In today’s landscape of escalating lawsuit costs and economic uncertainty, managing litigation severity has become a critical challenge for claims departments (see Social Inflation is up). The question is: how can we effectively address this issue without compromising efficiency or breaking the bank? Let’s explore a data-driven, technology-powered approach to litigation management that can help tame the claims severity beast.
Understanding Claims Severity
Claims severity is more complex than just the dollar amount of a settlement. It encompasses financial costs, time invested, and even emotional toll. Influenced by factors ranging from company procedures to unexpected events, understanding severity is crucial for developing effective litigation management strategies.
A striking real-world example of claims severity comes from the trucking industry. According to a 2020 study by the American Transportation Research Institute (ATRI), the average cost of a crash involving a large truck increased from $120,000 in 2009 to $182,000 in 2019 – a staggering 52% increase. Even more alarming, crashes with injuries saw costs rise from $195,000 to $428,000, a whopping 120% increase. (Understanding the Impact of Nuclear Verdicts on the Trucking Industry.” June 2020)
This example illustrates how factors like rising medical costs and increased legal fees can dramatically impact claims severity over time. It’s not just about the initial incident anymore – the long-term implications and escalating costs play a significant role in the overall severity of a claim.
Leveraging Data as a Strategic Asset
In the battle against claims severity, data is your most powerful asset. Historical cases, claims records, and legal documents form a rich repository of information. With proper analysis, this data can reveal patterns, predict high-risk claims, and even prevent problematic cases before they escalate. It’s about transforming raw information into actionable insights.
A striking example of leveraging data and AI in claims management comes from Lemonade, a disruptor in the insurance industry. Lemonade uses AI extensively in claims processing, employing a combination of machine learning, chatbots, and computer vision. Their AI system, aptly named “AI Jim,” handles the entire claims process for simple cases, from initial report to payment. The results are nothing short of remarkable: 30% of claims are settled instantly, with the record for the fastest claim processed standing at an astonishing 3 seconds. Perhaps most impressively, Lemonade has managed to reduce its claims expense ratio to just 2%, significantly outperforming the industry average of 10-15%. This case demonstrates the transformative potential of AI in claims management, showing how it can dramatically improve efficiency, speed, and cost-effectiveness. https://www.linkedin.com/pulse/ai-insurance-streamlining-underwriting-claims-andre-ripla-pgcert-4qdye
Another powerful example of leveraging data and technology comes from Zurich Insurance. They implemented an AI-powered system to handle property and injury claims, utilizing machine learning and natural language processing. This advanced system reviews medical reports and assesses the severity of injuries to determine appropriate compensation. The results were impressive: claims processing time was reduced by 50%, consistency in claims decisions improved by 25%, and they saw a significant reduction in operational costs. This case clearly demonstrates how AI and data analytics can dramatically improve claims management efficiency while also ensuring more consistent and fair outcomes for claimants. https://www.linkedin.com/pulse/ai-insurance-streamlining-underwriting-claims-andre-ripla-pgcert-4qdye/
These examples demonstrate the power of leveraging data to not only improve efficiency but also to proactively manage and reduce claims severity.
Embracing Technological Tools
Artificial Intelligence and machine learning are no longer just buzzwords; they’re essential tools in modern litigation management. These technologies can process vast amounts of data, identify hidden patterns, and predict outcomes with increasing accuracy.
Automation tools also play a crucial role, handling routine tasks and freeing up your team to focus on strategy. Effective communication tools ensure that all stakeholders remain informed and aligned throughout the litigation process.
Implementing Best Practices
Deploying new tools and strategies requires a thoughtful approach. Consider these best practices:
1. Foster collaboration between all stakeholders, from insurers to legal teams to front-line claims assessors.
2. Establish clear objectives and Key Performance Indicators (KPIs) to measure strategy effectiveness.
3. Maintain accurate data – the adage of garbage in garbage out is never truer than with litigation data. Make the time and investment and get it right.
4. Use technology to enhance, not replace, human judgment and decision-making.
5. Invest in continuous training to ensure your team can effectively utilize new tools and strategies.
The Importance of Action
Managing claims severity isn’t solely about cost reduction; it’s about creating a more efficient, effective claims process that benefits all parties involved. By leveraging data, embracing technology, and implementing proven strategies, we can significantly improve litigation management outcomes.
The tools and strategies are available, and the potential benefits are substantial. It’s time for claims leaders to take action and implement these approaches to effectively manage claims severity.
What strategies have you employed to address claims severity in your organization? Share your experiences in the comments below – let’s continue to learn from each other and advance our industry practices.