Claims v underwriting: Bridging the divide


While sharing the same goals, claims and underwriting are often disparate divisions. What can be done to help unify these two departments?

Claims and underwriting both serve to create a successful, profitable business with satisfied customers. But, while they may share the same end goal, differences in their approach can drive a divide between the two departments, with the business and customers suffering as a result.

It’s something that David Williams, claims and underwriting director at Axa Commercial Lines, has observed in the market. “Over the years, as businesses have grown, claims and underwriting have become separate, with people in each discipline feeling they have a more important role,” he says. “This can create a silo mentality that is detrimental to the business and its customers.”

It’s not surprising either. Although they may share the same end goal and technical knowledge, the two functions are arguably diametrically opposed. Underwriting looks at what might happen and prices the risk, while also ensuring a margin for the insurer. Conversely, claims deals with what has actually happened and is responsible for paying out around 70% of the premium to policyholders.

A drive for cost efficiency hasn’t helped. As insurers have moved towards more process-driven operations, such as call centres, the likelihood of claims staff spending time in other divisions has reduced. Sometimes, it is not even possible to work in the same building, or even the same town, as other divisions within the company.

Although he believes the divide between claims and underwriting can be damaging, Brett Wexler, managing director of client services at Bluefin, says it is understandable from a financial perspective. “An insurer can’t have every claim referred back to underwriters. This would hit loss ratios and push up premiums,” he claims.

Creating the divide
A poor perception of claims has also contributed to the divide. “There’s not much glory in claims,” says Richard Candy, underwriting director at Abbey Legal Protection. “It’s seen as the poor relation to underwriting, with pay and opportunities perceived as less generous than in other functions. We’ve made a conscious effort to equalise pay between the two functions.”

Although some insurers are bucking the trend, there’s evidence of this pecking order across the industry. While other functions are routinely represented at board level, this is rarely the case for claims ( This can help to support the view that claims is a less important discipline.

For Williams, another part of the problem is that claims staff tend to work within the same discipline throughout their career. “Underwriting professionals are more likely to work across other departments, but claims professionals tend to stick with claims from the day they join to the day they retire,” he says. “It’s good they want to specialise but also means they don’t see the rest of the business and this can affect their approach.”

Allowing this silo mentality to develop can cause all manner of problems. “Divorcing claims from underwriting has negative impacts,” agrees Stuart Willoughby, claims director at Markel International. “The claims department is able to spot market trends sooner than anyone else in the business. This information affects reserving, pricing and product development. If you divorce claims from underwriting you won’t be able to respond as quickly to changes in the market.”

As well as slowing an insurer’s response, a silo mentality could also slow claims decisions. Williams explains: “If you’re repudiating a claim you need to check the underwriter’s intention and this needs to be done quickly. With a silo mentality the hassle involved means there’s a real risk that it will sit at the bottom of the pile. This causes poor customer service.”

Having service fall over at this point can also result in regulatory issues. With treating customers fairly one of the Financial Services Authority’s priorities, an insurer unable to settle claims quickly could be hit with a fine.

Given the problems that may arise where claims and underwriting are separated, many insurers are working hard to better integrate these divisions. For smaller, more specialist insurers it is less of a challenge.

At Abbey Legal Protection there are eight staff in underwriting and a further 10 in claims. “The individuals are in different teams but they’re encouraged to speak to each other if there’s a problem,” says Candy. “For instance, if a claims handler realises the policy wording would enable them to reject a claim, they will speak to the underwriters to ensure that was the intention. They need to understand what the policyholder thought they were buying.”

Some of the more specialist insurers try to keep a close working relationship between claims and underwriting staff. For instance, Beazley has kept its claims staff within product line teams so they can work alongside underwriters.

Anthony Hobkinson, group head of claims at Beazley, says: “By keeping our underwriters abreast of claims trends, they can respond to issues on wordings quickly and factor any changes into pricing. We’re keen to keep this model, however large the company grows.”

Product development benefit
A closer working relationship between the two units can also benefit product development. While underwriting can bring pricing and risk to the table, claims has a better understanding of policyholder requirement and expectation.

These insights are taken into account when Chubb designs new products, according to its European claims manager Lynn George: “Policy wordings are one of the key areas where you can have disputes with customers but by involving claims staff at the product development phase we can remove any ambiguities. It helps to make cover more transparent.”

Larger risks also benefit from a more integrated approach, especially where claims are likely to be more frequent or expensive. Typically, as part of the initial meetings before the client is on risk, they will meet with a team from the insurer. This team should include representatives from both underwriting and claims.

At FM Global, for example, a claims professional is assigned to each client before policy inception. David Henderson, operations claims manager at the insurer, says this can help the clients understand the wordings and what is, and isn’t, covered. “Neither the underwriter nor the claims representative wants any surprises coming from a loss, so they’ll spend time explaining the cover and what happens in a claim to help eliminate this,” he explains.

While the smaller specialist insurers and large risks appear to have a handle on bringing together claims and underwriting, the large insurers writing volume business may struggle.

Wexler argues that most issues lie with this part of the market. “Where business is more commoditised, there’s little connection between underwriting and claims. When a claim’s made, it’s never referred to the underwriters. This is where it’s up to the customer or the broker to argue their case.”

Several factors have led to the divide in this area of the market. Logistically, the scale of the operation means that locating both divisions in the same town, let alone the same office, can present problems. Furthermore, large volume business can often be heavily reliant on call centre staff to keep costs down and, with turnover high, there’s little opportunity to develop skills outside of processing claims.

Tim Holliday, chief underwriting officer at Zurich, recognises these factors and admits that a divide did exist within his company. He says: “As the company grew, each department focused on its own functions and people weren’t aware of the other side. We weren’t at odds with each other but it wasn’t a joined-up approach. It wasn’t the best way to operate a business.”

Barrier to integration
Size can be an issue but many say that this shouldn’t be a barrier to integration. “You don’t need to integrate everything and, in a larger insurer, there are bound to be pockets focused on process and function but you should still integrate the intellectual capital to ensure the dialogue can be maintained,” Hobkinson says.

This approach is one that some large insurers have sought to introduce, having recognised that an integrated approach is essential. For example, at Axa, Williams says that claims and underwriting staff hold weekly meetings to discuss repudiations and make sure the product and documentation is right. Zurich also encourages regular communication between departments, with forums established to enable representatives to come together and discuss trends, loss ratios and other factors affecting the industry.

Training and development is also being used to bridge the divide. This starts with graduate programmes, where everyone is expected to work across each business function to help gain a good understanding of how the company operates.

“Our graduate trainees work in rotation gaining experience of each different department. This helps them to become more rounded individuals,” says Tony Emms, chief claims officer at Zurich. “We’re also developing this approach for other employees, allowing them to spend time in different departments, so they can appreciate how other functions can work together.”

A similar approach is taken at Allianz Insurance. “We encourage people from claims to attend the underwriting conference and vice versa,” says Graham Gibson, claims director. “It helps them gain a better understanding of the issues affecting other departments and the direction they’re taking.”

Williams is a good example of the importance of experiencing different disciplines. Before moving to claims he spent 20 years working in underwriting, which, he says, helped give him a better understanding of the business. “Someone who’s worked in claims will make a better underwriter. They understand policyholder expectation and how wordings will be interpreted,” he adds.

Even a more informal approach can help employees gain a better understanding of their colleagues. For example, at Chubb, alongside formal meetings, ‘lunch and learn’ sessions are held where an employee can talk about issues affecting their role.

Using technology
Technology will also help narrow the divide. Where insurers are unable to have their claims and underwriting divisions in the same location, video conferencing and chat can help to bring them closer together.

As more companies adopt internal social networks such as Yammer, employees are likely to work more closely together. One area that several large insurers recognise as benefiting from better integration is fraud. “Claims is in an ideal position to identify the traits and characteristics of those most likely to commit fraud,” says Neil Clutterbuck, director of underwriting and technical at Allianz Insurance. “By sharing this information, it can be applied to underwriting to reduce the probability of covering them in the first place. This benefits our policyholders.”

A more joined-up approach can also help underline the importance of financial support. Holliday says that by working together with claims, the company could justify greater investment in fraud. “By working together we were able to show how an investment in fraud detection could benefit the business,” he explains. “It was very successful.”

But while insurers are beginning to appreciate the value that closer integration can bring, they also understand that there must be some independence. “It would be improper to allow underwriting to set the reserves for claims,” says Clutterbuck. “There have to be some boundaries.”

Although there are good reasons not to fully integrate the two departments, there are some reassuring signs that insurers are trying to bridge the divide. And, as those prepared to tackle this issue secure benefits — including improved customer service, lower levels of fraud and more responsive product development — more insurers are likely to see the advantage of closer alignment between claims and underwriting.

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