Insurance Post

Outsourcing - Staking a claim.

Hugo Cranmore examines the latest trends in outsourcing claims management and finds that attitudes are extremely varied

Attitudes towards claims management outsourcing range between the extremes - key for the virtual insurer but receiving an 'over my dead body' response from some in-house claims departments. Trends, however, are discernible. Sandy Dunn, chairman and chief executive of service provider BDML Connect, believes there has been an 'outsourcing bandwagon' effect during the past five years but feels insurers are now tending to reduce and economise on most claim services in-house. "In the main, insurers are keen to maintain control and, personally, I agree with that philosophy.

However, I do detect a shift towards loss adjusters adding a great deal more value since insurers offloaded more core competence claims work when they couldn't handle it themselves during the period of consolidation."

Mr Dunn also notes what he calls a 'nimby' (not in my backyard) attitude from certain claims managers. "This could be a problem for some companies that may miss out on the more specialist skills and facilities that could provide their organisation with competitive advantage," he states.

Outsourcing success

The success of claims outsourcing by some virtual insurers has stimulated interest, according to Gary Chambers, director of strategic business development at Cunningham Lindsey UK. He says there has been a change in the dynamics but a general reluctance to outsource in the high-expertise area of large claims. "There is, however, a green shoot of interest in desktop notification of loss and out-of-hours dealing," he says.

Round-the-clock access to facilities was a major driver in the outsourcing story, and is now taken for granted in most arrangements. Expectations have moved on and insurers increasingly want adjusters to demonstrate real added-value services while they retain control. Ian Muress, chief executive officer of Crawford & Company, UK & Ireland, believes insurers are prepared to consider imaginative solutions across the whole claims process. "We call this co-sourcing, with an approach geared to breaking apart any preconceived notion that the management of insurance claims is set in stone."

Systems investment can be another driving force. "The investment in IT is not attractive to all, especially in high-volume, lower-value claims," explains Mr Chambers. "People want real-time data. Many legacy systems still exist. Providers will either wait until they can invest and upgrade, or look to an outsource provider."

Lee Gladwell, business development director for Capita, believes the best synergy derives from using long-term outsourcing partners with the financial backing and investment in appropriate technology and systems. "Also fewer outsourcers doing a wider range of work," he adds. "Insurers are becoming more brand-aware. They do not want myriad outsourcers representing their brand."

A whole new industry of replacement suppliers has emerged, particularly in personal lines. Tony Le Fevre, managing director of Loss Management Group, says this growth is because the claims process needs product specialists rather than generalists.

Whereas five years ago the urge to outsource was largely tactical to solve operational problems caused by consolidation, the thinking is now more strategic, although this does not mean the tactical outsourcing of blocks of claims no longer takes place. Ian Bye, managing director of property repair network Multiassistance, says recent experience demonstrates that insurers will outsource during periods of growth, allowing breathing space for recruitment and office establishment.

Tim Rankin, managing director of Town and Country Assistance, has seen a significant number of small to medium-sized insurers deciding to outsource all of their claims management. "Squeezed on margins, they see outsourcing as a condition of staying competitive. We are also seeing the first signs of brokers outsourcing the whole of their claims management rather than simply aspects of it, although it is fair to say they are being more cautious."

Not every insurer is prepared to take this route. Simon Machell, customer service director at Norwich Union, says handling motor and household claims serves as the 'moment of truth' with the customer and, therefore, constitutes core business. "For this reason we choose to keep it in-house, other than certain parts of the value chain that another company can operate more efficiently and cost-effectively."

Core activity

Groupama also prefers to maintain close control, but claims operations director Graham Gibson says that is not to say it will not use loss adjusters on property claims or the occasional use of independents to complement the work of its own staff motor engineers. "For us, there are two fundamentals when handling claims - there's the quality of customer service, plus how we spend our money. Many of our competitors are outsourcing, but we don't see it as the way forward. Claims management is a core activity, and not something we would hand away. We are an 'intermediary only' company and our brokers need the assurance of always being able to speak directly with us."

Fortis Insurance claims director Rob Smale correlates the situation to manufacturing a car. "I'd be happy to buy the seats and other components from specialists, but I prefer to be in charge of building the car myself. Consequently, we deal with claims in-house, including first notification. We only outsource when there is a need for a specific supplier who can bring specific skills to the claim. It is a matter of the insurer's legacy, and outsourcing can be ideal for insurers that have inherited a relatively high cost base. Those with a different legacy can pursue a different business model."

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