Are auto claims in Europe about to rebound?
The COVID-19 pandemic has caused unprecedented disruption to the insurance industry as a whole, drastically reducing business activity, disrupting the daily lives of employees and customers, and more. However, companies that derive a substantial portion of their business from auto insurance recorded stronger bottom lines during the pandemic than in previous years. That’s because when sudden closures kept drivers home and off the road (see exhibit), claims dropped 60 to 80 percent almost immediately. As restrictions began to lift, claim volumes subsequently rebounded, although they remain 20-30% lower than they were before the pandemic. The corresponding decline in claims payouts was only partially offset by premium refunds that insurers paid to customers to compensate them for driving fewer kilometers.
As of mid-2021, the volume of auto claims remains suppressed, at least for now. For insurers, this provides a short-term window to pursue or accelerate strategic initiatives aimed at establishing claims excellence, a key driver of profitability. These initiatives include transforming complaints processes to improve the customer experience, building digital capabilities, leveraging advanced analytics to improve decision making, and reducing long-standing sources of leakage. Acting now will help insurers prepare when vaccination rates across Europe accelerate, economies reopen and mobility and auto claims rebound.
Changes in the claims landscape
Even if the pandemic recedes and business returns, insurers are likely to face three lingering challenges that can be addressed, at least in part, by transforming claims handling to improve profitability.
Upstream pressure will continue. The pressure on revenue from the pandemic will likely continue for the foreseeable future. If history serves as a guide, trade lines, which have suffered from a temporary shutdown in business activity in the tourism, aviation, entertainment and local business sectors, may be slow to recover. During the 2008 financial crisis, for example, commercial lines took much longer to recover than personal lines. As with individuals today, the decline in daily commuting has changed customers’ perceptions of the value of insurance: if they drive less, they expect to pay less. As noted above, some insurers have proactively offered their customers premium refunds for reduced car use, a change that may continue.
Digital is here to stay. Due to the pandemic, people have moved many daily activities to remote channels and adopted new digital tools. For example, across Europe, 60-70% of consumers have moved some of their shopping online, and most intend to continue the new habit after the pandemic ends. This change in customer behavior extended to engagement with insurers. In the UK, claims notifications filed through digital channels doubled during the pandemic, and insurers received 30% more digital claims than in the past. However, growing customer expectations for an end-to-end digital experience, with 24/7 service, instant feedback, and a user-friendly interface, still puts most insurers in a catch-up position. The vast majority of customers still prefer to make a call rather than use digital self-service; in Europe, for example, over 50% of complaints are initiated when a customer contacts an agent. This preference could indicate that insurers have not yet fully digitized the claims handling process.
Inflation will affect claims costs. Insurers anticipate increased pressure on claims costs from multiple sources. First, auto repair shops have suffered the ripple effects of the COVID-19-induced drop in claims volume. Many received government help, but they also responded by increasing labor rates and margins on spare parts. The claims inflation rate is currently between 4 and 5%. Continuing cost pressure means repair shops are unlikely to restore their pre-COVID-19 price levels without some restructuring of the industry. In one scenario, insurers could play the role of ecosystem orchestrators, significantly consolidating repair volumes and offering strong incentives, including expanding insurance services to include maintenance and offering negotiated prices for them. parts and labor, to repair shops. Meanwhile, insurers can analyze increasing volumes of claims data to continually assess repair shop performance, then use that information to guide customers to the best deals.
The claims strategy of the future
Even before the pandemic, insurers had made progress in improving results by increasing productivity and optimizing technical excellence, notably through pricing. Now is the time to tackle complaints. Claims organizations can take advantage of this period of low claims volume to plan their strategic investments in advanced analytics transformation, to design new digital talent management strategies, and to improve their understanding of customer needs and expectations.
A comprehensive suite of updated analytics and process automation, prerequisites for precise end-to-end automation, is the backbone of the new complaints and customer experience model. Tools evolve, resulting in automated decision making throughout the claims handling process: routing, triage, liability negotiation, cost estimation, decision to repair or write off damaged vehicles, cash settlements, and fraud detection. All of these areas will increasingly use digital and analytics as opposed to manual labor, changing the entire claims model.
Responding to customer requests for a seamless complaints experience is a top priority. The pandemic has proven that customers are greedy and accepting new digital experiences. They expect full transparency throughout the complaints process; minimal effort on their part (for example, very little interaction with the agent to resolve the complaint and receive payment); faster resolution of complaints, possibly including automated payments; and the ability to seamlessly switch between the digital and physical worlds.
In addition, insurers can strive to reduce leakage and improve the bottom line. Leaks take many forms, including replacing rather than repairing a vehicle, offering a luxury replacement vehicle rather than a car that matches the customer’s vehicle class, and the commitment of costs for assessing losses in person, even in obvious cases where photos would suffice. Tackling leaks will involve enabling effective anomaly detection, selecting complaints for detailed review, and empowering complaints organizations to effectively close complaints that are not in doubt.
Achieving these critical goals will result in a shift from a dispersed and often siled approach using non-integrated digital and analytical tools to end-to-end digital and analytical claims processes. Upstream, insurers will have to put in place tools comparable to the main digital services that their customers use on a daily basis (for example, carpooling applications, social media and digital banks).
On the back-end, the claims organization will need to invest in a suite of analytics engines to support automated decision making to reduce costs. The opportunity begins with loss prevention – using telematics and the Internet of Things to issue safety warnings and damage prevention advice – and continues throughout the claims handling process, from supply customers from an easy digital interface of first notice and improved claims cost accuracy, to digital selection of a repair shop, and automated payment processing and invoice verification. This relative lull in business also gives insurers a good time to provide claims teams with the training they need to learn new processes and leverage new digital tools.
Claims are already rebounding, so time is running out for insurers. Building end-to-end digital and analytical solutions requires significant investment and will take considerable time. For claim organizations, it is essential to act now or risk missing the opportunity to emerge from the pandemic stronger than its competitors.