1. Claims Session 4 Innovating to Win 2013 Customer Advisory MeetingTHE NOLAN COMPANYPresented to:Presented by: Dennis Sullivan Chairman and CEOSteven Callahan Practice DirectorSeptember 18, 2013

2. Industry Faces Challenging Times Life Insurance OwnershipInvestmentsPC Claims SeverityRegulationCompetitionMarket Exits Technological Advances2LexisNexis 2013 CAM: Innovating to Win 3. Combined Ratios Dont Deliver The Same ROE Combined Ratio / ROE 18%15.9%110106.414.3% 12.7%105 10097.510.9% 101.0100.6 100.1 100.8 9.6%99.395.7957.4%92.78.8%15%100.9100.07.6%12% 9%6.6%4.4% 4.6%906% 3%85 80A combined ratio of ~100 generated an ROE of ~ 16% in 1979 10% in 2005 7.5% in 2009/2010 6.6% in 20120% 197819792003200520062007Combined Ratio2008200920102011 2012:9MROE*Combined Ratios Have to be Lower in Todays Investment Environment to Generate Same ROEs Source: Insurance Information Institute from A.M. Best and ISO data. 3LexisNexis 2013 CAM: Innovating to Win 4. Auto Claims Trends Indicative of Challenges Average Paid Repairable Severity Trend from 2006 2012: Collisions Claims: $2,900 to $3,000 (increase started 2011, trend at $3,189) Comp Claims (Excl. Glass): $2,250 to over $3,000 Claim Frequency: Collision claim frequency up 17.6% since 2006 Comp claim frequency up 17% since 2005 Medical Cost Inflation: 2002 to 2012 U.S. inflation increased 28%, medical inflation increased 46% Distracted Driving Behavior Impact on Frequency and Severity: Contributes to 16% of fatal crashes, 5000 fatalities/year (11 teen deaths/day) Texting causes 25% of car accidents; 600,000/year with 330,000 injuries/yearNote: The two technologies for the potential biggest reduction in crashes are adaptive headlights and collision avoidance systems if perfected (NTSB). 4LexisNexis 2013 CAM: Innovating to Win 5. Increasing Customer Service Complexity Broader Generational Diversity Increasing Service Complexity The Digital Generations Five Generations of Consumers, consumers Wave Coming - powerful Large New (% of Total Population)High Tech Surge in Social Media Channels5LexisNexis 2013 CAM: Innovating to WinLow Tech Increasing Ethnic Diversity 6. Service Offers Opportunities for Significant ReturnsRed = Lost Revenue / Customer Turnover Yellow = Incremental Revenue, Existing Customers Dark Blue = New Customer Revenue Light Blue = Net Change in Revenue Impact of CEM on Year over Year Revenue Change: Strong Customer Experience Management = Improved RevenueNet Up $84MAverage Net Up $273MBest-In-Class 6 6LexisNexis 2013 CAM: Innovating to WinNet Down $43MLaggards 7. Driving Changes in Service Expectations and Strategies Increasing Customer Expectations Immediacy / 24x7 access Transparency Personal service relationships Language differences Benchmarking performance within and outside the industry Companys Areas of Focus Expanding Accessibility100%Accelerating Service Delivery96%Increasing Hours and Days of Service Availability82%Creating Different Levels of Customer Service63%Aligning Operations with Customer Markets63%7LexisNexis 2013 CAM: Innovating to Win 8. Including an Evolving Service Delivery Model One Size Fits AllIndividualized Service Same service for all segments Segmented customer needs and economic value Over invest in some, under invest in others Investment in service aligned with need/value tradeoff One model to manage across lines and customers Service differentiation varies by segment based on value Differentiation at company level based on brand or channel More models to manage, more challenging Easier to match capabilities, one target to work with Delivery is people based, harder to replicate8LexisNexis 2013 CAM: Innovating to Win 9. And Greatly Empowered Customers Tens of thousands of positive service touchpoints a day, and yet one bad interactionTodays Customer 9LexisNexis 2013 CAM: Innovating to WinAnd suddenly your company is at the top of the tweets list telling thousands followed quickly by a Facebook Unlike Fan Page. 10. Surveys Indicate 4 Key Objectives for 2013 2013 Claims Objectives (low #=top priority) Reduce loss costs1.88Reduce LAE2.18Improve claim reserves2.93Improve customer service 0.003.01 0.501.001.502.002.503.003.50Typical strategies to address these objectives Indemnity 10 LAELeakage reviews File reviews (open & closed) Redefine supervisor role Process redesign Predictive modelingLexisNexis 2013 CAM: Innovating to Win Customer Reengineering/TQM Spans of control Sourcing rationalization STP Lean Six Sigma BPO Contact center redesign Satisfaction surveys Customer involvement 11. With Technological Challenges Claims Systems (Claims Executive Survey):11LexisNexis 2013 CAM: Innovating to Win 12. And Immediate Technological Investment Not Apparent Yet Claims systems still a lower priority in actual funded initiatives12LexisNexis 2013 CAM: Innovating to Win 13. Industry Data Supports Budgets Constraining Solutions4% less increasing, BUT 39% increasing Yes, 4% more decreasingInterestingly, 3% more uncertainty, most coming from the Remain the same responses13LexisNexis 2013 CAM: Innovating to Win 14. Even When Funded Implementation is Complex Technology initiatives continue to face challenges according to survey$-5 of top 6 challenges are people issues (availability, expertise) The other one is budget, the place where people needs solved 14LexisNexis 2013 CAM: Innovating to Win 15. And Alignment of Needs with Approved Initiatives Mixed Process / workflow2.47New technology (all types)Claims Will Be Most Improved By (low #=top priority)3.50Effective claim audits 3.75Improved litigation mgmnt4.58? Increase SIU resources6.67 0.001.002.003.004.005.006.00Claim Analytics7.008.00Claims Initiatives (high #=top priority)52.4%Litigation Mgmnt52.4% 40.5%SIU Effectiveness New Claims System28.6%Mobile Technology 1527.4%LexisNexis 2013 CAM: Innovating to WinEfficiency Technology Audits0.0%10.0%20.0%30.0%40.0%50.0%60.0%Analytics Litigation Mgmnt SIU Effectiveness 16. Innovating to Win Requires Focused Achievability Even with all the amazing options, the foundation must be solid: 1. Claims Processing Systems Built on Best Practices Modular replacement if necessary; stepwise, wrap, LOB, or Bang Integrated and adaptable business rules, distributable (n-tier) Data adaptability, integrity/quality and accessibility2. Ubiquitous Multi-faceted Analytics Straddle claims + underwriting + pricing + servicing + external data Integrated: FNOL, Adjusting, Subrogation, SIU, Recovery, Litigation From workflow to predictive modeling, key to loss management3. Empowered Remote Capabilities 16Customer apps for point of claim FNOL data capture, mobile service Adjuster toolsets: aerial imaging, photo capture, portable rules base, client access, GPS routing & tagging, real-time connectivityLexisNexis 2013 CAM: Innovating to Win 17. 1. Claims Operations Best Practices Resource Management 17Staffing Skillset Models SIU Staffing analysis Productivity Reporting Workforce Utilization Management Structured Change Management Methodology Formalized Communication PlansLexisNexis 2013 CAM: Innovating to Win 18. 1. Claims Operations Best Practices Process Workflow Claim service model design Optimized organizational structure Process workflow analysis / automation tools Claim Unit process interdependence/Interaction maps Claim cycle time minimization Inspection to-repairs-to-settlement cycle time Substitute rental vehicle cycle time & control18LexisNexis 2013 CAM: Innovating to Win 19. 1. Claims Operations Best Practices Financial Analysis LAE expense analysis & trending: Loss cost analysis & trending: Averages / Trends Paid claims, recoveries, leakage Review of vehicle total loss process Direct repair facility evaluation Reinspection process and impact Reserve management: 19Averages / Trends Redundancy / Deficiency Methodology ReviewLexisNexis 2013 CAM: Innovating to Win 20. 1. Claims Operations Best Practices Operations and Service 20Litigation management view Recovery management view Internal quality control process Claim manuals / guidelines Fraud impact / SIU effectiveness trackingLexisNexis 2013 CAM: Innovating to Win 21. 1. Claims Operations Best Practices Vendor Management 21Legal Cost Management Process & Tools Independent Adjusters & Appraisers Medical Cost Containment Providers Medical Bill Review Vendors Damage Appraisal Software Vendors Glass Vendors Direct Repair FacilitiesLexisNexis 2013 CAM: Innovating to Win 22. 1. Claims Operations Best Practices Litigation Management 22Litigation claim file review (sampling) Litigation management program review and analysis Litigation unit staffing / productivity analysis Legal cost containment process review Suit Log process and effectiveness Analysis of suit volume vs. results Pre-suit avoidance techniques Utilization of Alternative Dispute Resolution (ADR)LexisNexis 2013 CAM: Innovating to Win 23. 2. Ubiquitous Multi-faceted Analytics Analytics Contribute Throughout The Process SIUFNOLAssign ClaimEvaluate Claim Fast Track ClaimNegotiate Services23LexisNexis 2013 CAM: Innovating to WinInitiate SettlementUpdate ClaimClose Claim 24. 2. Ubiquitous Multi-faceted Analytics First integrate the automated consolidation of informationExternalConsoldtd Accident RecordsCompiled Social DataSpecialized Contributed DataFNOLInternal24LexisNexis 2013 CAM: Innovating to WinU/W InfoKey Srvce InfoAssign ClaimPrior Claim Info 25. 2. Ubiquitous Multi-faceted Analytics Analytics Starts Workflow: Identify, Segment, Prioritize Optimized Claims Adjudication process. Using data mining to cluster and group claims by loss characteristics (such as loss type, location and time of loss, etc.). Claims scored, prioritized and assigned per experience and loss type. Higher quality, more consistent, and faster claims handling.Adjuster Effectiveness Measurement. Adjusters typically evaluated based on an open/closed claims ratio. Analytics for key performance indicator (KPI) reports of customer satisfaction, overridden settlements and other relevant metrics.Claims involving attorneys = 2X settlement and expenses. Analytics to determine which claims are likely to result in litigation. Assign to senior adjusters to settle sooner and for lower amounts.25LexisNexis 2013 CAM: Innovating to Win 26. 2. Ubiquitous Multi-faceted Analytics Faster Processing: Lower Costs + Happier Customers Analytics help shorten the claims cycle times. Claims cost 40% more if FNOL is delayed by 4 days. Auto accidents take average of 16.2 days to repair and return. Significant expense savings on rental cars, etc. for auto repairs.37%Satisfaction going down CSI of 854 to 828 to 77227%36%JD Power, 20071 wk or less8-14 2007 JD Power, daysOver 2 wksAnalytics drive higher Customer Satisfaction and Lower Costs 26LexisNexis 2013 CAM: Innovating to WinOverall CSI Index% of ClaimantsDuration and Customer Satisfaction are directly correlated. 854 828 772 27. 2. Ubiquitous Multi-faceted Analytics Subrogation Recovery Time Sensitive, yet often SecondaryRecovery RateStd / Pref Non StdReferral Days15% of claims closed with a missed subrogation opportunity How many collisions are paid with no PD payment and no referral to subrogation? Monthly reviews of files closed with no recovery potential identified can yield significant returns 27LexisNexis 2013 CAM: Innovating to Win 28. 2. Ubiquitous Multi-faceted Analytics Subrogation Represents Immediate ImpactSubrogation can be a missed opportunity at several points since it is usually not treated as a priority in claims payment metrics, often falling off radar post payment 28LexisNexis 2013 CAM: Innovating to Win 29. 2. Ubiquitous Multi-faceted Analytics Identifying Claims Fraud: A Tremendous Opportunity About 10% of all insurance claims are fraudulent. Annual fraud losses for P&C industry total $30B in US alone $80 Detect unknown patterns of fraud. Keep track of new fraud schemes. Unsure exactly what to look for.$61 $64 $69$74e2013 e2014 e2015Rules: Captures fraud on known patterns previously used Ex: Two claims in different time zones within short window Anomaly Detection: Detect unknown patterns (ind & aggr) Ex: Statistics (mean, std dev, uni/multivariates, regression) Advanced Analytics: Detect complex patterns Ex: Knowledge discovery, data mining, predictive assessment Social Network Analytics: Determine associative links Ex: Knowledge discovery via associative link analysis (entity map) SAS Institute 29LexisNexis 2013 CAM: Innovating to Win 30. 2. Ubiquitous Multi-faceted AnalyticsPrioritized investigation Focus on organized fraud Minimize claim padding Reduce false positivesFraud ReferralsFraud Referrals FNOLAssign ClaimRe-estimate duration Reassess loss reserving Prioritize resources Fraudulent rescoring Review litigation propensitySIUEvaluate Claim Fast Track ClaimPredict duration Forecast loss reserves Optimize fast track claims Prioritize resources Fraudulent scoring Litigation propensity 3030LexisNexis 2013 CAM: Innovating to WinNegotiate Services Initiate SettlementUpdate ClaimClose ClaimCross-sell options for satisfied customer Customer retention programIdentify salvage and subrogation opportunities Indicate deviations from similar claims Reports on claims overrides 31. 2. Ubiquitous Multi-faceted Analytics Common Barriers to Using Analytics3131LexisNexis 2013 CAM: Innovating to Win 32. 2. Ubiquitous Multi-faceted Analytics Guidelines to Implementing Analytics All-executive panel agreed on three guiding principles: 1. Have an executive sponsored roadmap that clearly outlines. What resources will be needed for how long, Where and when predictive analytics will be used, Which tools will be used, and How will success be measured. 2. Use data that is comprehensive, accurate, and current. Not necessarily 100%, some have used only 70%. Must be representative. 3. Staff with talented and engaged people. Completely understand business problem and are proficient with analytics. Every person does not have to meet both qualifications; a team can be used with some experts on the business and others experts on analytics.32LexisNexis 2013 CAM: Innovating to Win 33. 2. Ubiquitous Multi-faceted Analytics33LexisNexis 2013 CAM: Innovating to Win 34. 2. Ubiquitous Multi-faceted AnalyticsBy leveraging the results of predictive analyticsSome industry experts indicate they can attain 5 to 12 percent improvement in loss costs and up to an additional 3 to 7 percent improvement in claim leakage. 34LexisNexis 2013 CAM: Innovating to Win 35. 2. Ubiquitous Multi-faceted Analytics35LexisNexis 2013 CAM: Innovating to Win 36. 2. Ubiquitous Multi-faceted Analytics36LexisNexis 2013 CAM: Innovating to Win 37. 2. Ubiquitous Multi-faceted Analytics37LexisNexis 2013 CAM: Innovating to Win 38. 2. Ubiquitous Multi-faceted Analytics38LexisNexis 2013 CAM: Innovating to Win 39. 2. Ubiquitous Multi-faceted Analytics39LexisNexis 2013 CAM: Innovating to Win 40. 2. Ubiquitous Multi-faceted Analytics40LexisNexis 2013 CAM: Innovating to Win 41. 2. Ubiquitous Multi-faceted Analytics41LexisNexis 2013 CAM: Innovating to Win 42. 3. Empowered Remote Capabilities Enhanced Remote Capabilities Cloud based web tools allow remote collaboration Cat and FNOL are proving areas facilitated by cloud based appsSharePoint, Office365 and Lync Online enable real-time interactionIntegrating GPS, Google Earth and similar apps with local presence has enhanced claim reporting and reduced cost of detail dataDirect connection to Home Office staff and systems puts full power of office systems in the field Two-pronged strategy: first empowered clients Add ability to request nearest contracted tow service & line up a rental car, result delivers service excellence and operational efficiencyThe cost and effort required to put this type of app in place is less than imagined. 42Leverage mobile technology to create local presence reportingNumerous examples of FNOL Apps exist today for clients who can choose to build one, like Allstate & AIG LexisNexis 2013 CAM: Innovating to Win 43. 3. Empowered Remote Capabilities Adjuster Toolkits: Accelerating Critical Service Adjusters (and inspectors for UW) benefit from remote toolsets connected to the cloud and home office On client, street level views, coverage history, claims data, financial info, loss details, incident histories, red flag indicators, contact infoCollection, submission, video review and determination possible on the spot, even payout depending on available equipment (mobile deposits)Accelerates FNOL, improves accuracy and timeliness, reduces field adjustment burden, reduces data entry, collection and indexing43GPS mapping, aerial inspections when needed, real-time photo of accident scene, video for teleconference, preloaded rules for assessmentAdd ability to request nearest contracted tow service and line up a rental car, and the result delivers on both the service excellence and operational efficiency goals set out at the beginning.LexisNexis 2013 CAM: Innovating to Win 44. 3. Empowered Remote Capabilities A Day in the Life of an Adjuster Adjuster receives claim notification via email and an alert including contact information. Direct to field process enables impressive, quick response to claims. A call is made, appointment set, maps accessed and the GPS navigator engaged. Upon arrival, accident scene and damage photos are taken, key party info all fed directly back to the home office claims system.One of several estimating tools is accessed Diagramming automated using laser measurements and square foot calculators Depreciation allowances, location mapping and statements of loss created.Aerial imaging incorporates birds eye view into the claim data Same aerial images available from home or regional claims centers to confirm collected information or determine any need for manual refinements. Historical pre-damage views might also be available for comparative purpose These services are available today on laptops transitioning to pad or phone apps moves to more convenient level. 44LexisNexis 2013 CAM: Innovating to Win 45. 3. Empowered Remote Capabilities Specialty Lines Apps Arising Award winning for racehorses includes the ability to search out the nearest qualified vetprovides contact information and a map from current locationLexisNexis 2013 CAM: Innovating to Winsubmits FNOL information when a covered race horse is injured45assists in determining coverage applicability and levelsonly cost the carrier $25,000 to develop 46. 3. Empowered Remote Capabilities Special Weather Apps to Assist in Adjusting Claims Newly released HailSpot to capture immediate hail data geo-locates exact address mapped to weather history for spothelps prevent paying for pre-existing damage based on exact dates 46enter location and DOL, get up to 10 years of hail size and durationcombined with rules base, recommends replace, repair or denyLexisNexis 2013 CAM: Innovating to Win 47. 3. Empowered Remote Capabilities Industry Innovations Rising to Meet New Challenges Technology Climate Corp. Updates Crop Insurance via High Tech By Ashlee Vance March 22, 201247LexisNexis 2013 CAM: Innovating to WinStaffed by an army of data scientists, the company is bringing data analytics to rural America and helping farmers reap more consistent profits from their fields. Its an example of how cloud computing, modeling, and other technologies that have reshaped the Web and business are now revolutionizing more traditional industries. Software is going to fundamentally change how the world operates, says David Friedberg, Climates chief executive officer and co-founder. 48. 3. Empowered Remote Capabilities Industry Innovations Rising to Meet New Challenges Crash Avoidance Technologies Reducing Accidents, Saving Lives New study shows clear success of collision warning, auto braking, adaptive lighting systems. by Paul A. Eisenstein on Jul.03, 201248LexisNexis 2013 CAM: Innovating to Win 49. 3. Empowered Remote Capabilities49LexisNexis 2013 CAM: Innovating to Win 50. 3. Empowered Remote Capabilities50LexisNexis 2013 CAM: Innovating to Win 51. 3. Empowered Remote Capabilities51LexisNexis 2013 CAM: Innovating to Win 52. 3. Empowered Remote Capabilities52LexisNexis 2013 CAM: Innovating to Win 53. 3. Empowered Remote Capabilities53LexisNexis 2013 CAM: Innovating to Win 54. 3. Empowered Remote Capabilities54LexisNexis 2013 CAM: Innovating to Win 55. 3. Empowered Remote Capabilities55LexisNexis 2013 CAM: Innovating to Win 56. 3. Empowered Remote Capabilities56LexisNexis 2013 CAM: Innovating to Win 57. 3. Empowered Remote Capabilities Apps Proliferating Across LOBs and Functions Workers Compensation app Construction estimating app Home inspectors appProperty inspection app57LexisNexis 2013 CAM: Innovating to WinUSAA Auto insurance app 58. 3. Empowered Remote Capabilities Mobility Strategies: Have A Framework for Mobile Solutions The organizations mobile computing strategies must be developed for: Audience: Who will use the mobile device capabilities? Drives Design Alternatives Drives Deployment options Employees, Business Partners, Providers, Customers, general publicDevices: Target devices and device ownership?Data Security: What data will they have access to? Drives Security Requirements Drives Deployment options Drives Security Requirements Drives Architectural Solutions Company provided Current application data? Historic Data? End user provided devices specified by company Policy / Claim History Information Technical features may vary by audience (Email, device wipe, device profile ,MDM software) End user provided device independence Data Sensitivity : payment and health information (PHI,HIPAA), PCI)Each different user group will require different security controls and accessBYO Bring your own requires significantly more robust availabilityMust have the capability to secure and remove data in case of device loss58LexisNexis 2013 CAM: Innovating to Win58 59. 3. Empowered Remote Capabilities Mobility Management: Use Framework to Control Execution Idea for Mobile AppHigh Level ReqmtsSTEP ISTEP IIBusiness CaseSelect from Library of Usage Patterns Project is submitted via the IT prioritization process CBAs validate Business case is made to deploy via mobile devices Project is approved, prioritized & scheduled Audience Served (user) Device Ownership Supported Devices Information Security (where is the data stored)Deliverable Vision & Scope59STEP IIIEvaluate Functional Fit ConsumerNo PCI/PHIMy PCI/PHIAndroidMobile AppMobile Web Public StoreAndroidApplicationDeliverable High Level Architectural FrameworkLexisNexis 2013 CAM: Innovating to WinMultiple PCI/PHIVirtual AppInternal StorePushMobile Application Deployment & Support ModelMobile Browser Desktop WebPullNon-ResidentCitrix*WebDevice2 OS/ 3 App Schemas are standard patterns used to guide mobile development choices based on the business caseMobile Policies & StandardsTabletiPhone/iPadSupport LevelBuild Plan3rd Party or Personally OwnedSmart PhoneiStoreSTEP IV3rd Party/PartnerAssociateCompany-OwnedAdditional Considerations to address as part of the business case are:Low Level Reqmts2 OS/ 2 App Evaluate form factor (smart phone or tablet) Identify security or functional requirements that are non-standard Evaluate deployment model for usability (e.g. mobile web, resident app)Deliverable Framework tailored to opportunityClient SDLC 59Security Review1 OS/ 1 AppDevice Testing Needs Mobile Specific build, deploy, and support needs for the finalized schemaDeliverables Client Standard SDLC ArtifactsProduction Mobile App 60. Challenges: Why companies arent using analytics. IssuesOther Underlying Challenges Typically at the C-Level Visibility Building the case Getting the buy-in across many areas Noise / too many corporate prioritiesCost / Funding / Competing Priorities Resource constraints Technology programs outside of these effort which are taking up resources Access and quality of data Sources Silos InsufficientWhat are your specific challenges? 60LexisNexis 2013 CAM: Innovating to Win 61. Avoid Analysis Paralysis61LexisNexis 2013 CAM: Innovating to Win 62. Strategies being deployed Building the case Incremental vs. Big BangAddressing resource constraints (third-party sourcing with internal buy-inOvercoming the serial approach (Distribution, Products, Administration, then Claims) 80% of the costs are in claimsIncremental approach to integration issues, current architecture Cost / Benefit / Funding Incremental approaches (Pilot efforts)Pay as you goMeasure early results When getting the pushback 62Use your own data and apply the analytics to demonstrate benefitsLexisNexis 2013 CAM: Innovating to Win 63. Have a plan to manage change! LevelsChange ProcessEngage the Top and Lead the ChangeMake the case for change Build the leadership team Craft the vision Set the directionCascade Down and Break Barriersv v v vPick the change leaders Create cross-functional teams Embrace new ideas Empower the change leadersMobilize the Base and Create Ownership63v v v vv v v vRoll-out a change program as a base Train the trainers Change key processes Measure the changeLexisNexis 2013 CAM: Innovating to Win 64. Key Strategies for the Future Education: Your organization needs to know what it means to become data driven and customer focused. Differentiate service with measurable data. Expand and capitalize on your customer relationships. Technology investments need to show new revenues and reduce expenses. Break down management silos to become responsive to the market Team Approach.64LexisNexis 2013 CAM: Innovating to Win 65. Questions?If Not: Thank you for your time. Enjoy the rest of the conference and have a safe trip home.Dennis Sullivan Chairman and CEO www.renolan.com The Nolan Company dennis_sullivan@renolan.com 65LexisNexis 2013 CAM: Innovating to WinSteven Callahan Practice Director The Nolan Company steve_callahan@renolan.com