Claims - controlling costs: inventive intervention
With motor rate rises slowing down and bodily injury claims growing, Tim Roberts questions whether current innovation and investment is enough to get insurers back on an even keel.
We have all read about the deteriorating loss ratios of motor insurers in recent years and attempts made to stem such losses. Most recently, action has manifested itself with some insurers withdrawing from the private motor market, coupled with a widespread hike in premiums. But does this go far enough?
Some industry commentators believe insurers need to innovate — and the area most requiring investment and invention is claims. Towers Watson recently noted price corrections that have taken place over the past year or so have been essential in getting many private motor insurers back on an even keel after poor 2009 results.
It commented: "The scale of bodily injury claims inflation, revealed in a recent study of 85% of the private motor market, has emphasised the need for price rises. However, the level of increases is starting to slow down, with each month in the quarter showing flatter price rises than the previous one. In the medium term there is a realisation of the need for additional strategies for dealing with rampant bodily injury costs and managing fraudulent behaviour."
Years of under-investing
The industry is rightly concerned with bodily injury inflation — which has certainly increased — with commentators offering a variety of reasons for this 'phenomenon'. But surely this is not wholly new. Isn't the real question 'why is it hurting so much?'. And are insurers able to respond competitively and efficiently to such market conditions?
In reality, insurers are hurting because many have under-invested in claims handling over the years in terms of their commitment to technology, best practices, process design, the development of their own employees and their ability to manage people effectively in such processes. Consequently, they are now not ready to respond to the inflationary factors being reported and complained about.
To add insult to injury, the writing has been on the wall for some time surrounding third-party bodily injury claims with the advent of technology-based claims processing sponsored by the Ministry of Justice. Some insurers bleat — with a fair amount of justification — about the problems experienced with implementation of the road traffic accident portal, but the plain fact is that, unlike many claimant solicitors, they are just not able to respond with an application-to-application claims interface or a system of work that allows their staff to respond proactively to the claim.
It is believed that only two motor insurers currently have the ability to send and receive data from the MoJ-backed portal — even though it is now 12 months since the new processes commenced and the government is seeking to extend it to other claims such as casualty and clinical negligence. Being cynical, it might be interesting to see how many casualty insurers would be system-ready to respond electronically to a portal claim.
Does this mean it is all gloom and doom? What is happening now with innovation in claims — accepting that it may be a little late — and where should the industry tailor and focus its efforts to control costs and deliver value?
The good news is that change appears to be underway. Evidence of this is seen in the large number of announcements by certain technology providers declaring deployment of their 'X' system as part of a transformation project at 'Y' insurer. Such systems provide for end-to-end claims processing enabling insurers to address leakage by removing paper files or manual processes from claims handling.
So, investment is being made but will it provide the innovation needed to help with those loss ratios? It might not. Claims are not just about systems. Neither is innovation just system-related. Innovation is equally, if not more, required from the people within those new systems if insurers are to reap the benefit of their investment.
This starts with the development of the 'out-of-the-box' system with important and valuable workflow, which embodies the best practice on how a claim should be handled and enables the handler to manage the claim in compliance with those processes. The challenge here is whether insurers possess sufficient 'subject-matter experts' who can genuinely process engineer the new system.
Getting the focus right
Ironically, insurance litigation firms went through the same pain in the 1990s when case management processes were brought in to handle volume litigation under the Woolf Reforms. These firms had — or so they thought — plenty of technical input but they still struggled to bespoke their workflow. Insurers with their third-party intervention and MoJ claims face the same risk of trying to focus on what is required without over-complicating what they need to build into their systems.
Then there are the other people: the handlers. How do you move their cultural mindset of thinking they handle claims proactively when they have hundreds of outstanding claims to handle at any one time with little or no experience of capturing data in a process-driven case management system?
How do you manage claims handlers under these new processes? And what happens to the run-off so there is a still a benefit in aggregate? Another question to consider is what key performance indicators insurers measure to determine whether benefits are being delivered by the innovative system their trained staff are operating. Some insurers are addressing these challenges and managing their risk by looking 'beyond the box' to develop more innovative relationships with suppliers.
If insurers are not able to answer these questions honestly — or the benefit case for the new system does not robustly explain in the financials how those benefits will be delivered — then those loss ratios will continue to struggle, notwithstanding the commitment to innovate.
Tim Roberts is senior partner at Parabis
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