Within the claims management process insurers have always been in a constant push and pull between ensuring that their customers remain happy, while protecting their bottom line.
However, it has become an inevitable fact that insurers do in fact end up losing copious amounts of money due to faults in claims management processes. This is known as “Claims Leakage” in insurance circles.
“Claims Leakage” is a term used to describe financial losses resulting from inefficiencies in claims management, where the term “leak” signifies money lost due to overpayment of claims; in other words the difference between what was paid out for a claim, and what should have been paid out.
Conservative estimates indicate that claims leakage accounts for about 5% to 10% of all claims which are paid out – in life insurance this number rises to a staggering 25%. For any individual insurer these percentages amount to millions of dollars lost on claims that have been overpaid or claims that should not have been paid out at all. In the US alone, it is estimated that the insurance industry losses around $18 billion a year from claims leaks.
What causes claims leaks
For insurers, managing claims leaks is a difficult balancing act. Claims leaks have a lot of negative repercussions for insurers as well as their customers. While insurers need to deal with substantial monetary losses, innocent insurance customers are faced with paying higher premiums to offset the cost of leaks. To reduce their losses further, insurers often only pay claimants the minimum amount that they are contractually obligated to. In cases where leaks are caused by undetected fraud, it can result in a vicious cycle of further fraudulent activities that are incredibly exasperating for insurers.
Leaks can result for a number of reasons, including:
- Inconsistent approaches and frequent reassignment of claims among handlers due to disparities in their experience and inadequate training.
- Large caseloads mean that insurers face increased pressure to process claims quickly resulting in errors and failure to document investigations properly to inform future claims.
- Reliance on manual processes that inevitably lead to fatigue and human error.
- Inconsistencies in business and review processes, leading to inconsistent judgment of similar claims.
- Failure to detect suspicious and fraudulent claims and limited effectiveness to measure instances of fraud.
- Reliance on outdated systems, inefficient analysis tools, and lack of real-time claims monitoring, rendering the tools that handlers use to support their evaluations unfit for the process.
- Siloed systems and lack of quality assurance also contribute to claims leakage.
One of the major challenges for an insurer is that claims leaks are not typically identified during the initial phase of processing a claim, but instead, they are often detected later during a review cycle. This is a real problem as it has the potential to put the insurer in an endless loop of leaks.
Combatting claims leaks
The insurance industry is often criticized for lagging behind in technology adoption, with innovation moving at a sluggish pace in massive legacy institutions like insurance companies. Consequently, persistent problems like claims leaks remain unresolved.
Today, one technology is looking to change that. Artificial Intelligence is being adopted across various industries to help support business executives with improving processes and operations across the board.
Subsequently insurers are now looking at how this revolutionary technology can be used to support them with the challenge of claims leakage. With AI insurers are able to process claims data automatically, biasing the bottleneck of manual claims management.
AI algorithms can help to detect claims leaks in a number of ways.
One of the key advantages of AI is that it can go back in time and analyze historical claims data to reference it against current claims. In essence this supports the AI algorithm to build a profile of what a particular claim should look like and understand whether a current claim is higher then it should actually be. As a result, insurers are now able to better investigate claims and identify claims leaks in real time, enabling prompt and efficient processing of claims.
AI also enables superior fraud detection. AI algorithms are able to dig in deep and scan through thousands of sources such as, social media, medical records and financial data, to identify patterns of fraud that no single handler could ever detect. An interesting example of the potential of AI is its ability to even use computer data such as IP addresses or device identifiers to identify if two claims come from the same individuals indicating potential fraud. This is an incredibly intriguing illustration of the potential of AI and its ability to delve into data to provide real actionable insights.
Finally, AI algorithms can also help to support the fight against claims leaks by identifying errors in data. Errors could arise for a number of reasons, from innocent mistakes in filling form applications, to data inconsistency or deliberate misrepresentation of information – AI can easily and efficiently spot a needle in a haystack.
Insurers have a lot of challenges on their mind, however no one is more pressing than the challenge of claims leaks. With new innovative technologies such as AI coming to the forefront of the industry they no longer have anything to fear.
So what are the main benefits insurers get when utilizing AI to address claims leaks? By now, the answer is clear. When leveraging AI, insurers can identify problems quickly and efficiently, avoiding monetary losses by using the data they already have.
Interested to see how AI can help you improve the claims management process and reduce claims leaks? Get in contact with umAI today to learn more.