Time for change?

Phil Bird

Phil Bird highlights the continued cultural and philosophical divide between many underwriting and claims teams, and argues that closer working can only benefit the industry as a whole.

Anyone looking at the way insurance companies work for the first time might be surprised at the distance that often exists between the key functions of underwriting and claims. Not physical distance obviously — the teams can be adjacent. But rather the cultural distance in terms of priorities, objectives, philosophy and approach.

Overall, both underwriting and claims want the same thing — a successful, profitable business with satisfied customers. But they often differ in how they think this ambition might be achieved.

Although I now run Groupama's UK claims operation, my background is actually in underwriting and it is still quite uncommon for individuals within an insurance business to cross the great divide — especially at a senior level.

When running the commercial and personal lines underwriting teams, I was probably as guilty as anyone in that unit of dismissing claims as a cost-centre that effectively undid all my good work in generating revenue. And, no doubt, the head of claims might have thought I was an inveterate risk taker, with no concept of how an insurance company operates on the front line.

And so we may have continued, happily ploughing the same parallel furrows that so many insurers have left through the years. But that's when my boss hit upon the idea of taking me out of underwriting to run the UK claims team instead.

Early reservations

I'll confess I was initially a little perturbed. After all, I was being asked to change my whole approach to work — and viewing life from the other end of the telescope was a daunting prospect. But, by the end of my first day in the new role, I knew we had hit upon something important. The better we could marry the aims and objectives of claims and underwriting, the better we would be able to function as a complete insurance entity.

Let's face it, policyholders — and all our other stakeholders — don't really distinguish between underwriting and claims. If they get a good or bad quote, it's from 'the insurer'. Similarly, it's 'the insurer' that either pays up, in full and on time, or doesn't. So if we maintain internal divisions, we only distance ourselves from our external audience. Surely such a stance is no longer sustainable in consumer-oriented 2010?

I readily concede that claims and underwriting are vastly different. Claims people live in the here and now — they drill into detail, focus on minutiae, probe into dark corners. Underwriters take a broader and rather longer term view and confidently extrapolate their thinking into the future. It is easy to see how tensions might arise.

To tackle this, objectives must be aligned to address fundamental issues and shared concerns. Insurance is essentially about indemnifying the policyholder; if a loss occurs, a payment is usually made. Thus it seems clear that claims activity should be focused more towards the control of indemnity spend. Of course, customer service remains extremely important but the management of indemnity spend needs to take its rightful place at the head of the queue.

Mutual benefit

Equally, it seems self-evident that management information generated by claims should be seized upon by underwriters. Are costs rising because of arson? Then price accordingly in that neck of the woods. Is escape of water bumping up costs? Give thought to risk management. Clearly, when changes occur in claims experience it is absolutely crucial that underwriting and actuarial teams are aware so that terms are appropriate, pricing remains accurate and reserving remains solid.

Yet I know from market contacts and past experience that clear blue water still exists between claims and underwriting operations in many insurers. How many times do you see an advert for an insurance company and conclude that the agency was briefed by an enthusiastic underwriter rather than a hard-bitten claims-handler? It's all promises, promises. But if a bridge can be built between underwriting aspiration and claims realism, we may actually have the genuine article.

It also remains true that many insurers tend not to involve claims specialists in new product development. This is deep folly. Time and again customers tell us that, for them, an insurance product is the claims process. It's not the policy document or the renewal notice - it's the way the insurer behaves when a claim is made. So if an insurer wants to have any hope of complying with the regulator's treating customers fairly principles, access to the claims experience must be put at the very forefront of thinking.

Gone are the days when claims could be compartmentalised as little more than an internal service provider within the insurance business. Claims teams are at the sharp end of insurer experience in today's consumer-focused society; they regularly provide a service direct to the customer and thus represent the essence of the insurance business to its most important constituency. For this reason alone, the claims division deserves equal billing with any other insurer function.

Barriers to development

One of the barriers to the development of claims teams within an insurance business might be under-representation at board level (see page 8). Where this is the case, claims people need powerful arguments that can persuade fellow directors to sit up and take notice. But take a moment to consider the following statistics: claims reserves account for the thick end of 60% of any insurer's income; claims departments employ the highest percentage of an insurer's work-force; and any decision taken within the claims department has a direct, immediate and lasting impact on the well-being of the business.

Add to this the positive — or negative — impact that professional claims handling can have on brand perception and the lot of your common or garden claims manager is immediately seen as highly significant.

Moving from underwriting to claims was momentous for me, and moving me was a major step for my employer. But the significance of the transition grows less the more I see that everyone within our business has always been playing on the same side anyway.

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