Insurance 101: Claim Processing

The average person files an auto insurance claim about once every 17 years (side note: who is this average person? Because we haven’t met them!) Homeowners file insurance claims a bit more often, about once every nine or 10 years. Stated differently, around one out of every 20 insured homes has a claim filed on it each year. 

All in all, between home, auto, life, disability, flood, and other common policies, chances are high that anyone reading this has filed a claim at least once in the last several years. And that isn’t even taking into account health insurance, where we’re all likely filing claims on a monthly basis, when it comes to routine care and prescription drugs. 

Claims may be the most visible and the most hated part of insurance for most consumers. Many laypeople believe claims are what the insurance industry wants to avoid paying. The truth is, the claims process is highly regulated by most states to ensure protection for consumers. It is (or should be) the provisions of a policy and the facts of a claim that dictate whether it’s paid or not. It’s not about the whims of an insurance company employee. In this article, we’ll dig beneath the surface to answer some common questions about claims and claim processing. If you’re interested in learning more about how artificial intelligence is making the claims process even fairer to consumers, we’ve got an article on that, too! 

The claim processing process

The lifecycle of a claim begins when someone believes they have been subject to a loss that’s covered by an insurance policy. A person, business, or legal entity working on their behalf files a claim to the carrier of an insurance policy. 

Anyone who thinks they are owed compensation for damages may submit a claim. It doesn’t have to be the policyholder or insured entity. Whether or not the claim ever sees the light of day depends on whether it falls within the bounds of what the effective policy promises to cover. Assuming a claim is valid and the person asking for compensation has a right (under the policy) to be reimbursed for damages, the claim is paid. 

Defective or clean claims

Once a claim is submitted, insurance company employees check it for “defects.” A defect can be any number of things: missing or incorrect facts, dates of loss that are outside the effective dates of the policy, or losses caused by specific policy exclusions, among others. 

A clean claim is one the company finds to have no defects and will ultimately be paid. Some insurance carriers are known for being more lenient in their claims processing, while others are known to be stricter. Most consumers know the pain of running around in circles with an insurance carrier trying to provide every bit of information they’re asked for during the claims process.

Ultimately, insurance companies have to balance the cost of multiple rounds of administrative review against the cost of accepting imperfect claims. Doing the latter can save administrative costs and make the process simpler for customers, which leads to higher satisfaction and customer retention. 

The long and winding claims process

In a best-case scenario, claims can be approved in a matter of days. Sometimes, such as in the case of health insurance, a claim can be pre-approved before the insured incurs a cost. In the worst case, claims can take years to be paid and can go through extensive legal battles. Sometimes, an insurance company will pay a claim on behalf of their insured, only to spend years trying to recoup the cost of that claim from another insurance company that’s actually responsible. This process is known as subrogation.

The real costs of an inefficient claims process

Getting claims paid quickly and without a lot of hassle is a top concern for consumers when they choose an insurance company. Claims that last forever or go through endless rounds of requests for additional information are frustrating for the insured as well as for insurance professionals who would just like to be able to serve their clients without a lot of red tape. 

Having an outdated, slow, and cumbersome claims process can cost an insurance company (and its appointed agents) time, money, and business. It’s easier and more profitable to retain a client than it is to replace a lost customer, yet consumers cite bad customer service and difficult claims processing as major reasons for switching insurance carriers.  

How to improve claims processing 

Technology isn’t the only way to make the claims process quicker, easier, and involving less gray hair for your employees and clients; it’s just the best way to do so. Investing in a robust tech stack at an insurance company or insurance agency can help make both employees and clients happy by streamlining processes and requiring less manual effort from all sides. 

If streamlining your producer licensing and compliance process, and making it less complicated is also on your to-do list, AgentSync can help. See AgentSync in action today.