The Loss Adjusting and Third-Party Administrator (TPA) market stands at a crossroads. While its core function of expediting and managing insurance claims remains essential, the industry is undergoing a metamorphosis driven by powerful mega trends. Understanding these trends is crucial for Loss Adjusters and TPAs to navigate the evolving landscape and thrive in the years to come.
1. Technological Transformation: The digital revolution is fundamentally altering how claims are handled. Automation is capable of streamlining repetitive tasks like claim notification and initial claim assessments. Artificial intelligence (AI) is increasingly being harnessed to expedite claim settlements which increases customer satisfaction, reduces leakage and creates process efficiencies.
These advancements hold immense potential for Loss Adjusters and TPAs but they also create risk for their business models. High volume, low complexity cases are increasingly automated. As a result insurers that embrace this technology can use their in-house Claims Handlers to handle work that would previously have been sent to Adjusters. On the other hand Adjusters can themselves use technology to improve efficiency and reduce turnaround times whilst enhancing the customer experience.
As the commercial world becomes more connected supply chains become more inter-dependent and as a result claims become more complex. New risks are emerging as AI develops at pace eg Cyber. All of which means the requirement for expertise-led Loss Adjusting is likely to increase.
2. The Return of Inflation: Despite signs that inflation is now receding the geopolitical uncertainty that persists means the battle can not be said to have been won just yet. The past few years of double digit price increases across major economies has driven up the cost of claims both in terms of repairing and replacing damaged property as well as handling expenses. Existing sums insured might not adequately cover replacement values and the risk of potential fraud cases has increased. These factors lead to more complex investigations and settlement negotiations.
At the same time the costs for adjusters have increased in line with the wider economy. Fees may have been negotiated prior to the uplift in inflation and could be fixed until the next review date which might be a year or two away.
3. Climate Change and Catastrophe Risks: The increasing frequency and severity of extreme weather events due to climate change are placing a significant strain on insurers and their suppliers. Wetter winters and dryer hotter summers mean that claims for flood, storm and subsidence are all increasing. 2023 was the fourth year in succession that global insured losses from natural catastrophes exceeded$100bn. In the UK there have been 10 named storms in the 2023/’24 season and storms Babet, Ciaren and Debi (Oct and Nov 2023) are estimated by the ABI to have generated 48750 claims at a cost of £560m to the insurance industry. The 10 hottest years since 1884 have all happened since 2002 and according to Go Compare the number of household insurance proposals with previous subsidence issues have increased by 299% over nine years.
These events create huge short term spikes in the demand for resources to handle claims alongside the consequences for the supply chain such as availability of drying capacity, alternative accommodation and availability of building contractors. Most firms can mobilise additional resource for the affected area at the very outset and have arrangements in place with partner suppliers to respond at short notice. However the increasing frequency of events, is starting to put pressure on this finite flexibility and there has to be a question as to whether the model is fit for a future where massive seasonal spikes in claims demand are the norm rather than the exception.
4. The Rise of the Sharing Economy: The Global sharing economy, encompassing services like peer-to-peer accommodation and car-sharing is forecast to grow more than five-fold from $149bn to $793bn from 2023 to 2031(Statista – Jan 2024). These new business models often require novel claims handling approaches. TPAs can adapt by developing specialized expertise in handling claims unique to the sharing economy, such as gig worker accidents or disputes between property renters and sharing platforms alongside technology to support their unique needs as well as capturing data that is bespoke to the needs of the platform provider.
5. Evolving Regulatory Landscape: The regulatory environment governing insurance is constantly evolving. Loss Adjusters and TPAs must stay abreast of these changes to ensure compliance. This includes regulations around data privacy, cybersecurity, Consumer Duty and anti-money laundering. Demonstrating a strong commitment to compliance can be a differentiator for TPAs, fostering trust with insurers and policyholders.
6. The Talent Conundrum: The insurance industry as a whole faces a looming talent shortage. The TPA and Adjuster market is no exception with many experienced Adjusters and Claims Handlers nearing retirement. Attracting and retaining top talent is critical for TPAs and Loss Adjusting firms. This necessitates creating a positive work environment, well defined and visible D&I policies, competitive compensation and benefits, and investing in training programs to develop the skills of the next generation of adjusters.
The Road Ahead
These mega trends paint a picture of a dynamic and challenging Loss Adjusting and TPA landscape. However, amidst the disruption lies immense opportunity. By embracing technology, upskilling their workforce, and adapting to new market demands, TPAs and Loss Adjusters can continue to position themselves as indispensable partners to insurers in the years to come.
Key Considerations for Success:
Invest in Technology: Embrace automation and AI/augmentation tools to streamline processes, improve customer service, reduce costs and free up adjusters for complex tasks.
Develop Specialist Expertise: Cater to the unique claims needs of emerging sectors like the sharing economy and the complex risks associated with an increasingly connected world
Become Catastrophe Ready: Build expertise in handling large-scale catastrophe claims efficiently by creating a fully flexible workforce coupled with supporting technology which is responsive to short term demand changes
Prioritize Compliance: Stay updated on evolving regulations and demonstrate a strong commitment to compliance.
Nurture Talent: Create an attractive work environment, offer competitive compensation, and invest in training programs.
By proactively addressing these trends and considerations, Loss Adjusting firms and TPAs can not only survive but thrive in the evolving insurance claims landscape. They can solidify their role as trusted advisors, ensuring efficient and fair claim resolutions for policyholders and a sustainable future for the industry.
Mike Jones
Independent Consultant
April 2024
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