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The claims function has so far received little strategic attention in many insurance companies. Leading insurers realise that a real transformation is needed to unlock the value potential of this department.

Companies recognise that claims handling can have a significant impact on their balance sheets. The claims function also has an important role to play in shaping the customer experience and implementing the company's strategy for the benefit of policyholders. However, the traditional claims function is not designed to deliver this strategic value. As a rule, the organisation is based more on expertise in claims settlement. The function is now required to strengthen this knowledge through technological means, including the use of artificial intelligence (AI), and thus reform its working methods.

Unlocking the true potential of the claims department requires a deeper and more holistic approach to transformation. A common thread should connect the claims function with underwriting, actuarial, finance and other key functions through an integrated and consistent business architecture.

In this report, KPMG's insurance specialists examine some of the factors contributing to the transformation of the claims function in today's market. They also identify the associated opportunities and hurdles and present key starting points to support insurance companies on their transformation journey.

Claims function with an important role in shaping the customer experience

If the claims department has a good reputation, it attracts new customers and enables profitable business growth. Poor claims handling, which may result in late or inadequate payments or unnecessarily complicated and slow interactions, can impact the customer experience and inhibit growth. With claims handling, insurers can make a real difference in situations that really matter to customers.

Five key starting points for modernising the claims function

  1. Laying the foundations
    Transformation begins with a vision of what the organisation should look like in the future. A clear and formulated strategy helps the organisation to make the right investments and decisions as it progresses. Contract texts should be reviewed and formulated more clearly in order to reduce ambiguities in the insurance conditions and exclusions. The existing basis for claims handling must also be strengthened. Customers must always be at the centre of the business strategy and the strategy for the claims function.

  2. Focus on data
    Data is essential for unlocking the strategic value potential of the claims function. With the help of data analytics, insurers can create more accurate risk and behavioural profiles of customers, enabling them to tailor pricing, cover and underwriting. However, this requires a clear data strategy - not only within the department, but also across the entire organisation. Strong analytical capacities and the corresponding skills and tools are crucial for value creation.

  3. Update process
    Real change can only be achieved by redesigning processes with the desired outcome in mind: combining an optimal business concept with the strongest digital competences in claims handling so that the company can bring together all parties involved in the settlement of a claim and benefit from comprehensive transparency at every step of the process. When considering the entire process, the functional interfaces at which handovers take place, integration options exist and data can be exchanged should also be taken into account.

  4. Changing working methods and shifting resources
    In the course of transforming the claims function into a source of strategic value, new and different skillsets and ways of working are likely to become necessary. The aim is to balance automation to increase efficiency with personalised service. With the increasing automation of manual activities, leading insurers will be able to shift their resources to creating the end-to-end experience through data and analytics to engage business partners in new ways.

  5. Ensuring the transformation has a lasting effect
    One of the main reasons why many transformation projects fail is a return to old habits. However, there are tools and mechanisms that can be used to assess and manage how new approaches are adopted. For true and sustainable transformation, insurance companies need to take a holistic approach that goes beyond the mere implementation of technology. Knowing what actions to track and how to influence them is a key factor in creating value from changes in claims handling.

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