How can car insurance companies save 50% on the cost of claims?
Buying a vehicle in the Indian company is always a party. However, this celebration cost preliminary expenses and subsequent maintenance costs. People try not to incur losses and expenses or have their vehicles covered. We all choose our insurance policy wisely to get maximum coverage under one umbrella. While this is a blessing for all vehicle owners, it may not be the case for insurers.
The ratio of claims incurred (net amount paid in claims/net premium received) is over 90% according to the latest IRDA report.
This means that insurers have less than INR 10 for every INR 100 premium collected to run all of their operations and overheads. This situation is very worrying and has therefore left a very limited margin for insurers to invest more in technologically advanced mechanisms to manage claims. We can understand these problems in 3 ways, high cost or repairs, leaks and operational inefficiencies.
The cost of repair shouldn’t be a hole in your pocket. In the event of an unfortunate accident of the car with an accident, the driver (insured) usually has 3 choices, either look for the dealer of his brand of car nearby, or call an insurance company, or take the car to his known garage . According to the insurer, around 70-80% of cases prefer the first choice and drop off the car at the brand’s dealership assuming they will handle the full execution. Some 10-15% call the insurance company and the rest fall into the third category.
This leaves insurers with virtually no choice but to pay the high cost of repairs at dealerships who would prefer replacement parts to repairs, which are usually very expensive. Garages with similar infrastructure can complete the same repair with at least 30% lower labor costs because they don’t have to subsidize the high overhead of the dealership sales channel.
If the insurer could create competition among repairers, it could optimize the cost of repair by keeping the customer experience close and save costs by at least 15% of the total bill (assuming labor work and parts are distributed 50-50).
For example, Maruti Ciaz door paint costs around 4500 at a Maruti garage compared to around 3000 at a well-established multi-brand repair shop.
There are startups in this space working on this execution with a no-frills approach to ensure that good repair services are available at a great price. Insurers could benefit from such actors.
Gaps in the eco-insurance system have led to leaks. Operational leaks are only prevalent due to system inefficiencies. Inflated invoices, exaggeration of the scope of work and preference for replacement over repair are just a few examples. We had to come across a situation where the service advisor promises to have parts of the car repaired/replaced even if they are not part of the accident. This allows the garage to earn more money, and therefore a loss for the insurance company.
These leaks must be stopped through the use of technology. If the assessment of losses is carried out correctly, it is estimated that the cost of the loss will directly decrease by 20%. This will impact parts replaced and repaired.
West’s insurers have already adapted to more AI-driven solutions for claims assessment and approval processes. Some of the insurers in India are also adapting to the same and seeing the benefits.
In the current operating process, accidental claims are generally approved by a physical inspection of the vehicle by an in-house insurer expert or a third-party appraiser. This limits the number of surveys and therefore approvals that can be completed in a given time period. This can be enhanced by using technologies such as live video streaming and image data sharing platform to determine the extent of damage/loss. Now, since a surveyor can perform many more ply surveys than before, and therefore approve them, this not only saves costs, but also improves the customer experience, as work on the vehicle can be finished earlier.
Another aspect is the standardization of the document flow from the insured to the garage via the insurer. A transparent flow will ensure the absence of duplicity and a smoother flow of information.
The auto insurance claims process has been the same for decades; it’s time for that to change. Third-party administrator (TPA) type structures, very present in health insurance, must also make way for car insurance for the overall benefit of the ecosystem.
We should all work towards building an ecosystem where the insurer and the insured should save time and money and use it on their other products.
The opinions expressed above are those of the author.
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