Strategic claims segmentation departs from traditional claims management methods and promotes a more granular, data-driven approach. Traditional segmentation only considers monetary value and data points such as cause of loss and risk. Strategic segmentation takes into account the individual merits of each claim, ensuring a more accurate and efficient decision, which is a top priority in today’s world of rising claims costs and expenses. Through a data-driven approach, carriers can gain a deeper understanding of “claims like this” to enable proactive decisions and processing strategies to effectively influence the course of the claim.
Carriers can use damage segmentation to shape strategic direction and business priorities and identify focus areas suitable for investing in expanded capabilities, either as a standalone initiative or as a precursor to a significant transformation.
The value proposition of strategic loss segmentation
Strategic segmentation can provide several benefits for claims organizations.
- First, as a quick win, it serves as a catalyst for controlling operating costs by enabling more efficient resource allocation and promoting a leaner operating model.
- Secondly, it increases customer satisfaction by ensuring claims are managed by the right claims handler and claims that do not require human touch as specific touchpoints can follow a dedicated path.
- Third, carriers that use strategic segmentation can better manage their loss risk and payment accuracy by matching highly trained claims handlers to claims that are trending negatively or are in dispute.
Carriers that effectively use this approach can impact their loss ratio by 1-3 points depending on their business mix and promote a more robust feedback mechanism where underwriting and actuarial influence risk selection and pricing strategies.
Managing business adoption and implementation
Implementing a strategic segmentation approach involves several steps. It begins with data discovery, which involves analyzing risk and claims data to more holistically understand the book’s demographics and underlying threats through a severity and complexity assessment. Segmentation scenario models are then developed with claims experts and the hypotheses are validated in a test environment to ensure that the carrier’s risk appetite is successfully met. A key objective is to ensure that claims can be segmented and re-segmented not only at FNOL, but also throughout the lifecycle, based on any development that may occur at the level of an individual claim or portfolio.
Technology and data science play a crucial role in conception and implementation. Many network operators have found success combining third-party data sources with their operational data to develop more sophisticated segmentation approaches. However, this is not a requirement for entry and depends on the quality of a network operator’s internal data.
It is also important to build a cross-functional team that promotes collaboration and diverse insights, combining quantitative skills with qualitative insights from frontline managers and claims professionals. Continuous improvement and maintenance of the segmentation strategy is a key component in ensuring that the strategies used remain effective and current on an annual or semi-annual basis to keep up with market trends. Leading carriers use AI technologies instead of rules-based coding for delivery, meaning the segmentation model learns over time and can be changed more easily.
Typical carrier experience with roadblocks
Operators that struggle to implement typically have less sophisticated features, but recognize that segmentation provides a foundation for advancing other features by making them more effective. Issues such as data quality and resistance to change can arise. To address these issues, network operators can invest in improving their data infrastructure, clean up their business processes to focus on data quality, and communicate the benefits of the strategy. Operators who have invested in moving their data to the cloud have the advantage of enabling the business to leverage data at scale and improve the quality of their segmentation and associated insights.
Measure ongoing success
The success of strategic claims segmentation can be measured through several key performance indicators, such as reduced claims costs, increased customer retention and improved risk management. To maintain the effectiveness of the strategies, continuous monitoring and adjustment are required. Please contact Matthew Madsen if you would like to discuss further.
