Claims management: Room for improvement

Insurance promises are honoured or broken at the point of claim, with policyholders having to wait until they make one to find out the true quality of their cover. For insurers and brokers, getting the claims process right is imperative, leading to reductions in indemnity spend, improved customer service and better retention rates. But what constitutes the ideal scenario for insurers and brokers? What do they prioritise above everything else when it comes to service delivery from their loss adjusters and other claims management partners — and are they articulating their main expectations clearly enough so that suppliers know where best to invest?

"The best claims management services give policyholders access to someone who is empowered to deal with their problem," says Simon Gifford, claims director of Towergate Partnership. "Some insurers don't value first notification of loss, simply seeing it as a means of opening the door to the supply chain, but that first point of contact can influence customer satisfaction throughout the claim."

As well as the interface with the policyholder, the way suppliers interact to fulfil a claim is also seen as critically important. "It's important to have specialists for all the areas you cover and that they interact in the policyholder's interest when a claim is more complex," says Ian Guest, property claims supply manager at Allianz Insurance. "This ensures good customer service but also leads to savings as claims are turned around quicker and more efficiently."

But, while every insurer and broker can point to their ideal claims management set up, they all admit there's more work to be done to achieve this.

Some areas of the claims process are subject to more fluctuation than others, as different ways of working fall in and out of favour. A prime example of this is the number of suppliers insurers work with. While there has previously been a trend for working with a partner that can offer a one-stop-shop service, this seems much less common now.

Multiple supplier models
LV is a good example of this, having worked with Homeserve until last year, when it switched to Davies Group for claims validation, and Eastwell and Rok as its preferred building repair networks. "All things to all people doesn't work," says Martin Milliner, director of claimant and technical services at LV. "We find that having several partners allows us to have better control over costs, while also giving our policyholders access to specialists."

While the market has largely opted for the multiple-supplier model, this doesn't mean the one-stop-shop model is dead. "If a one-stop-shop could provide specialists and experts in all fields it would be an attractive proposition," says Jon Cawley, UK property claims operations manager at Zurich. "Something that could take out all the layers that can be created in a claim when you have multiple suppliers would be great but it doesn't translate into practice."

Another area where policy changes frequently is the way claims are settled. The current trend seems to, once more, be away from claims fulfilment and towards validation and cash settlement. There are several advantages to offering cash settlement: claims are settled faster; there's no requirement to oversee supply chain; and customer satisfaction is usually higher. However, the detractors point to the greater risk of fraud as a downside to this approach.

Some sidestep the issue, saying they allow the policyholder to decide what they want. Mr Cawley claims this is largely a result of policyholder demand. "I think they felt shoehorned into the fulfilment model and have reacted against this," he says. "Perhaps the industry went too far down that route."

It is also possible to offer more choice as fraud detection techniques have improved across the industry. Insurers now feel more confident about the overall costs involved, with the savings and customer satisfaction achieved with cash outweighing the risk of fraud.

This approach is welcomed by David Lamping, director of claims at broker Cooke & Mason. "I know of one case where the policyholder was asked to produce a photograph of herself wearing the stolen jewellery. The insurer was so concerned about fraud it had the image blown up to show a birthday card in the background and contacted the card manufacturer to make sure dates tallied. I'm all for tackling fraud but not when it compromises service," he explains.

The relationship insurers and brokers have with their claims partners is also evolving. This has been through turbulent times in the past with supplier fees, especially those for loss adjusters, squeezed so much that many feel it has affected quality of service.

Mr Lamping is among those who feel this downward pressure has been detrimental. "I was involved with the screwing down of loss adjusters' fees 20 years ago. It's the most stupid thing I ever did. If you squeeze professionals' fees, you reduce professional service. When we use loss adjusters we're careful to pay them an appropriate fee so we get a professional rather than a baby adjuster," he explains.

Insurers are also ready to admit a mistake has been made. "There has been a bit of deskilling in the loss adjuster arena. This doesn't necessarily lead to poor customer service but the loss of technical service can result in leakage," says Mr Milliner. Perhaps in reaction to this realisation that price is not everything, the new way of working with suppliers involves a stronger partnership approach. This enables both parties to share common objectives and invest in their operations accordingly.

Financial incentives
Insurers and brokers are using a number of ways to foster this long-term partnership. Some see financial gain as a means to motivate. For instance, at Zurich a risk-reward model is in place that rewards partners if they hit targets for areas such as customer service and penalises them if they receive high levels of complaints or create unacceptable levels of claims leakage. "It works," says Mr Cawley. "This helps us to get much more engagement and alignment from our suppliers. They understand our objectives and have an incentive to work towards them."

Working more closely with suppliers also helps. For example, at Markel International, where the focus is on professional liability, it is important to have strong relationships with its legal firm partners. "Junior associates work with us on secondment for between six months and a year. We cover the costs involved but this helps them gain a better understanding of our business, enabling them to deliver a slicker, more appropriate service," explains Stuart Willoughby, claims director at Markel International.

Another way to forge closer ties is by giving delegated authority to key partners including loss adjusters, lawyers and brokers. For instance Ecclesiastical is exploring this, meeting with partners to determine whether they have the capability and appetite to be given delegated authority. "There are lots of advantages," says David Bonehill, claims and risk services director at Ecclesiastical Insurance. "It cuts out processing and improves customer experience. It's important that it's well managed though and we'll undertake full due diligence and undertake regular audits to ensure it runs smoothly."

The issue of procurement is hotly debated in the industry too, with some insurers preferring to keep this function separate from the day-to-day management of suppliers. This approach ensures no favouritism creeps into the relationship but does potentially risk mixed messages being sent out to claims management partners as a result of the dual relationship. In reality, both approaches can work, as Mr Guest explains: "I've dealt with both models and as long as there are proper processes in place you don't get any problems."

But while the relationship might be healthier there is still room for improvement. In particular, insurers would like to see their partners improve their communications, both back to them but also with their policyholders. "The main area where I feel let down by the suppliers is keeping policyholders informed through a claim," says Mr Milliner. "There can be communication breakdowns and people get very frustrated if a supplier doesn't turn up."

Complex claims can be particularly difficult, both from a communication perspective but also logistically. "There can be problems where you have series of suppliers and insurers do find that customer feedback gets worse as the supply chain gets more complex," says Mr Gifford. By way of example, if a policyholder's home is flooded and four rooms are affected, the decorator will wait until the property gets signed off as dry before starting work although it would save time — and money — if they came in as each room dried. Mr Gifford adds: "The loss adjuster used to oversee what was happening but this doesn't happen anymore. It would be great if we could have some form of technology to do this for us."

Another issue raised by insurers is the need for more innovation from their claims suppliers. Mr Bonehill explains: "Our partners, especially the legal firms and loss adjusters, are great at doing what we ask them to do but we would like them to come back with ideas about ways we could improve processes. I don't really understand why this isn't happening; perhaps it's a cultural thing, resulting from years of being told what to do."

Fast-forward five years
With this understanding of what needs to be done to the claims process, insurers are looking forward to more sophisticated, cost-effective models over the next few years. And it would seem their main priority is to cut the customer lifecycle of claims, with the twin aims of reduced spend and enhanced customer satisfaction. "Quicker service drives out cost," says Mr Cawley. "With faster turnaround times and fewer touches you'll generate savings." Slicker service also boosts customer satisfaction, reducing the likelihood that the policyholder is left wondering what's happening with their claim. This will be particularly important around the more complex claims where several suppliers are involved.

As well as addressing these stutters in delivery, some insurers would like to see a fully branded offering to help build customer loyalty and remove the confusion that can be caused when policyholders are contacted by a number of different suppliers during a claim. "We'd also like to use our brand to offer policyholders added value service," says Mr Bonehill. "We have suppliers for household items; why not use them to provide policyholders with a general shopping experience?"

Technology will undoubtedly play a bigger part in the future, which should accelerate the claims process. Among the items on claims directors' wish lists are online claims notification and tracking plus more sophisticated reporting systems for suppliers. Insurers would also like to be able to offer more differentiated products, giving policyholders different levels of service.

This is already happening to some extent with high net worth products and some providers are looking to extend this. For example Steve Howell, director of broker CBG, says it is introducing a range of products with bespoke service. "We're testing these," he says. "I'm not sure consumers understand the differences though; they've been pushed down the price route." Mr Gifford agrees. He would like to see insurers publishing their repudiation rates or using a universal measurement of service, like the rail operators. "This would enable consumers to compare products," he says. "Brokers assess service for their clients but I don't think it's something many consumers consider when buying direct."

Key Performance Indicators
Understanding what insurers and brokers expect from their loss adjusters and claims management partner firms gives an insight into the service they are looking to deliver to policyholders. Although the key performance indicators they stipulate for their suppliers vary, there are several common elements.

Customer experience and indemnity spend are widely regarded as the most important KPIs, with insurers and brokers measuring both of these to assess the quality of their supply chain.

Also featuring highly is the efficiency with which claims are handled, often measured through the average lifecycle of a claim. "We don't want ageing claims as this time delay adds to the cost of the claim, so we monitor our suppliers on this area," says Martin Milliner, director of claimant and technical services at LV.

There can also be differences between the KPIs in place for personal and commercial customers. As an example, while a personal lines policyholder might be more concerned about the quality of the repair following a flood, for a commercial customer speed will be key as this will determine when they can get back to business.

There can also be differences between products. Jon Cawley, UK property claims operations manager at Zurich, says that the niche focus of some commercial products means they will often have very specific requirements in place for suppliers. "The KPIs have to reflect the product and the needs of the customer," he adds.