Brian Cohen has long been recognized as one of the most dynamic thought leaders in the insurance industry. As a senior executive with Farmers insurance, Brian led several highly successful business units. As the company’s Chief Marketing Officer and Head of Sales, he was instrumental in driving fundamental changes in the company’s sales process. He also was involved with Farmer’s efforts to improve their claims operations. After Farmers, Mr. Cohen became President and CEO of Clear Technology, a global software provider to the insurance industry, which was acquired in 2008 by Versata Enterprises.
You can find articles authored by Brian in numerous insurance publications. He is also a frequent speaker at various insurance industry conferences. Most recently, he spoke on the topic of insurance claims management at the ISOTECH 2008 conference held in Las Vegas this past November.
Brian is not shy to voice his opinion about things that insurance companies should do differently. We had the opportunity to catch up with Brian at the end of 2008 and get his take on the opportunities that lie ahead for insurance companies. Following are excerpts from our conversation.
Q: It would be tough to start a conversation today without relating to the current economic situation. In your mind, does the current crisis present an opportunity or just danger for companies in the insurance industry?
BRIAN COHEN: I believe the current market conditions offer companies unique opportunities. In good times, it is very difficult to unseat the market leaders. But when times are less certain, the disruption in the market creates an opening for companies to leapfrog competition who are too busy playing defense. A perfect example is P&C claims. Instead of focusing on cost reduction, companies should be looking for ways to make the claims process more effective and turn it into a strategic competitive advantage.
Q: You recently gave a presentation at ISOTECH about claims optimization. Why should insurers change the way they view and manage claims?
BRIAN COHEN: Claims are managed today no differently than they were a hundred years ago. The way claims are handled is costing insurance companies not just money in the short term but also customer loyalty, and customer loyalty in the long run impacts customer profitability.
Q: I know that many insurance companies have been trying to streamline their claim processing, so why is it still costing them more money than it should?
The fundamental problem is that they try to take the existing process and make it “more efficient”. Instead, they should be looking at the actual process, challenge some of the ways they handle claims, and find more effective ways to adjust a claim.
Let me explain.
People by their nature are very good at taking information from multiple, even disconnected sources and making decisions based on this information. But people are not good at consistently doing the same thing over and over again. If a person is asked to hammer a nail for 8 hours a day, after a certain period of time their work is going to suffer. But if you get a machine to do it, it will hammer the nail every time consistently, with no defects or problems whatsoever.
Up to this point, most efforts to improve claim handling try to “automate” the process. This just takes away the decision making process from people, creating a work environment that is very repetitive in nature. This in fact increases the risk of error due to the repetitive nature of the work being performed.
Q: So what should they do differently?
BC: There is definitely room for more sophisticated use of data to help guide the claim handling process. I’ve always found it interesting that most insurance companies today underwrite auto insurance using very sophisticated software that processes data and then makes a decision as to the appropriate rate that should be charged. So my question is, why can’t you use technology, and more importantly use the data – which insurance companies already have tremendous amounts of – to better predict how a future claim should be handled?
Q: Can you give some example of how this would work?
BRIAN COHEN: Sure. I always go back to the example of auto insurance. Every day, thousands and thousands of cars are in a collision. The way most of these claims get handled lends itself to automation. It is like banging a nail. Every time a car is in an accident, the collision repair work is fundamentally the same no matter where the accident occurred or who the insurance company is.
There are going to be unique situations, such as when it is not clear who is at fault; or the car itself was a unique vehicle; or there was an injury where the risk of loss is substantially higher. So you pull out these more sophisticated cases and you allow a person to handle them and make the decision, based on guidelines that you provide them with.
This way people can spend their time on the most value-producing part of what they do, which is making decisions. You also remove the inconsistencies you get today.
Q: This seems to make sense, so why aren’t insurance companies doing it?
BRIAN COHEN: There are a few reasons I can think of. The first is the perception that you need an individual person to handle every claim. If you were speaking to bankers 20 or 30 years ago, they would say you could not automate the underwriting of loans based on a credit scoring model. They would say that if you didn’t meet the client and see them face to face, you couldn’t make an appropriate credit decision. In fact, history shows you can. The same attitude is common in insurance claims departments today.
The second reason is that many insurance companies have spent lots of money on very large and expensive new systems that were supposed to make the claims department more streamlined. A lot of those projects have failed and the failure of these earlier projects has made many in the industry gun shy about the use of technology.
The third reason is that most companies invest and spend their dollars on underwriting systems. I would argue that there is incredible strategic advantage in the claims area, but most insurance companies don’t focus on the claims area in that way. They simply look at it as a cost.
Q: What is the strategic opportunity that you see in the claims area?
The claims experience doesn’t happen all the time, it happens very rarely for an individual customer. When it does happen, it is time for the insurance company to show their customer that they can deliver on their promise. It is an incredible opportunity to create customer loyalty so these customers stay with you and perhaps so you can sell them other things. You want to deliver and deliver strongly because you can create a customer for life.
Q: And do you think that an automated system can help a company become more strategic about their management of claims?
BRIAN COHEN: Absolutely. Here is the challenge in claims. In theory, you want to pay what you owe – nothing more, nothing less. In reality, companies never do that. In a hard market, when prices are rising and insurance companies are making a lot of underwriting profits, there isn’t much pressure on the claims department to be watching their bottom line, so they tend to pay too much. In years when there is no underwriting profit, all of a sudden there is pressure on claims to cut cost. The pendulum swings too far the other way and they end up paying too little. That creates a self-defeating process, since they are now losing money and losing customers.
Q: How can companies avoid repeating some of the bad experiences you mentioned with systems they have tried to implement in the past?
BRIAN COHEN: One of the problems is that technology companies are coming to insurers and saying you can get rid of your old legacy system, put a new one in, and you will be able to do all these “wonderful” things. I would argue differently. There is no need to rip and replace. What you should be doing instead is using legacy systems for what they are – incredible data warehouses. What you should be doing instead is using software that can pull that data out, do the analysis, point out what sort of situation there is and what decisions have to be made, and then send that data back in its original form.
Q: We spoke a lot about claims but let’s shift gears here. Since we are talking about analyzing the data, what are some of the other areas where you see insurance companies getting big wins from using data in better ways?
BRIAN COHEN: Many insurance companies have already started doing that on the front end. I think the best example is in the data analytics tools that they are using to target markets or customers as well as to provide the appropriate pricing for risk. I think that for most of it this is already being done effectively, so to gain an advantage you would have to look at other areas. I don’t think insurance companies understand their customer as well as they should or as well as some of the retailers do.
In my mind the two big areas are customer acquisition and most importantly retention. Everyone talks about retention, but I don’t think they do nearly as much analysis of existing customers as they do on potential new customers. The irony is they have a lot more data on existing customers and just offering them another product or sending them another letter offering them another product is not what I am talking about concerning retention. Instead companies should be asking themselves “What do I need to do to keep this customer with me? What do I need to do to demonstrate value that is high enough that given the choice the customer will choose to stay and not leave even if the price is lower somewhere else?”
Q: This sounds intriguing. What could some of these things be?
BRIAN COHEN: For example, being proactive with a customer. If you are insuring a family, you can ask the ages of their children, so when a child turns 15 you know they are just a year from getting their first driver’s license. You can now use that time to minimize the cost increase the family will incur when the young driver starts to drive. From the customer’s perspective, you look like you are representing their interests and you are actually mindful of their situation and trying to help.
It all boils down to data. For example, you might not want to spend a lot of money on a customer that has one product with you. That is fine, but don’t make that decision until you have all the information, because that customer might actually be more valuable to you than the customer who has more products.
Q: The final question goes back to the current economic situation. Do you see this crisis pushing insurance companies in the direction that you mention of better understanding their customers or do you see it as something that will keep them further away from it?
BRIAN COHEN: One of the good things is that the insurance carriers haven’t been hurt as badly as the financial institutions. Still, management at these companies can’t help but be swayed by the headlines, so the natural reaction is to become very defensive. Especially in the current market where combined ratios have been high, the natural tendency is to freeze what you are doing rather than take advantage and be aggressive. I would argue this is a major mistake.
Periods of disruption such as the one we are in right now create real winners and losers. Because of the disruption that is going on, customer movement or customer loyalties tend to suffer, so companies that are proactive and aggressive in how they target customer acquisition and even on how they manage their existing customers (including their claims) will be in a better position to gain market share. It is in markets like this that positions change. Those that become very conservative will ultimately lose out.
Tags: claims, crisis, customer service, Insurance
February 18, 2009 at 3:35 am |
As a technology-enabled Conflict Management Attorney and Mediator, I am committed to “Cutting the Cost of Conflict” and helping the Insured to “Protect and Grow Wealth” with a Comprehensive approach to Liability and Asset Management. The Claims Process should be a collaboration with a team of lawyers and vendors who are committed to creating the best possible result for the insured. I look forward to the day when Insurance Company Management embraces technology-enabled Conflict Management which significantly cuts the cost of litigated claims.