Eric Martinez Executive Vice President

Global Claims & Operations

2015 America’s Claims Event

Austin, Texas

June, 2015

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AIG Claims Facts & Figures1

8M new claims

per year >$32B reserves

93 countries

66 claims

systems 1M

pending

claims

>90 products

6200 claims

employees

>$28B annual

claims paid

We’re there when our customers needs us, helping them

recover and realize their idea of a better tomorrow.

2 1Includes Consumer and Commercial

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Macro Trends

AIG Trends

Claims Trends

Oil

Unemployment

Strong dollar

Scale

Science

Reach

Behavioral Psychology

Models

Specialization

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Do not ignore technology trends to influence

outcomes…

Cloud Computing and IT Consolidation Remote servers that store, manage, and process data, which enable scalability, infrastructure

demand management, and off-loading IT infrastructure administration

Big Data Large data sets that provide a more complete picture of an organization’s customers, operations

and competitors, which help drive efficiencies, generate revenue, and lower costs

Predictive Analytics Advanced statistical models that develop insights which help organizations be more proactive

and shape future outcomes

Internet of Things Everyday objects including buildings, appliances, and wearable technologies with network

connectivity, allowing them to send and receive data.

Enterprise Mobility Mobile devices with corporate data available at any time and place; with future deployments

expected for business intelligence dashboards, board level reporting, documentation

management and sales force automation

Social Media Internal collaboration tool for easier and faster access to knowledge and experts, as well as an

external tool to engage, build loyalty, and generate insights among customers

Information Security Safe-guarding an organization's data from unauthorized access or modification to ensure its

availability, confidentiality, and integrity

Opportunities

Enhanced customer

experience

Internal process efficiency

and agility

New markets and

services

Increased importance of

privacy protection

Risk mitigation

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Internet of

Things (IOT)

Digital

Expectations

Cyber

Sensors: buildings,

vehicles, humans

Massive Data

Insights & Analytics

Omni Channels

Social Interactions

Personalization

Understand customers better and tailor our

services

Alerts for Imminent Failure

Include maintenance plans in policy

Reduce policy costs if monitoring enabled

Providers

Easier workflow to do business

Quotes based on predictive analytics

Digital Tools to make engagement preferred

Consumers

Know Me, Engage Me, Empower Me

Help me choose, Suggest options

Trend Features Impact to the industry

Trends To Note Trends are reshaping competition within the insurance industry and expanding industry boundaries

How safe is your claims system?

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Insurance and Data Data access, integration and applications are transforming the insurance business

Know your…

…Business

…People

…Market

…Customer

…Risks

…Technology

predict and mitigate connect and manage

revenues & expenses

investment & growth

sales & retention

products & pricing

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Institutions such as the UK's

Behavioural Insights Team and

the White House "Nudge Unit”

use small and cost-effective

nudges across public policy.

Nudge is based on decades of

research in the fields of

behavioral science and

economics.

The Subtle Push of Nudging and Tender Force of

Choice Architecture

Carefully crafted decision environments encourage decision-makers to

make better decisions within government and beyond

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Authors - Richard H. Thaler and Cass R. Sunstein

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Following initial MTurk research, testing confirms four

nudges reduce fraudulent claim filing

Behavioural Insight and Associated Text-Based Nudge

Fraud Rate in Control Condition: 20.9%

Fraud

Rate

Incentive On average, fraud causes insurance products to be 5% more expensive 19.4%

Norm The majority of people frown upon those who commit fraud. 7.6%*

Salience Last week, *first name* Smith got caught committing insurance fraud. 7.8%*

Priming

Picture of policemen

I declare that I carefully examined this form and that to the best of my knowledge

and belief it is correct and complete. Name, Date

24.2%

21.0%

Affect Your insurance company prides itself on detecting over 70% of fraudulent claims

through highly sophisticated algorithms. 20.9%

Commitment

Your contractual agreement commits you and your insurer to mutual honesty.

Your insurer is working very hard to improve the service offering to further

enhance your customer experience.

25.4%

33.3%

Ego You’re too good to commit fraud!

We have no doubt that costumers like you answer honestly and truthfully.

15.6%

31.7%

*Bold percentages indicate a reduction, the asterisk indicates a significant reduction, in filed fraudulent claims.

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A

B

C Where and on what?

Judgment and understanding of the

model

Pay what we owe

Severity

Adjuster Match

Fraud

Subrogation

Models

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Low Loss Adjustment Expense (LAE)

Low cost, scaled, judgment

Invest Loss Adjustment Expense (LAE)

Best outcome, high dollars

Judgment matters, with little scale,

cost of labor

Challenge…is it efficiency or effectiveness at play?

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Getting LAE wrong is not symmetrical

12 12

Technical Skill High Low

Co

mp

lex

ity/S

eve

rity

H

igh

ALAE - centric: The right level of

technical skill for the right claim…

‘Pay what we owe.’

Risk: Over skilling

Mitigation Strategy : Target

Operating Model

ULAE - centric: Cost of labor

Risk: Leakage, adverse customer

experience, Bad Faith/Extra

Contractual Liability

Mitigation Strategy: Increased

supervision and management

Low

RISK

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2020 complexity curve…

Robo …

60% of the workforce

IronMan (Man + Model)

40% of the workforce

Cla

im f

req

ue

nc

y*

0%

5%

10%

15%

20%

25%

30%

35%

0 - 100 100 - 500 500 - 1,000 1,000 - 10,000 10,000 - 100,000 100,000+

US Commercial and Consumer claims

Claim value*

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Employee impact

Business impact

The ‘How’

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2020: Five year trend forecast

Books heavily weighted to frequency

Innovation + Science + Data converge for new

staffing models

Cost of acquiring customers is up

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2020 convergence yields…

Fewer and more specialized claims employees

Heavy investment in technology

Listening to the customer through social design and

alternative channels

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