The Insurance Federation of Egypt (IFE) has recommended to member companies ways to stem claims leakage. These include establishing a proper claims system, undertaking basic report analysis, and using advanced tools such as predictive analytics.
In its weekly bulletin released last week, the IFE says that staunching the leakage of claims is an important way to reduce the cost of risks to which insurers are exposed. It is also a way for them to differentiate themselves from competitors.
Given that compensation claims form the largest component of an insurance company's expense base, insurers can improve their profitability by reducing unnecessary claims or claims leakage, reported Amwal Al-Ghad citing the IFE.
Claims leakage is due to a number of reasons including failures in existing processes (whether manual or automated), ineffective claims processing, incorrect/wrong payment of claims, or the result of human error such as poor decision-making, customer service, or even fraud.
Why insurers pay more in claims than they should
More specifically, the IFE says that there are three main situations leading to claims leakage.
The first is the failure to detect fraudulent or exaggerated claims, resulting from the limited effectiveness of fraud database engines, in addition to the failure to recognise indications gathered from previous fraudulent claims. Assessment of fraud and corruption risks, as well as monitoring of the ethical culture, are lacking. There are also limited mechanisms for reporting suspicions and dealing with fraud that was discovered or suspected.
The second is errors in payments made to claimants, caused by inappropriate / disparate / isolated data systems that are not connected to other systems, the lack of experience of employees and inadequate quality assurance, as well as excessive reliance on manual processes where there is a high potential for human error. There is also a lack of appropriate training for employees, and assigning claims processing to staff who lack the appropriate skills or knowledge. This means they have poor awareness of critical issues. Another factor is employees not following required procedures
The third situation is insufficient documentation after the completion of investigations, as well as poor communication with stakeholders, in addition to the lack of solution planning before claims arise. Furthermore, there could be inconsistencies in how different employees process claims and determine the compensation amount.
The bulletin said, “The independent nature of claims processing is a contributing factor behind leakages. Those responsible for analysing and evaluating claims apply their own judgment in assessing individual claims. They are free to prioritise tasks and implement them as they see fit.”
The situation is exacerbated by the high volume of claims and the pressure on insurers to process claims quickly, as well as the lack of clarity of vision among those in charge of the claims management process.