How generative AI is disrupting the hourly billing model for insurance claim vendors and loss adjusters

Timothée Grange

Co-founder & CEO at Quantum

For decades, loss adjusters and insurance claim vendors have relied on hourly billing, a model justified by the complexity and variability of claims. However, Generative AI (Gen AI) is disrupting this status quo, just as it has begun reshaping other professional services, such as legal and consulting industries.

Insurers, facing increasing pressure to optimise costs and accelerate claims processing, are rethinking traditional vendor engagements. AI-driven solutions enable faster, sometimes more accurate, claim assessments, eliminating many of the manual processes that once justified hourly billing.

AI is rapidly transforming the claims process by:

• Automating First Notice of Loss (FNOL): AI-driven FNOL management streamlines initial claim intake, reducing the need for human intervention.
• Enhancing fraud detection: AI-powered analytics detect anomalies and potential fraud patterns, minimising manual investigative work.
• Automating damage assessment: AI tools analyse images and documents to assess property damage, replacing traditional field inspections.
• Accelerating claim processing: AI-generated reports provide real-time claim assessments, allowing insurers to make faster determinations.

With these efficiencies, insurers are increasingly questioning the necessity of hourly billing when AI can produce the same (or better) results in a fraction of the time.

As AI removes inefficiencies, claim vendors must transition to fixed-fee and value-based pricing, as these models offer cost predictability and align incentives with insurers’ goals—something hourly billing has long struggled to achieve.

In addition, AI-powered claim vendors outperform traditional firms by leveraging:

• Predictive analytics for claim triage and settlement recommendations.
• Automated documentation tools that generate claim reports in seconds.
• Smart contract systems that streamline insurer-claimant interactions.

The result? Lower costs, faster resolutions, and superior efficiency. Traditional loss adjusters must adapt or risk being displaced.

Challenges to AI adoption: Insurers’ concerns

Despite AI’s potential, insurers remain cautious about full adoption, citing three main concerns:

1. Data security and privacy: AI systems process vast amounts of sensitive customer data, raising concerns about breaches, compliance with regulations, and reliance on third-party AI vendors.
2. AI “hallucinations” and accuracy: AI-generated reports can sometimes produce incorrect or misleading outputs, creating potential risks for claim assessments and regulatory scrutiny.
3. Legacy systems & change resistance: Many insurers still rely on outdated infrastructure that is difficult to integrate with AI solutions, and internal teams are sometimes resistant to process overhauls.

These factors continue to make some insurers hesitant to replace traditional claims processes outright, even as AI continues to prove its value.

The Future: AI-Augmented Adjusters, Not AI-Only Claims Handling

The reality is that AI isn’t replacing adjusters—it’s augmenting them. The next generation of claims handling will see AI managing routine claims, while human expertise is applied to complex cases.

This hybrid model:

• Reduces inefficiencies while preserving the need for specialised expertise.
• Allows adjusters to focus on high-value decision-making rather than administrative tasks.
• Helps insurers gain the benefits of AI without fully relinquishing control.

The tipping point for change

The hourly billing model in loss adjusting is becoming increasingly difficult to justify. AI-driven efficiencies demand a shift towards fixed fees, performance-based compensation, and AI-augmented services.

Yet, insurers must balance AI adoption with concerns over data security, system integration, and regulatory compliance. The firms that successfully navigate these challenges—leveraging AI to enhance rather than replace claims expertise—will define the future of insurance claims handling.

The future of insurance claims is not just AI-driven—it is trust-driven. The firms that successfully blend AI innovation with security, accuracy, and human expertise will define the next era of claims handling