Welcome to our online seminar on​

“Claims Inflation: Insurers’ Way Out of Despair”

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 1
Image: Munich Re - Marcus Buck
Today’s Speakers

Maytal Almagor-Barda Lea David

Head of Section Senior Engagement Manager
MGA & TPA Claims Insurance Solutions, Global Consulting
MAlmagor-Barda@munichre.com LDavid@munichre.com

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 2
Agenda

Global Inflationary Effects on Primary Ways to Tackle Outlook on insurers’

Trends Insurance Companies Claims Inflation claims challenges and
how MR can support

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 3
Insurance claims ecosystem is constantly evolving
Major trends in claims
Not exhaustive

Data Exploitation & Automation

Increasing (need for) connectivity of tools, systems and
databases to master huge amounts of data and reach
next-level of claims automation and sophistication.

Fraud 2.0 Claims Inflation

Newly emerging threats and fraud
Financial and operational pressure and
patterns, fuelled by AI and economical
challenges reinforced by increasing
challenges, on top of “traditional” fraud.
inflation.

The Power of AI & ML Future Workplace & Workforce

Seemingly unlimited use cases challenge the Increasing shortage of skilled labour across
human touch and shift it towards new / other regions and countries & the shift to a new way
areas, such as ChatGPT for claims of (hybrid / remote) working.
processing and fraud detection.

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 4
Global
Inflationary
Trends

01 Image: John Lund / Getty Images

Our definition of claims inflation
The causes of claims inflation

Causes

Changes in claims frequency1

Changes in claims severity

Changes in legislation1

Changes in cover/wordings1

1. Not in scope today Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 6
Claims inflation is driven by a complex mix of causes
Drivers of claims inflation
Not exhaustive

Changes in claims severity

Macroeconomic Supply chain Claims management

factors distortions deficiencies

 Wars and sanctions  Goods shortage (e.g., spare parts)  Unsatisfactory claims processes
 Consumer price movements  Long repair times  Lack of automation, reliance on manual tasks
 Energy & commodity price movements  Lack of replacement cars  Lack of fraud detection tools
 Financial market movements  Fuel shortage in 2021  Lack of suitably skilled employees
 Covid-19  Increase of fees for service providers on labour market

 De-globalization  Expensive technological  Outsourcing claims to TPAs without

advancements systematic monitoring process
 Climate change (more severe weather events)
(e.g., EVs, ADAS components)  Misalignment of interest between TPAs/MGAs
 Increase in theft and fraud and carriers
 Shortage of semiconductors
 Interest rates
 Wage increases
 Cargo delays

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 7
Claims inflation is driven by a complex mix of causes
Drivers of claims inflation
Not exhaustive

Changes in claims severity

Macroeconomic Supply chain Claims management

factors distortions deficiencies

 Wars and sanctions  Goods shortage (e.g., spare parts) 1  Unsatisfactory claims processes
 Consumer price movements  Long repair times  Lack of automation, reliance on manual tasks
 Energy & commodity price movements  Lack of replacement cars  Lack of fraud detection tools
 Financial market movements  Fuel shortage in 2021  Lack of suitably skilled employees
 Covid-19  Increase of fees for service providers on labour market

 De-globalization  Expensive technological 2

 Outsourcing claims to TPAs without
advancements systematic monitoring process
 Climate change (more severe weather events)
(e.g., EVs, ADAS components)  Misalignment of interest between TPAs/MGAs
 Increase in theft and fraud 3
and carriers
 Shortage of semiconductors
 Interest rates
 Wage increases
 Cargo delays

Deep dives on the following slides

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 8
We want to know your thoughts…

What is the main

driver of claims inflation
within your organization

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 9
 2 3
1 Goods shortage (e.g., spare parts)

Recently strong spare parts demand across the globe

Spare parts inflation

Country-level comparison of spare parts inflation: YOY change [%]

9% U.S.
UK
7% Germany
China
5% EU
Australia
3%

1%

-1%

-3%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: Fred St. Louis Fed, U.S. Bureau of Labor Statistics, ECB, UK Office for National
Statistics,https://data.stats.gov.cn/easyquery.htm?cn=A01&zb=A010D0U&sj=202204 Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 10
 1 3
2 Expensive technological advancements (e.g., EVs, ADAS components)

Semiconductors’ importance increases over time

Growth of semiconductor sales over time

Semiconductor sales worldwide [bn USD]

700

600

500
CAGR
8.7%
400

300

200

100

0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: Statista | CAGR = Compound Annual Growth Rate Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 11
 1 2
3 Increase in theft and fraud

Claims from auto theft spiking since Q3 2020

Volume of claims from auto theft over time

Quarterly number of auto thefts by total and partial thefts

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021

Total Theft Partial Theft Covid

Source: Verisk Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 12
Our definition of claims inflation
The causes of claims inflation

Causes

Changes in claims frequency1

Changes in claims severity

Changes in legislation1

Changes in cover/wordings1

1. Not in scope today Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 13
Claims severity can be controlled
Claims inflation broken down

Contributors to severity that can be controlled

Causes

Changes in claims frequency1

Claims
Allocated Unallocated expenses
loss adjusted loss adjusted
Changes in claims severity expenses expenses

Changes in legislation1
Claims
incurred
Payments Reserves2
Changes in cover/wordings1

1. Not in scope today

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 14
2. Also depending on the insurers’ reserving policies and regulatory / legal requirements
Effects on
Primary
Insurance
Companies

02 Image: John Lund / Getty Images

Increasing claims severity as main sign of claims inflation
Deep dive Germany: Motor claims severity

Development of average claims severity per cover/peril1 (2020–2021, in EUR)

Third Party Liability Motor Own Damage Primarily driven by

electronic and other parts
20,000 +14% 3,500 3,500
+14% 1,400
+18% +36%
3,000 3,000
1,200
15,000
2,500 2,500
1,000

2,000 2,000
800
10,000
1,500 1,500
600

1,000 1,000 400

5,000

500 500 200

0 0 0 0
2018 2021 2018 2021 2018 2021 2018 2021

Bodily Injury Property Full Partial

comprehensive comprehensive

1Without loss adjustment expenses

Source: GDV, Kraftfahrtversicherung 2021, Schadenartenstatistik Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 16
US’ high levels of inflation apparent in Motor insurance
Deep dive US: Motor claims severity

Development of average claims severity per cover/peril (2018–2021, in USD)

Third Party Liability Physical Damage

24,000 +33% 6,000 2,400 6,000
+24%
+4% +42%
20,000 5,000 2,000 5,000

16,000 4,000 1,600 4,000

12,000 3,000 1,200 3,000

8,000 2,000 800 2,000

4,000 1,000 400 1,000

0 0 0 0
2018 2021 2018 2021 2018 2021 2018 2021

Bodily Injury1 Property1 Comprehensive2,3 Collision

1Includes loss adjustment expenses, 2 Excludes wind and water losses, 3 Includes glass losses
Source: iii, Facts + Statistics: Auto insurance Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 17
Inflation amplifies existing challenges
Impact of claims inflation

Impact of claims inflation on primary insurers Illustrative

Performance of claims organizations

Above
average

Existing struggles & challenges

become more severe

Below
average

Time
= impact of inflation
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 18
Claim organisations need to balance three pillars…
Key pillars of claims organisations

Effectiveness Customer experience Efficiency

to improve claims handling and reserving to increase customer satisfaction to improve processes & reduce claims
quality & reduce claims paid, e.g., by & reduce churn, complaints etc., e.g., by expenses, e.g., by

 Experienced claims handlers  Transparency  Streamlined/automated processes

 Seamless user experience for claims team  Simplicity & self-service  Anti-fraud mechanisms
 Availability of information  Personalized experience  Data driven decisions
 Clear guidelines  Short claims lifecycles

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 19
…especially when tension arises across the organization!
Key pillars of claims organisations

Effectiveness Customer experience Efficiency

might suffer from… might suffer due to… might be difficult to be maintained due to…
 Lack of personal internally and externally  Longer repair times  Process deviations/workarounds
 Increased workload  Insufficient claims resources  Decrease employees’ productivity
 More complex claims  Planning uncertainty  Limited IT investments (less automation)
 Decrease in IT investments  Exhausted deductibles  Dependency on outsourcing

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 20
Ways to Tackle
Claims Inflation

03 Image: John Lund / Getty Images

We want to know your thoughts…

Have you taken

measures against
claims inflation
already

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 22
We suggest a two-step approach to counter claims inflation
Toolbox to counter claims inflation

1 2
Selected use cases on following slides

Detection Action

Claims portfolio 1
analysis & monitoring

3
Internal

5
External
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 23
 2 3 4 5
1 Internal – Detection

Established Asian Insurer lacking Claims portfolio insights

Project reference case: Claims portfolio analysis & monitoring

1 Initial situation 2 Solution approach 3 Outcome

 Steadily growing Motor insurance  Design and creation of Claims business  Enabled the client to view and analyze
business and claims volume intelligence suite: their Claims portfolio and process to
take data-driven actions
 Little claims automation but rather  Own/third-party assessment
manual processes (assessors and garage analyses)  Exemplary, non-exhaustive outcomes:
 Lack of monitoring and analytical  Fraud monitoring (collusion networks,  Identified under-/outperforming
tools to analyze financial or operation fraud rules etc.) own/third-party providers to better
Claims KPIs steer and manage claims
 Lifecycle analysis (lag analysis,
garage mapping etc.)  Identified additional fraud patterns to
be included and stakeholders to be
blacklisted
 Identified slow, costly steps in the
claims’ lifecycle

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 24
We suggest a two-step approach to counter claims inflation
Toolbox to counter claims inflation

1 2
Selected use cases on following slides

Detection Action

Claims portfolio 1
Claims committees
analysis & monitoring

3
Internal UW-Claims feedback loops Pricing review

2
Market analyses

5
External
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 25
 1 3 4 5
2 External – Detection

MR’s Insurance Intelligence Platform helps to observe patterns

Project reference case: Market analyses

1 Initial situation 2 Solution approach 3 Outcome

 Clients lack the ability to readily view  Development of Munich Re’s Global  Client’s ability to monitor, analyze and
and analyze comprehensive market Motor Insurance Intelligence Platform compare key insurance facts and
data in a user-friendly format (GIMLI) figures across countries
 Difficult to find similar figures (UW,  In-depth view on standard regional and  Easy-to-use platform with all relevant
pricing, claims) for different markets market facts and figures data readily at hand
 Lack of visibility on regional trends and  Deep dive into year-on-year  Ability to detect trends and patterns to
comparability to other markets comparisons of UW and claims potentially take responsive action
results (split by different coverages and
vehicle types)

1. Definitions and/or KPIs might vary slightly across markets, if so, a disclaimer would indicate the nuances Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 26
We suggest a two-step approach to counter claims inflation
Toolbox to counter claims inflation

1 2
Selected use cases on following slides

Detection Action

Claims portfolio 1 Proactive claims

Claims committees UW-Claims feedback loops
analysis & monitoring management

3
Internal UW-Claims feedback loops Pricing review Fraud detection measures

2
Market analyses External provider monitoring

5
External
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 27
1 2 4 5
3 Internal – Action

Pan-European insurtech with insufficient anti-fraud measures

Project reference case: Fraud detection measures

1 Initial situation 2 Solution approach 3 Outcome

 No fraud strategy, committee, guidelines  In-depth analysis of status-quo  Created a company-wide culture of
or specifically trained claims handlers fraud awareness through the creation of
 Recommended the establishment of a
the fraud committee and strategy
 Mix of basic, system enabled triaging fraud committee
and manual fraud detection  Created a set of specific, targeted fraud
 Guided the writing of a fraud strategy
triage rules and established a scoring
 Lack of historical fraud data to enable and guidelines
system
a data orientated approach to fraud
 Optimized anti-fraud processes
detection  Developed a consistent approach to
 Defined additional fraud triage rules and claim fraud detection and handling
 Limited anti-fraud processes
a more advanced scoring mechanism
 Created a rich source of fraud claims
 Suggested additional fraud data capture data which will further evolve over time
points

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 28
We suggest a two-step approach to counter claims inflation
Toolbox to counter claims inflation

1 2
Selected use cases on following slides

Detection Action

Claims portfolio 1 Proactive claims

Claims committees UW-Claims feedback loops
analysis & monitoring management

3
Internal UW-Claims feedback loops Pricing review Fraud detection measures Rate increase

People management Deductible increase

4
Process optimization

2
Market analyses External provider monitoring

5
External
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 29
1 2 3 5
4 Internal – Action

Established life-player in SEA entering into Motor business

Project reference case: Process optimization

1 Initial situation 2 Solution approach 3 Outcome

 Client planned to enter mass-market  In-depth analysis of status quo &  Defined optimal end-to-end claims
Motor business understanding of local requirements processes
 Lack of Motor insurance and  (Re-)defined end-to-end claims  Defined claims system requirements
operational knowledge processes to…
 Introduced global best-practices to
 Rudimentary, initial processes without …improve process inefficiencies rethink inefficient, legacy processes
consideration of local specifics and
…implement highest share of STP  Highlighted further areas for process or
global best-practices
possible operational improvements
 High organizational targets to become
…match special local requirements (with  Ensured go-live within 4 months only
the most digital Motor player in the
the least manual touch as possible)
region
…ensure global best-practices
 Overall project completed in agile spring
approach

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 30
We suggest a two-step approach to counter claims inflation
Toolbox to counter claims inflation

1 2
Selected use cases on following slides

Detection Action

Claims portfolio 1 Proactive claims

Claims committees UW-Claims feedback loops
analysis & monitoring management

3
Internal UW-Claims feedback loops Pricing review Fraud detection measures Rate increase

People management Deductible increase

4
Process optimization Telematics

Salvage & subrogation

2 Repairer/repair cost Customer journey

Market analyses External provider monitoring
management improvements

Service provider 5
External management
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 31
1 2 3 4
5 External – Action

TPA in Europe – portfolio deterioration control

Project reference case: Service provider management

1 Initial situation 2 Solution approach 3 Outcome

• TPA managing non-life claims in  A deep dive to the claims portfolio  Developed a consistent approach for
Europe was performed by Claims analyst recovery management
resulted in 2 main findings:
• Overall claims severity has been  Over EUR 300,000 were collected
increasing for over 6 months with no  Increase in payments to third party within few months
clear explanation providers, in particular loss adjustors
 Signed a preferred partnership
• Loss adjustment expenses were  Recoveries were not collected for over agreement with one loss adjusting firm,
increasing for over 9 months a year resulting in a decrease of LAE by 15%
 Implemented systematic check of loss
adjuster invoices and work quality

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 32
We want to know your thoughts…

From those who have

already taken measures
against claims inflation,
which ones did you implement

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 33
Outlook on insurers’
claims challenges
and how MR can
support

04 Image: John Lund / Getty Images

Insurers’ challenges appear along the entire claims lifecycle
Major pain points of primary insurers
Not exhaustive

Strategy Analytics Prevention Notification Registration Assessment Reserving Settlement Subrogation

Legacy Limited, inconclusive Historically grown team

Legacy IT & processes & Management structures &
data models workflows Information controls

Lack of strategic Analytics detached Inexperience with Underestimation

direction & from claims selecting & managing of fraud
alignment domain knowledge Third Parties

Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 35
Focusing on major pain points along the claims value chain
Munich Re Claims Consulting offer

Technical & Strategic Advisory Operational Excellence Claims Analytics

Growth & Expansion | New Line of Process optimization | Claims Guidelines | Descriptive (Monitoring, Reporting,
Business | Due Diligence | Claims Organisational Design | Global Best Practices Data Management) & Predictive Analytics
Reviews & Audits

Counter-Fraud Management MGA/TPA Management Various

Fraud Strategy & Governance | Guidelines | MGA Set-Up | TPA Selection, Large BI Claims | Complaints Management |
Training | Roles & Responsibilities | Onboarding, Monitoring or Run-off (CMS) Vendor Selection & Management
Data & Tech

We deliver unique, technical expertise in primary insurance claims via hands-on, tailor-made consulting
services, improving portfolio performance & assisting our clients achieve claims operational excellence.
Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 36
Image: John Lund / Getty Images

Thank you
for your attention!
Disclaimer

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Munich Re Online Seminars 2023 - Claims Inflation: Insurers’ Way Out of Despair 09 March 2023 38