly defined and collaborative approach greatly increases the prospects for success in today’s competitive environment. Suppliers should be treated as an extension of the claims function — holding the same values and service priorities, including fair treatment of clients.

Aligning client experience, conduct and cultures to risk and compliance will be a differentiator

As regulatory expectations evolve and scrutiny grows, aligning client experience, conduct and culture, and risk and compliance, needs to be a priority for executives and senior leadership. It requires investment, resources and a commitment to building the right culture in order to avoid reputation damage and financial penalties.

Culture and organization-wide buy-in are critical. Without this, reactive solutions that don’t address underlying issues are likely to be the result. Understanding how employees view compliance and conduct can drive progress in providing the clarity needed to achieve the target state.

Employees form a significant part of the claims journey and impact the client experience, compliance issues and conduct risks. Providing continuous mechanisms for claims teams to deliver insights into the development of the business will ensure that the right culture is hardwired to embrace risk management and compliance. This benefits management too — an understanding of what employees are experiencing and thinking enables better informed decision making at the top.

Strong whistleblowing policies that encourage employees to raise issues are also important. This can also enhance collaboration across the three lines of defense — front line, risk management and internal/external audit.

Insurers need to look beyond ensuring compliance with current regulations and strive to embed holistic, innovative approaches that sustain a strong, progressive risk culture. Embracing and investing in digital and data solutions can help build a holistic and integrated model that better supports effective risk management.