Proactive Loss Prevention: The Need & Significance

Proactive loss prevention is the need of the hour. Hands down, it would save money and time for the insureds, insurers, reinsurers, and, in catastrophic cases, governments and economies. While the need remains obvious, until recently, the ability to produce and track meaningful results has been either elusive, or for the most part, cost prohibited. Therefore, insurance has historically been reactive. For the most part, proactive actions have focused on checking off the regulatory and compliance boxes within a risk management framework, or when feasible, the insureds have implemented standard risk mitigations to capitalize on potential discounts.

It should not end here….

The Numbers Speak for Themselves

• According to Deloitte Insights, for property and casualty insurers, the biggest cost component was paid claim losses and expenses, accounting for ~70% of US premiums received in 2020. In addition, the report also underscores insurers increasing interest in leveraging technologies such as Artificial Intelligence to manage a large volume of claims while enhancing the capabilities and broadening the roles of claims professionals to maintain personal engagement during critical situations.
• In a report by the American Property Casualty Insurance Association, auto loss costs have surged as driving has rebounded to pre-pandemic levels. Higher severity and rising claims frequency are pushing auto insurance costs up to levels not seen since 2017, which impacts consumer costs in environments where inflation is already a problem. There is always the pressure to enhance claims processing with new technologies and data sources that boost efficiency, productivity, and accuracy in handling claims. However, what if the same amount of work was focused on well-informed strategies to stop or minimize the losses in the first place? These costs are magnified exponentially when we look at commercial insurance claims. Reports such as Allianz’s “Claims in Focus” demonstrate that the top 10 causes of loss contribute to almost 75% of the financial losses, while the top 3 account for approximately 45% of the value.
• A significant finding is that despite improvements and concentration in risk mitigation for insurance companies in fire prevention over the years, fire or explosion (excluding wildfires) remains the most identifiable cause of corporate insurance losses, accounting for 21% of the total value of all claims as found by Allianz across more than 530,000 industry claims.
• In terms of claim value, Natural Catastrophes rank second (15%), which continue to increase with climate change and changes to exposures, demonstrating that hurricanes/tornados are the most expensive cause of natural catastrophe loss, accounting for 29% of all the claims evaluated.

What if insurers could utilize technology to prevent losses and, at the minimum, use their access to data and insights for alerts to prevent future claims from being made in the first place?

Predict to Prevent: Big Data and AI-Enabled Decisioning

Insurers are increasingly leveraging the Internet of Things (IoT), or Machine Learning to identify, prevent, and mitigate each risk event. They also have access to vast data sets on driving behavior and other relevant patterns. This approach is known as a “predict and prevent” model of insurance where data is shared between parties, with insurers playing a more active role in claims prevention.

In addition, insurers incentivize behaviors that help justify the cost of implementing the prevention measures. As demonstrated by instances such as Traveler’s model for business customers, that identifies employees who are at a high risk for chronic pain and suggests changes in their course of care. This course of care has led to up to 50% savings on worker’s compensation claims for chronic pain, which in turn has shown employees return to work faster and need fewer opioids.

While this technology is used to analyze historical occurrences to better advise behavioral changes, it is also becoming increasingly possible to access risk mitigation solutions that may be used in the present.

Alert to Act: Smart Networks and Just-in-Time Warnings to Alleviate ‘Massive’ Losses

Another significant trend in proactive loss prevention is the use of sensors and alerts for people who encounter “in-the-moment events”.

Insurance companies are increasingly using weather data to warn their customers about possible weather-related risks and to help them prepare for natural disasters. For instance, Intact Insurance uses Weather Intelligence technology to set preventative alerts to monitor the specific locations where their customers reside. If the policyholders reside in the path of an impending storm, insurers can email or use an app to directly notify them. Helping their policyholders understand how to mitigate potentially destructive weather leading up to the event.

Even if certain solutions directly contact the insured, the alerts and interactions are so much more than just a touchpoint. Consider Kinetic, a US-based technology firm that has collaborated with AIG and Amerisure to offer wearable devices that help reduce musculoskeletal injuries, reporting a 50% to 60% reduction in injury frequency and a 72% reduction in lost workdays. This has benefited the covered entity, minimizing the actual suffering and cost to the worker, not to mention saving on both resources and claims for the insurer.

On a larger scale, in an affected industry or a certain geographic area if appropriately incentivized, loss prevention technologies can be utilized for the number one and most elusive risk, fire. Some of the most promising fire protection technologies include Internet of Things (IoT) devices equipped with sensors that measure changes in the surrounding environment and detect fires as early as possible to minimize potential damage. Another example is the use of smart technologies such as IoT sensors, Artificial Intelligence, cameras, and drones to prevent and effectively respond to bushfires in high-risk or high-cost geographies.

In this situation, a comprehensive loss prevention solution includes the following distinct capabilities to proactively prevent losses via real-time alerts:

• Detect: Anomalies
• Alert: Send alert notifications, remediation measures, and/or educational information via the designated channel.
• Mitigate: The recipient can take immediate, effective action to mitigate the loss as per remediation instructions.
• Prevent: Periodic monitoring, vulnerability assessments, and maintenance and upkeep warnings.

Key Contributor: Geentanjali Negi, Senior Manager – Content/ Research & Sales Enablement