- Anti Money Laundering
- Solvency II
- IFRS
- Compliance
- Contract Management
- Claims Management
- Scope of Automation
Governments and international authorities implement a range of anti-money laundering life insurance regulations and issue life insurance sanctions lists. With compliance penalties including fines and prison terms, life insurance firms should ensure they understand their obligations and how to implement them as part of their AML policy.
Given the vast amount of information involved in transaction monitoring and sanctions screening, many insurers choose to automate their AML/CFT programs with smart technology. Automated AML/CFT is an opportunity to enhance the speed and accuracy of monitoring and screening processes, reduce potential human error and, ultimately, avoid costly compliance penalties.
https://complyadvantage.com/knowledgebase/anti-money-laundering-insurance-sector/
The key objectives of Solvency II were to increase the level of harmonisation of solvency regulation across Europe, to protect policyholders, to introduce Europe-wide capital requirements that are more sensitive (than the previous minimum Solvency I requirements) to the levels of risk being undertaken, and to provide appropriate incentives for good risk management.
Aims
EU insurance legislation aims to unify a single EU insurance market and enhance consumer protection. The third-generation Insurance Directives established an "EU passport" (single licence) for insurers to operate in all member states if they fulfilled EU conditions. Many member states concluded the EU minima were not enough, and took up their own reforms, which still led to differing regulations, hampering the goal of a single market.
Since the initial Solvency I Directive 73/239/EEC was introduced in 1973, more elaborate risk management systems developed. Solvency II reflects new risk management practices to define required capital and manage risk. While the "Solvency I" Directive was aimed at revising and updating the current EU Solvency regime, Solvency II has a much wider scope.
A solvency capital requirement may have the following purposes:
- To reduce the risk that an insurer would be unable to meet claims;
- To reduce the losses suffered by policyholders in the event that a firm is unable to meet all claims fully;
- To provide early warning to supervisors so that they can intervene promptly if capital falls below the required level; and
- To promote confidence in the financial stability of the insurance sector
Often called "Basel for insurers," Solvency II is somewhat similar to the banking regulations of Basel II. For example, the proposed Solvency II framework has three main areas (pillars):
- Pillar 1 consists of the quantitative requirements (for example, the amount of capital an insurer should hold).
- Pillar 2 sets out requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers.
- Pillar 3 focuses on disclosure and transparency requirements.
https://en.wikipedia.org/wiki/Solvency_II_Directive_2009
Insurance companies who currently disclose under IFRS need to implement the new accounting standards; IFRS 9 and IFRS 17.
What is IFRS?
The goal of IFRS is to provide a global framework for how organizations (mostly listed firms) should prepare and disclose their financial statements. This is done in order to help stakeholders (including investors) with efficient information disclosures. IFRS 17 and IFRS 9 also serve this purpose but they focus both on specific topics; IFRS 17 on the insurance contracts and IFRS 9 on the financial instruments.
https://ifrs17explained.com/2019/08/09/an-introduction-to-ifrs-9-and-ifrs-17/
Insurers are now operating in a complex and increasingly-regulated economic environment, requiring them to cope with new risks, make more substantial commitments, to innovate. Used with permission from MicrosoftIt is in this context that many safeguards have been put in place by the authorities. This is particularly true in the European countries where the rules of Solvency II that come into effect on 1 January 2016 impose a new set of obligations including the compliance function.
In an ever-changing world, insurers are constantly required by the authorities to maintain high standards in the governance of their companies. The recent resounding bankruptcies have pushed companies to exercise utmost caution and take appropriate measures to maintain solvency and insurance consumers’ confidence.
In most developing countries, efforts are also underway in this direction, with many regulations being enacted with reference to Solvency II. Insurance companies themselves have taken steps in establishing internal rules to ensure optimum safety of their customers and to maintain their image.
The risk of non-compliance may be defined as the risk of legal or regulatory sanctions, material financial losses or deterioration of the image that an insurer may sustain for non-compliance with laws, regulations and administrative provisions pertaining to the company’s operations. Any deviation from this principle is liable to sanctions.
https://www.atlas-mag.net/en/article/the-compliance-function
https://www.ira.go.ke/images/docs/Guideline_on_Risk_Management_and_Internal_Controls.pdf
Contract management or Contract Lifecycle Management is the Management of contracts from vendors, partners, customers, or employees. When contract management is handled correctly, contract management includes self-service portals, Legal pre-approved templates, Legal playbooks, and electronic signature (e-signature.)
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Manual contract management introduces bottlenecks into the sales cycle. Legal is often the department responsible for creating, managing and maintaining contracts within the enterprise. Unfortunately, when Legal has to manage contracts manually, the contract management process gets bottlenecked.
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Manual contract management introduces (manual) errors. And a lot is riding on the Legal team if they don’t catch mistakes, such as:
- Non-compliance
- Revenue leakage
- Extended sales cycle times
- Jeopardized customer relationships
The benefits of automating contract management are real. If your contracts are done faster, you’re going to be able to collect on them sooner. If they’re accurate, you’re going to have far fewer disputes. General Counsels and C-level executives can finally sleep at night because they are confident that the contract management process is working.
Contracts exist at the heart of B2B commerce, as they are the physical representation of the customer relationship. When you manage that relationship properly, you reap a variety of benefits.
Benefits of Automating Contract Management Include:
- Decreased contract cycle times
- Close more deals
- Stop revenue leakage
- Increased visibility
- Increased compliance
- Increased security
- Increase control
- Diminish risk
- Increased user adoption rates
- More face-time with customers
- Reduced admin costs
- Greater contract flexibility
- Improve contract renewal rates by 25%
- Increase revenue by 1 – 2%
Contracts are essential to your business, and so is an effective contract management system. If you’ve taken on an initiative to streamline and optimize your quote-to-cash process, but you ignore contracts, you are seriously stifling any impending success. You may not reach perfection overnight, but by following the steps of the contract maturity model, you can turn contract management into a strategic process that is intuitive and transparent for your business in a tempered, processed way.
- Consolidation
Eliminate information silos and connect your front- and back-end systems to create one central repository for all aspects of your contracts, including templates, clauses and exceptions. With a single source of truth, you and approved business users, partners and customers can view, manage, update and search your contracts for necessary and accurate information.
- Task automation
Automate manual processes to free up valuable legal time and energy so your lawyers can focus on critical or special-case contracts relevant to their expertise. Task automation increases process control, reduces the number of errors and speeds up the contract cycle time.
- Process efficiencies
Process efficiencies create a well-organized contract process so all stakeholders – Legal, Finance, Sales and departments managing obligations and deliverables – can spend time on critical tasks that correlate with their expertise and job role. Your enterprise will experience faster contract cycle times, reduce admin costs and off-site capabilities with e-signature.
- Contract performance
As a company, you’re always encouraged, or even expected, to improve, and contract management should be held to that same standard. Gain visibility into your contracts and contract process to identify and remedy pain points or gaps in order to provide the best service to your customers.
https://www.hanover.com/risksolutions/contract-management.html
https://apttus.com/resources/what-is-contract-management/
We’re all confronted with damage at one time or other. You may accidentally cause damage to someone else’s property or find that your own property is damaged. Fortunately, you’ll have most of your possessions insured: your car, your home, your household effects. You are also likely to have travel and third-party liability insurance. All of these come under the heading ‘non-life insurance’. You don’t really know what your insurance policy will do for you until you actually suffer loss or damage. If this happens, it’s up to the loss adjuster or claims manager to settle your claim as quickly and efficiently as possible. When you notify a claim, you trigger a complicated process of which you, as the insured party, may be unaware of.
Claims management is a collective term for all work that Van Ameyde carries out for people or companies that suffer damage, as well as for the insurance provider. What does this work involve?
Registering the claim notification (by telephone, e-mail, post or online), which automatically opens the client file. Checking the cover: is the damage insured and up to what amount? Asking for documents such as police reports of road accidents, medical reports in case of injury, invoices, etc. Determining which party is liable for the damage if another party is involved. Determining the amount of the claim and engaging a loss adjuster if necessary. Arranging for the damage to be repaired or for transport back home if the damage occurs abroad. Paying the claim to the insured party. Recovering losses from liable (responsible) third parties, if applicable. Reporting to our client (the insurance provider), including management information, showing e.g. the progress of all their claims files and the total amounts to be reserved and paid. Fraud prevention checks.
https://tractable.ai/products/vehicle-damage/ https://tractable.ai/products/disasters/
https://smallbusiness.chron.com/importance-claims-management-insurance-sector-41811.html
In addition to the competitive environment in which insurance companies operate, these businesses are challenged by more stringent compliance with government regulations and increasing expectations on the part of consumers. Efficient claims management is vital to the success of both large and small companies working within the insurance industry. Major components of the claims handling process include developing strategies to cut costs and reduce fraud while keeping customers satisfied. Small companies in particular can benefit from claims management tools and technology.
Settling insurance claims is just one aspect of the claims management process. The time it takes to process a claim involves several stages beginning with a person filing a claim. The stages that follow determine if a claim has merit as well as how much the insurance company will pay. Insurance customers expect a company to settle claims quickly and to their satisfaction. Because high customer satisfaction levels can give a company a competitive edge, reducing the time it takes to settle insurance claims is one way to decrease the number of customer complaints and improve service. The use of claims management system software that speeds the process and minimizes costs offers a practical solution. Simplifying the claims process through automation helps reduce expenses for smaller companies that operate with smaller budgets.
Paying fraudulent claims costs insurance companies money -- a cost the insurance industry then passes on to its customers. Consequently, underwriting guidelines become tougher and the insurance premiums consumers pay increase. Software tools designed to examine payment history and evaluate trends in claim payoffs can help insurance companies detect fraud, according to Wipro, a global IT business. For example, how often the same individual files an insurance claim can be a warning that a person might be filing a fraudulent claim. Unfortunately, settling claims too quickly increases a company’s chance of paying out on a greater number of fraudulent claims. Unlike large companies that can absorb some losses as a part of doing business, small companies quickly suffer the negative effect on net earnings when paying fraudulent claims. Then again, processing insurance claims too slowly increases the risk of losing dissatisfied customers. In a highly competitive insurance market, small companies can't afford to lose customers.
Monitoring costs throughout the claims management process determines how much of a customer’s premium rate goes toward paying for the insurance company’s administrative costs. Generally speaking, when settling a claim is delayed, it costs the insurance company more money. The higher claim costs reduce profitability. For small and large insurance companies alike, automation of some of the claims management process can help decrease a company’s operating costs. One example is the increased cost of investigating a claim manually. Information technology systems, though, improve efficiency by decreasing the number of claim errors, detecting fraud early and reducing the time it takes to process and settle a claim -- all factors that cut an insurance company’s costs and increase profitability. Even in a healthy economy, running a small business can be tough. Other essential functions of the claims management process that can reduce costs include developing programs directed at preventing claims before they occur and avoiding future claims.
In most cases involving insurance claim disputes, the insurance company eventually agrees to pay an equitable amount if a customer has a legitimate claim and can present evidence supporting it. Although quickly settling a claim can avoid the chances for litigation, accurate liability assessment is crucial to achieving a quick resolution in a claim dispute. Insurers work to evade litigation because it substantially increases the company's cost of settling a claim. For instance, one-time cases where a person misrepresents information he provides on an insurance application can be expensive for an insurance company to prove legally. Causing a company financial loss is another reason to avoid litigation. Small insurance companies are not immune but rather are increasingly exposed to potential litigation involving claim disputes.
https://www.vanameyde.com/what-is-claims-management/
https://www.workfusion.com/blog/top-use-cases-for-automation-in-insurance/
Best use cases for automation in the insurance industry One of the critical factors for the success of automation in the insurance industry (and any other industry, for that matter) is selecting the correct use cases. There are several common insurance use cases where the implementation of intelligent automation can provide tangible results quickly and offer room to scale in the future. Let’s review some of these use cases and intelligent solutions available.
Best use cases for automation in the insurance industry
- Claims processing
Fast and efficient claims processing is paramount to success for insurance companies — yet it’s often a time-consuming, highly manual process that’s frustrating for both insurers and customers. Typically, claim processing takes several days as insurance agents have to gather and check data from multiple sources, such as:
medical certificates and reports (in case of life insurance or health insurance claims) photos of damaged baggage and flight boarding passes (in case of a travel loss claim) police reports, driver’s licenses and vehicle damage photographs (in case of an auto claim) It may take even more time due to human errors, like mismatched financial data or customer details. Such delays may result in the loss of customers and other financial and reputational damage to the company.
Implementing an automated claims processing workflow, including claims intake, assessment, and finally, claims settlement, eliminates friction and cost by combining RPA, machine learning, and human expertise to streamline and speed up claims-related operations.
For example, when processing a First Notice of Loss request, an RPA bot would extract the information from the request and enter it into the claims system. If the claim is complete, a cognitive bot would validate its information and mark it approved for payment. If there is missing data, the task is routed to an agent to perform, and the bot observes how the agent handles this exception and “learns.” When the agent returns the claim to the workflow, a bot automatically sends the verified request for payment.
Automated claims processing reduces the amount of manual work by 80% and improves accuracy significantly, cutting down the time necessary for the process by 50% — which allows companies to process twice as many claims with the same personnel. As a result, customer experience is improved as the back office functions are performed fast and with fewer errors, delays, and annoying back-and-forth communication with customers.
- Policy management
One more common insurance use case for Intelligent Automation is the whole cycle of policy management operations, including policy issuance and updates.
At the stage of policy issuance, pre-underwriting checks have been done, and the underwriting decision has already been made. The policy has to be issued, and information needs to be updated in internal systems and communicated to the customer. All these processes involve a lot of manual work. Pre-built RPA and AI use cases can be used to automate insurance policy issuance, thus significantly reducing the amount of time and manual work required for it.
Existing policy-holders can submit various update requests, such as address change or update of bank mandate. Insurance automation solutions for policy updates use machine learning to extract inbound changes from voice transcripts, emails, faxes, or other sources and make all required changes in the documents and internal systems.
A broader application of automation in insurance policy management can help transform other document-intensive operations, including the processing of loss run reports, analysis of the statement of value reports, communicating explanations of evidence of insurability to customers, and other processes.
- Regulatory compliance
Insurance companies have to comply with a significant number of regulations. Amendments to these regulations often force insurers to reorganize their business processes to adapt. Compliance breaches result in financial and operational damages to companies.
Intelligent process automation in insurance is the key to helping companies improve compliance because this eliminates the need for human personnel to go through a legion of routine manual operations that are highly prone to errors and, therefore, raise the risk of compliance breaches. AI-based insurance automation solutions ensure the accuracy of data and maintain a complete log of their actions. This data allows insurance companies to monitor regulatory compliance in real time through internal reviews and be prepared in case of external audits. A few examples of time-consuming manual work that AI-driven RPA can automate include client research and validation of customer data, compliance checking, customer data security operations, and generation of regulatory reports and notifications.
- Underwriting
Underwriting is another insurance use case that is ripe for automation. It involves gathering and analyzing information from multiple sources to determine and mitigate the risks associated with the chosen policy, for example:
Health risks. Mortality charges, and hence, premiums, will go up in cases where an applicant is a smoker, especially when weighed against their current age. Financial limits. If the net worth of the applicant today is $X, their insurance coverage (death benefit) cannot exceed, say, $10X. Creditworthiness. What is the credit rating of the applicant, as per external agencies such as Experian or TransUnion CIBIL Limited? Duplicate policies. Does the applicant already have a policy in their name?