It’s 2030, and you’re driving to work on a miserable winter’s morning. So your phone sends you an alert to suggest a route that avoids icy roads. Even so, you suffer a fender bender. Sensors note the accident, and send the information to your insurer. A message pops up asking what happened, and then reminding you of next steps. The company does a virtual appraisal and makes an initial assessment of liability; it also provides options for car rental and repairs. A repair agreement that is part of your policy takes care of the details, and the payment. You’re back to your routine in a few days. The process has been integrated, transparent, seamless—and as painless as such an incident can be. That is the future of claims.

Processing claims has always been at the heart of insurance, and that won’t change. What will change is how it is done. COVID-19 forced the pace: As early as July 2020, a survey of 800 executives across industries showed 85 percent said they had increased the digitalization of employee interactions and engagement. Just about everyone has invested in automation, artificial intelligence (AI), and advanced analytics. That is why we believe that the industry is about to enter a new era of claims management. But there is still a long way to go. According to our research, only one in five claims executives said they had made “significant progress” and 54 percent reported only “moderate progress.”

There are four priorities.

Keep the human touch, but back it up with digital assets. Yes, digitization and AI will become even more important, but people still matter most. In general, machines can take care of simpler claims with predictable characteristics and patterns, such as an auto accident in which only the car is hurt. The technology to do this already exists, and many companies have made significant progress in developing fully-integrated mobile solutions and claims portals. The most advanced can adjust the claims journey to the needs of the customer from moment to moment. The next evolution is to equip adjusters with the right technology so that they can provide the best service and an accurate outcome. Eventually, for simple claims, adjusters will focus mostly on the experience, while AI takes care of the technical elements. For example, medical-treatment analytics can alert an adjuster that a claimant has not completed some necessary treatments.

The sweet spot is to create a “digitally enabled human touch”—combining the strengths of technology and of human judgment and eliminating the blind spots in each.

Personalize the claims experience. Insurers need to offer their customers as good an online experience as they are used to in retail and search. There is a generational component to this. “Digital natives”—meaning those now about 40 years old or younger—expect seamless, omnichannel, and real-time interactions. Many older people also value this, of course. But everyone values human connection, and sometimes people just want to talk. Companies need to be able to serve all these needs.

To serve all customers, the overarching principle is to personalize the claims experience, while offering omnichannel service. Personalized experiences can come in many forms. A customer might start with online research and go on to getting face-to-face advice, perhaps through teleconferencing. Or a property owner may visit an online hub to check out videos of a roof repair and then communicate directly about damage that requires further attention.

In this context, the entire claims customer journey will need to be rethought to allow customers to choose how and when they want to interact with their insurers. Successful carriers will create a better experience that meets customers’ changing expectations, while also streamlining claim operations.

Reimagine the claims ecosystem. Insurance companies have traditionally focused on protecting themselves from downside risks and meeting regulatory requirements. That will continue to be important, of course, but the carrier of the future might want to focus less on risk transfer and more on risk mitigation—that is, preventing claims before they occur. In the new claims ecosystem, carriers would have access to real-time risk detection. In the bleak midwinter, for example, building sensors could alert owners and insurers that temperatures are dropping and order smart thermostats to turn up the heat to keep the pipes from freezing. Hurricane shutters could be automatically dropped based on third-party weather predictions. Sensors imbedded in clothing could nudge workers to take breaks. Expanding the claims ecosystem could also help insurers move into adjacent areas, such as preventive maintenance, allowing them to develop longer, deeper customer relationships. An insurer could even assist customers with used-car purchases to help them select a well-maintained vehicle.

This transition from management to mitigation will fundamentally change the relationship between insurers and customers, and is itself fraught with risk, for example in regard to data confidentiality and personal privacy. Insurers will need to tread carefully. But those that can expand their role from processors of claims to integrators of data and insights may be able to find new sources of value as they are playing a broader role in the ecosystem.

The place to start is by assessing the company’s strategic priorities. Leaders can then map the specific activities that will change by role and use their findings to develop programs to transition individuals. As digitization advances, claims handlers and quality assessors will need to know how to validate algorithm output and help the algorithm to learn and evolve, and claims technology-product owners how to infuse technology and data science into the claims process. Individuals in these roles will need deep claims-process experience, good pattern recognition, and fluency in technology.

There is a place for external hiring in a talent strategy, but this can be expensive. Reskilling can be cheaper, and it also helps to keep teams engaged. Many current claims handlers will already have capabilities in critical areas; building their skills can be an efficient, and greatly appreciated, way to develop talent. For example, some companies have established talent accelerators that offer training to current employees to expand their skills and equip them a specific role of the future. Then they are staffed onto project teams where they gain real work experience.

Innovation is accelerating throughout the insurance ecosystem; the boundaries of the possible are continually expanding. For both productivity and profitability, insurance carriers will need to reconsider their traditional operations and think more like modern tech companies.

As the story that started this article demonstrates, the benefits of improved claims processing are substantial—not just in terms of financial performance for insurance companies, but also for customers, employees, agents, vendors, and the broader community. Getting to that point is not a matter of a tweak here, and a new capability there, but of ensuring that technology and the business work together to see the whole process differently as they adapt to changing consumer preferences. Doing this will require reimagining the claims process from beginning to end.

Elixabete Larrea is a partner in McKinsey & Company’s Boston office. Kristen Ganjani is a partner in McKinsey’s Chicago office.

About Elixabete Larrea and Kristen Ganjani


Elixabete Larrea is a partner in McKinsey & Company’s Boston office. Kristen Ganjani is a partner in McKinsey’s Chicago office.