It’s said that trust takes years to build, seconds to break, and forever to repair. That’s why the way insurers handle claims is critical for building healthy inclusive insurance markets. According to the ILO’s Impact Insurance Facility, “Timely claims processing is crucial for client satisfaction and value, but insurers often struggle to get it right.”
Microinsurance clients need quick payouts to get back on their feet. Claims turnaround times vary widely: the Landscape of Microinsurance 2020 showed, for example, that although the median reported across all three regions explored was seven days, African customers had to wait up to 23 days for livestock payouts and 15 days for health products, whilst in Asia it was even slower at 38 days on average. In Latin America and the Caribbean (LAC), customers had to wait around 35 days for property claims to be processed.
Access to cash can be critical for coping with an emergency for anyone – and even more so for microinsurance clients who, by definition, are vulnerable to financial insecurity and precarious livelihoods. If insurance has been bought as a mechanism to cope with the financial fallout of risks that materialise, then how an insurer treats clients when they make a claim really is the moment of truth. Long claims turnaround times undermine trust and discourage the uptake of microinsurance. In contrast, paying claims quickly (and, in certain instances, publicly) is not only better for customers: it can also serve as a marketing tool for insurers.
End-to-end integrated systems combining the human touch and technology are key to fast turnaround times so it’s good news that the pandemic has driven a leap in digitalisation for both distribution and customer service. But it’s also true that – if no one is to be left behind in the stampede for technology – we need to understand the digital divide much better than is often the case.
Getting it right (quickly)
Happily, there are many good examples to learn from and, we hope, replicate.
With trust and take-up a persistent challenge, other MiN members are focusing on fast, efficient claims processing. For example, MicroEnsure, now part of the Micro Insurance Company works with local mobile money markets so that claims payments can be cashed-out to the client’s mobile wallets. They aim for a 72-hour turnaround time but have recorded cases of claims being processed in less than seven hours.
Pioneer in the Philippines says the key ingredients for quick turnaround times are a clear claims process workflow; adequate training for claims handlers; simplification; eliminating paper; digital payment claims; and decentralising approval authority to low levels within the claims team or even to the distribution partner. Taken together, these create a system that creates client satisfaction and value, building trust and credibility - as well as leading to policy renewals and referrals.
“Our field staff are sent as soon as possible to the site of the incident, and are trained to use our claims validation tool which enables them to determine the maximum percentage of payout on the basis of their assessment of the damage to the property,” says Pioneer’s Head of Microinsurance Melinda Grace Labao. “During the pandemic, physical validation was limited so we resorted to virtual claims validation via interviews and video calls over mobile. Our quickest claim payment is 24 hours, with an average of five days - the regulatory guidelines are for a maximum of 10 days.”
Measuring with the customer in mind
Collecting and analysing data on average claims processing times is hindered by the absence of a standard definition of ‘turnaround time’. Different insurers and regulators use different metrics - some are measured from the time of the incident itself, others from when the claim is filed. Are claims considered closed when a decision to pay is made; when the claimant is notified, or when they actually receive the money?
The most customer-centric way to measure turnaround time is likely to be the longest and most difficult to implement: measuring from the time of the incident to the time the money arrives in the beneficiary’s bank account or mobile wallet. Anything less than that may embellish the insurer’s figures but fails to take the full customer experience into account. The ILO’s Insurance Impact Facility recommends that claim turnaround time should be measured from the date of the risk event, not when documents are submitted - and adds that “the total settlement time, from date of loss to receipt of benefit, is rarely monitored, but could be a more effective measure of client satisfaction with the claims process.”
Dealing with fraud
Faster turnaround times may help build trust, but speed isn’t everything. Digital processing itself can cause further pain points, including risk of fraud. This is of particular relevance in the current climate: the World Bank warns that during the pandemic, “the risk of fraudulent claims over a range of insurance lines increases when economic conditions deteriorate, particularly when unemployment increases.”
Because total elimination of fraud is often unrealistic and costly, the most effective approach may be to find the ‘sweet spot’ between minimising fraud, cost and turnaround times. Pioneer believes this has a lot to do with being clear on the value proposition: customers demand quick claims payouts, so Pioneer focuses on building a solid reputation as the insurer that pays claims fast -- half of them within two days. This trust, in turn, helps reduce fraud, according to CEO Lorenzo Chan, who says Pioneer builds fraud allowance into its pricing. However, that doesn’t mean that fraud should be passively accepted: “We will look for ways to pay every legitimate claim but fight fraudulent ones with all our might,” says Chan.
Self-policing groups, common in various forms throughout much of the developing world, can also help reduce fraud. MiN member DDFinance provides collective-based insurance (CBI) hospital cash products to groups which vet their own members. For example, if one of the group makes a claim, it will be verified (or not) by another randomly-chosen member who knows whether or not the claimant was actually hospitalised. DDFinance’s Trust and Reputation Network creates financial services and products that “acknowledge and address the individual in the context of the collective(s) to which they belong; provokes the trust and reputation behaviour inherent in those collectives through product and service interactions.”
“Reaching lower income segments with hospital cash and life cash products is, due to high-servicing costs, out of reach for most underwriters,” says DDFinance CEO and Founder Jan-Martin Hunderi. “CBI vastly reduces workflow costs and these segments become serviceable. If adopted across the industry, CBI could be the trend that finally makes health and life insurance available for the vast majority of people in emerging economies.”
We would love to hear how you and your organisations have dealt with improving claims turnaround times – how have you managed to speed up processes and how has this helped not just your customers, but your business? Please share your experiences with us.