While the trend of offering like-for-like replacements for lost or damaged goods or a cash settlement both tend to go in and out of fashion, Sarah Hills takes an in-depth look at all the options that are open to insurers and asks if insureds should ultimately have the option to choose
The method used to fulfil a claim is of key importance to both the insured and the insurers. Often the choice between direct replacement of goods by the insurer and its partners or the alternative of cash settlement can be a crucial one in terms of customer service and efficiency.
A group of insurers and suppliers were recently brought together at a Post roundtable event, sponsored by Comet Replacement Services, to discuss the pros and cons for each method of claims fulfilment and to look at the criteria insurers use to determine how a customer's claim is settled.
There has been much comment over the last couple of years on the subject of replacement verses cash settlement, with the insurance industry seeming to go through phases of preference. Hiscox is one insurer that has recently ventured into this area. Its head of claims operations, Andy Stevenson, was present at the Post roundtable and was keen to emphasize the importance of offering more choice to customers. "It is something that other insurers are offering, and we wanted to see if it improved customer satisfaction." He said he believed that the industry has become more balanced in terms of offering the customer a choice through a variety of settlement processes. "We have only just started to introduce a replacement goods service, and we've done that on a 'you-choose' basis. If the customer thinks replacement goods are more appropriate for them, then that is the route we pursue. However, they may prefer cash settlement because they want something different, or they want something our supplier can't offer. The insured chooses."
This is something Mary Dolan, claims manager at UIA, agreed with. "It's not a case of the insurer preferring a certain settlement process, it depends on what you are replacing and the individual concerned," she maintained. "You find some customers would rather choose for themselves, while other customers - perhaps the elderly - prefer it all to be sorted for them. We need to make sure that the customer is satisfied in the way their claims are being dealt with. For example, some people will have a particular retailer in mind - they may want to buy from John Lewis. That's the customer's choice and we would not insist they use a particular company. It may impact our cost but at the end of the year that customer is more likely to renew with us."
The customer is king
While customers deserve to have a choice, Christine Matthews, head of household claims at Axa, stated her belief that the customer also needs to be educated. "It's unacceptable for insurers to expect customers to understand the complexity that each settlement brings. With the first call, you need to go into plenty of detail about each process, explaining the implications of each decision. The first notification is key to the whole success of the settlement."
Indeed, last year's floods provide a good example of how effective a certain type of settlement process can be, with many round the table agreeing that replacement was more efficient. Phil Bird, director of claims at Groupama, said that with the complexity of certain claims - such as those following a flood - it is right that insurers offer a closely defined process and relationship with the customer. "However, on smaller value claims there is far greater satisfaction when the customer has control themselves. Cash settlements have forced us to evaluate who is handling the first call in a claims process." He said, as a result, Groupama has put more experienced people at the front end of claims handling so the customer is getting better advice right from the time the first call is made. "Under the old process with no cash settlement, it was often an inexperienced person taking the first call," he explained. "If you're going to have complexity in the settlement process, you need good quality people taking that first call. They can identify the type of individuals and concerns, and then guide the customer down a route that works for them. There is no substitute for having that good advice right at the start."
An independent survey from Comet was discussed at the roundtable event, and of particular interest was the finding that 39% of customers said a bad claims experience would affect their decision to renew their policy. The panel all concurred that it was therefore important for insurers to offer a wide choice and different solutions for customers - the clear message being that a one size fits all approach does not work in the market anymore.
Jane Shepard, marketing and new revenues manager at Comet Replacement Services, asked whether insurers gave customers the opportunity to upgrade their products if they wanted to. She cited results in the Comet survey, which found that over half of respondent (55%) were not offered an upgrade on their replacement product by paying more money than the value of the claim. In addition, 74% of respondents answered either yes (31%) or maybe (43%) when asked if they would have liked the option to upgrade.
However, Mr Stevenson said Hiscox's process would allow it. "In general settlement, the pledge is that we would find out what model the customer had if we can replace that like-for-like," he said. "You are reliant on having a supplier that can perform that. If it's not model match, it has to be a feature match and you have to show you are providing that customer with something as good as they recently had. Typically, the customer ends up getting something better and for less than they originally had."
However, that flexibility of choice was challenged by Sue Cuthbert, business development manager at Comet Replacement Services, who referred to research findings from an independent survey of 3000 customers. "We found that some insurers go down a stringent like-for-like replacement route. Our results found that 44% of respondents said that when they had a claim, they were not given the option of choosing an alternative product - they had to choose a like-for-like product. Also, 71% said they would like to have the choice." She asked if there was a smarter way that insurers could work with suppliers.
Ms Matthews countered with the opinion that it was difficult to replace like-for-like in the current market. "When we talk to the customer about the model that they had, the price has gone down so much that simply to get that exact model is not appropriate and we often can't do it. Therefore, the customer will receive additional features on their TV or fridge that they didn't have before." Mr Bird added that it was dangerous to assume that having a supply chain guaranteed a greater integrity in the claims settlement than simply a cash settlement. "Those supply chains have to be well managed and operated for just the same reasons as you would a cash settlement process. Both processes require strong control and validation from insurers," he said.
Picking up on the theme of supply chains, Ms Cuthbert asked how important it was for insurers to work with the right supplier partners. "In our survey, 52% of customers complained they weren't given any choice of when that supplier arrived, and that they didn't take the packing away," she said. "Is that important to the insurance industry - - what suppliers can provide - or are suppliers picked because they are cheap?"
Ms Matthews answered that the process of choosing the right supplier was incredibly important.
"It's based on the overall package; for example, some options include removing packaging, and some have an option to fit an appliance. Customers want a complete settlement and a replacement that does work when the supplier leaves the premises. It's very important to choose the right suppliers that deliver the whole package."
However, the Comet survey found different results. Ms Cuthbert said: "It is interesting hearing what everyone round the table is saying because that doesn't seem to be the case in terms of what happens in reality." She added that 52% of customers said they didn't get the choice of delivery they wanted and most were unhappy with the service they got from their insurance provider. She asked if that was an indication that insurers and supply partners were getting something wrong.
Ms Matthews conceded that if the whole package was not available, it meant that the insurance company has the wrong suppliers, which does not reflect well on the industry. Gavin Long, head of GI supplier management for LV, added an optimistic view that communication had improved and increased in the supply chain: "For example, there are SMS alerts and updates, web portals if customers have internet access so they can see the progress of their claim. Part of the tender service is to go through those service provisions and to make sure that it has everything that is required. Those are just some of the models," he said.
As a result the chair asked the panel whether, in order for an insurer to provide flexibility of choice to all customers, that would that put more pressure on resources? More importantly, does that impact the premium price?
Ms Matthews said cash or replacement settlements have always been options. "This is about delivering a service to the customer; we need to talk to that customer about their individual needs to find a solution," she said. "We need the option of supply chains and it's important to keep that because many customers do want to take that option. Customer satisfaction shows that both can be equally important."
Ms Cuthbert added to this by raising the debate around alternative technologies and methods in the market. She referred again to the survey, which found that cash is the most popular method of settling a claim with consumers. With 48%, cheques were cited as the most popular method of replacement.
One in five would prefer electronic cards as the replacement method. Paper vouchers, with just 5% of the vote, were the least popular method of replacement. The survey also found that 58% of customers rated the importance of replacement methods at seven or above on a scale of one to 10. "We provide an electronic placement card," she said. "That enables the customer to choose what they like in a Comet store, while the insurer still gets its discounts." Ms Cuthbert asked if this was something the insurers around the table would consider and whether they thought it would speed up the settlement process.
Julie Smith, claims director at Insure and Go, revealed that her company is piloting this method. "This is new in travel - and it is also the first time we've gone down this route to provide a replacement service," she explained. "So far it is working well and customers have accepted this method without any concerns."
Ms Matthews maintained that while the card is a new process, it would still need to be just one of several options an insurer must provide. "A replacement card is similar to a cash settlement; the customer still gets a level of choice, but it would be limited to a particular store. That doesn't suit some of our customers and that's why it is only one of our settlements." Ms Dolan reiterated that some customers like to use a particular retailer and UIA would not insist on where they go to replace their item. "It's about their lifestyle choice," she stated.
Any improvements in the replacement services industry have been matched or even eclipsed by those in online shopping. The chair pointed out that aggregators make retaining customers more difficult as the opportunity to scour the market for cheaper prices is made more realistic. He asked if the internet had made the settlement process harder for the insurers round the table, and if that impacted the customer's expectation. Mr Bird argued: "It's useful because you can both be looking at the same information. Often that's what our teams are researching as well - so the insurer and the customer are both looking at similar types of information. We find it manages the expectations well."
Ms Smith agreed. "Certainly in the travel market we send copies of website addresses to our customers to inform them of what their value currently is. The expectation is there; while in household, a customer can buy a television for £5000 and find it has gone down - the same is true in the travel market."
Ms Cuthbert added that Comet allows customers to purchase online in the replacement process, and observed that it was always looking for ways for insurers to speed up the process. "Like-for-like replacement has its place; but it's costly for the suppliers, and costly for the insurers to manage, whereas you can achieve the same thing with a card-type solution that gives the customer flexibility."
The chair asked the panel if there were plenty of suppliers that offered a replacement service in the market. Mr Long admitted that the market is not as big as it used to be. "Insurers receive a service from their suppliers that is totally different to a customer going on the internet and buying an off-the-shelf product," he explained. "There is a cost element to those additional services that we require - that we include in our product package. Because of that, some companies have either consolidated or decided to exclude themselves from this particular market and have gone back to their core competences. Some of the retail market has also moved away from insurance replacement because of some of the complexities involved."
With that in mind, Ms Cuthbert asked if insurers expect more from their supply chain than a regular customer. Mr Long said LV puts a very high expectation on its supply chain to deliver every time, while Mr Stevenson agreed - he stated the same and gave the reason that the supplier was associated with the insurance companies brand and would be delivering on their behalf. The panel agreed that this may be the reason why many of the smaller players have left the market.
Every insurer around the table was of the opinion that the insurance industry has improved in terms of flexibility of choice for the customer. Ms Dolan spoke of significant improvements in the claims settlement process. "We would have large warehouses, where the various models and appliances would go out of date because the supplier would stockpile. Now we have many other areas, such as retailers like Argos and Comet, and also the web. We send out a survey for every claim we deal with, and our results show 84% customer satisfaction - and that includes every type of claim."
Also, the market's processes have improved in terms of the insurer's duty of care. As Ms Dolan alluded to above, insurers would only have access to out of date technology because the warehouses would stockpile. Ms Cuthbert added that in previous years, insurers would validate out of date cathode-ray tube technology (CRT - the technology behind monitors and televisions). She asked if it was acceptable for some insurers to stock-hold out of date technology for the next four years to keep down costs.
The panel all agreed that this would not be acceptable, and Mr Stevenson added that Hiscox would categorically not offer a customer CRT. "We would offer them an alternative. However, if they insist because there are CRT enthusiasts, we would offer cash settlement instead."
Mr Long added that issues like this regularly come up throughout the product lifecycle. "If there is something particularly unusual about that policyholder and claim, then everyone tries their best. The Treating Customers Fairly initiative has had an impact on the industry - it has given the insurance industry a chance to revisit its processes to make sure they are consistent. That has contributed to processes that have changed the market."
Mr Long added that the market and its processes had improved, but it would take the insurance industry a while to really experience the full effect of customer service levels. "Some insurance companies are further forward than others, but generally everyone is going in the right direction and we will see further improvement in the near future."
The panel all agreed that customer satisfaction results and feedback are now much more sophisticated than they had previously been used to. Ms Matthews added: "That has enabled us as an insurer to drive those settlement routes, whereas in the past it was all abut finance and neutralisation rates. Now we can look at the overall picture; we listen to customers, take their feedback and adapt our processes to create tailor-made products."
Mr Bird said he believed that from the customer's perceptive, the route to settlement is more effective when it is flexible. "There is plenty more distance to travel until we get that right," he maintained. "Technology and communication will change and then we will have to change our processes yet again. We can never divorce ourselves from the fact that this can sometimes be a traumatic time for people - therefore, you've also got to manage your own expectations regarding how satisfied you can make people in difficult circumstances." He advised the panel not to make assumptions. "Keep an open mind about the way the process has to evolve."
Ms Cuthbert said that Comet was keeping its research updated, and added that it will be interesting to see what the results are next year. "Sometimes insurers can be sceptical of new technology and reluctant to embrace what could help them, and normally as retailers a lot of effort goes into establishing what customers want from a retail experience," she asserted, concluding: "Insurers should be more open-minded - we are making these developments to help speed up the process, not to slow it down."
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