How to settle insurance claims with the speed of a Formula One pit stop

Social Business Manager, IBM

In Formula One, every thousandth of a second counts. Yes, you read that right—every tenth, hundredth or even thousandth of a second can mean the difference between victory and defeat for both driver and team. Lewis Hamilton, this season’s current F1 world championship points leader (and reigning 2014 world champion), completed a hat-trick and snagged his third consecutive pole position at the Shanghai International about four one hundredths of a second! His teammate and closest competitor’s response? “Oh, come on, guys!”

Formula One races are won or lost by fractions of a second, and policyholders can be retained or lost by speed of claims resolution or at any touchpoint with an insurer. So what is the key to coming out on top? Data.

Data is your best friend

In his recent Forbes article, “Big Data in Fast Cars—How F1 and NASCAR Compete on Analytics,” Bernard Marr provides an overview of how big data and analytics have become the cornerstone of motorsport. Thomas Mayer, COO of the Lotus F1 team, explained to Marr, “Formula One has always been on the cutting edge of technological development, so it was natural that data analysis would become a big thing for us. It saves us time and money—instead of having to rely on trial and error, we have real data provided by 2,000 sensors on the car.”

Data analytics can provide the same level of value for insurers who are looking to create a customer-centric enterprise, increase flexibility and streamline operations or optimize enterprise risk management. Varied though these use cases are, they all lead to the desired outcome: a more profitable insurance company. Regardless of whether insurers are looking to increase customer profitability, improve business processes or reduce risk, an analytics solution can use data to deliver actionable insights. So what exactly does that look like?

Create a customer-centric enterprise

According to research by Capgemini Consulting, “Only 29% of customers globally are satisfied with the services of their insurance providers.” Even more troubling, “In 2014, customer satisfaction levels declined globally, across all stages of the insurance lifecycle.” With low levels of customer satisfaction plaguing insurers, customer churn is a very real and pressing threat. Then can we quantify the threat of customer churn? Research from IDC reveals that insurers spend seven times more to attract a new customer than to retain an exiting one. So what steps can insurers take to retain customers and improve customer lifetime value?

  • IBM Insurance Analytics provides insurers with an omni-channel view of policyholders. Whether policyholders interact with the insurer via website, mobile app, call center or agent, data and analytics can alert insurance companies when a policyholder poses a retention risk, evaluate the likelihood of a policyholder’s switching to a competitor and identify policyholders who appear most likely to respond to a retention offer. 
  • IBM Analytics can also help insurers provide right-timed, relevant offers to policyholders. Using Behavior-Based Customer Insight for Insurance, insurers can identify marketing offers to which policyholders seem most likely to respond, then cross-sell and up-sell insurance policies.

Increase flexibility and streamline operations

In claims resolution, speed and efficiency are paramount. Just as drivers choose the optimal racing lines to put together the fastest lap during qualifying, insurers also must optimize their claims resolution process to avoid being overtaken by a competitor. Don’t be the insurer who is left in a cloud of brake dust. IBM Analytics can help insurance companies in two key areas: claims optimization and fraud prevention.

Claims optimization

As much as we’d all love to have claims settled as quickly as a Formula One pit stop, we realize that claim resolution takes time. To minimize the amount of time taken, however, it is of utmost importance to optimize every customer interaction, especially for speedy claims resolution.

But beware: slow claims approval is likely to drive your customers away. According to recent research cited in the white paper Increasing customer satisfaction and reducing costs in property and casualty insurance, only 8 percent of survey respondents who had filed a claim in the past five years considered switching insurers when their claims were settled in one to three days. However, when insurance companies took over 15 days to settle a claim, a staggering 65 percent of respondents considered changing insurers.

Routing and settling claims efficiently can help insurance companies reduce the time and cost it take takes to settle a claim. Furthermore, fast resolutions are key to positive customer experiences and customer retention.

Fraud Prevention

IBM has also addressed fraud prevention with the IBM Counter-Fraud Management for Insurance solution. And just how damaging is fraud to insurance companies? Statistics from a 2013 FICO study indicate that “more than one-third (35 percent) of respondents estimated that fraud represents 5 to 10 percent of total claims, while 31 percent said the cost is as high as 20 percent.”

Optimize enterprise risk management

If you have ever seen the effects of rain during Formula One qualifying or on race day, you can attest: weather is a big deal. Racing in wet conditions shakes up both the starting grid and the finishing positions of the drivers. As the Formula One adage goes: rain is the great equalizer. Smaller teams that were hoping simply to score points may be able to take the fight to the larger constructors, even wrangling a podium position from them. With a chance for rain around a circuit, the teams are glued to their weather data.

Weather data is crucial not only for Formula One, but also for the insurance industry in the form of catastrophe insight and response. The case for preventing losses and proactively alerting policyholders about events is clear: “Data and analytics allow carriers to handle the volume, velocity and variety of data available today that help to predict losses and their severity while enabling insight into appropriate response planning. With social media playing a significant role in disaster response, insurers must incorporate data of all types, including social media, in their plans to measure effectiveness of response, but also customer sentiment.” Catastrophe planning is key to customer experience, so the relevance of being prepared to offer insights to policyholders cannot be overstated.

We deal in data

"While a driver has to rely on instinctive gut reflexes to cope with racing at 200 mph, his support team is armed with data that will prove invaluable in times of crisis. One example of analytics coming to the rescue is when Red Bull driver Sebastian Vettel’s car was spun and damaged during the 2012 Brazilian Grand Prix. By the time his car made its tenth-lap pit stop, engineers had run simulations using modeled data to determine the adjustments that would need to be made to the car to keep it running for another 70 laps. This meant Vettel won enough points to secure the championship title for a third year running. As in many other areas of life, big data is removing a lot of the guesswork and enabling decisions to be made with the confidence that they are backed by statistics." — Bernard Marr, "Big Data In Fast Cars -- How F1 And NASCAR Compete On Analytics"

Eliminate the guesswork in insurance and make confident, data-backed decisions. Learn more about the insurance solutions relevant to your company, then request your company’s complimentary workshop to plan the next steps for adopting analytics solutions.