Two adjusters have recently launched new 'quality' systems for major loss claims, hoping to curry favour with insurers and address areas of dissatisfaction. Will others follow suit or are they sceptical about the new systems? Rachel Gordon investigates
The stakes are high for loss adjusters in the major and complex loss arena. If they mess up, insurers face spiralling claims costs through inaccurate reserving as well as the likelihood of delays. Adjuster incompetence can increase the risk of litigation and sours relationships between brokers, insurers and, of course, the insureds.
Major and complex losses are also where the money lies - particularly since so much of the domestic market is focused on cheap, volume-driven business. However, market sources suggest insurers have been increasingly vocal about their dissatisfaction with adjusters in a number of areas. These include adjusters using too junior employees, who may not have the necessary skills, at an early stage. Among the most common complaints is inaccurate reserving invariably set at too low a level, which results in an unexpectedly high final cost. Further irks apparently stem from experienced adjusters having a 'know-all' attitude. Equally, insureds can feel out of the loop and insurers want to know why particular decisions are being made.
In response, Teceris launched a new kitemark-style system called QCML - quality control of major losses - in January. Its aim was to tell insurers this was a firm with the expertise to secure the right outcomes for insurers by tightly managing claims. Adrian Cartwright-Bain, managing partner of Teceris, says the objective is to keep insurers as well as brokers, who often play a key role in larger losses, satisfied. He claims noticeable cracks appeared in the market following last summer's floods when adjusters were working flat out to cope with the huge number of homes affected.
Several adjusters flew in staff from overseas but they were also forced to deploy some senior staff who would normally have been focused on complex commercial work. And according to Mr Cartwright-Bain, some response rates stood at an unacceptable six weeks.
He describes the benefits of QCML as: "Tighter control of indemnity spend, client 'delight' and retention, and a team approach to the loss." He believes it will result in improved client retention as well as a better public perception of the insurance and adjusting markets. Mr Cartwright-Bain says although work was done on refining processes, the core elements were already there. "QCML was about putting a handle on what we do so that insurers would know we had the capabilities to manage larger losses. We wanted to reinforce what we offer, our culture and that we have undiluted expertise - we are not involved in small, volume business."
Within a month, rival Crawford and Company had announced its own new system: strategic loss management - a service package aimed at major claims. Mark Bass, who heads the 10-strong team, says the proposition was created in response to insurer demand. "A centralised approach with high levels of expertise can react more effectively than delivery by a branch network. We are clear on what we offer with SLM, which is aimed at claims over £5m, and through its emphasis on quality we feel this is a real differentiator." He explains transparency is intrinsic to SLM, since such claims may well be share-price sensitive.
His colleague Sarah Civil, head of global technical services, says adjusters must listen to insurers' concerns and react. "It was clear there were hot spots and it is vital for adjusters to have the right systems and be able to use scientific methodology, if necessary, to keep a firm grip on the financial values."
She adds that Crawford believes in ensuring all parties "have a voice around the table" and cites a further advantage as being the adjuster's number of accessible experts. "We've recently launched our own in-house forensic accounting team but, beyond this, we make sure insurers can always find out who is working on their claims and have CV details if required."
Mr Bass comments: "There has been a clear move to partnership ways of working and also adjusters who have the flexibility to work towards entrepreneurial settlements where necessary." These are where the strict terms of the wording may not be followed to the letter, but instead agreement is reached to achieve a pragmatic solution.
Graham Annand, UK major loss director for Zurich, says he is well aware of both the Teceris and Crawford initiatives. "Losses are handled well when there is close co-operation between the parties. I can see why some might be cynical about these new initiatives and believe there is a bit of smoke and mirrors involved, but I see it as adjusters working more openly and that is good news."
Mr Annand says he has experienced errors in reserving and seen costs rocket, but points out that Zurich is unusual in that it has its own dedicated in-house major loss team. "It works well: we have five experienced people who attend losses early and are there at review meetings. It means we have better control, can provide guidance and also benefits clients who can access fast interim payments."
But John Sims, chief executive officer of Lorega, says he has experienced some disappointing examples of service first hand. His firm provides adjusters to work on the insured's behalf, both in commercial and high net worth claims. "I joined Lorega from an insurer where high levels of service existed. But when I saw the reality of many others - and this includes the more complex commercial claims - I was horrified. There are still plenty of claims where service is about a cursory visit and ticking a few boxes. We are growing substantially in commercial cover because brokers are concerned about what will happen. And our adjusters have mainly become independent because they are sick of working for the big guys - they want to provide traditional and high quality service. We become the broker's claims department and that keeps clients happy."
Rodger Arneil, an independent consultant, says while raising the profile of the profession is good, he is cynical about these new labels. "The debate around service has been going on for 20 years and if this is a genuine move to improve it, that is excellent. My concern about kitemark-style approvals is that they need to be independently audited - and who is going to do that? Marketing is fine but, frankly, if we are not doing the job, we shouldn't be paid."
For the insureds
Neil Greaves, Marsh's leader of its forensic accounting and claims services team, says he often sits on "the other side" to insurer-appointed adjusters when representing clients. He comments: "Major losses are the crucial area for insureds. A lot have large self retentions and if they do rely on their insurer they expect a claim to be paid and effectively managed."
He adds that share price and reputational damage can result if the adjuster is incompetent. "I want an open relationship, dialogue and the best people on the job. I have experienced confrontational claims where adjusters have not been sufficiently experienced or approachable and the insurer has brought in lawyers - but what matters is a genuine focus on the client."
Corporate insurance buyers obviously want their businesses serviced to the highest level when they suffer a loss, and Paul Hopkin, technical director of the Association of Insurance and Risk Managers, says: "The nature and complexity of claims has changed. Look at the events of 7 July 2005 in London; this created some complex claims. Just think of the impact on businesses when the underground and areas of the capital are closed. With losses such as these it is not only about sorting out repairs; there are highly technical business interruption elements and disaster recovery skills required. I'm supportive of adjusters who say they have stepped up a gear but they need to keep evolving."
Evolution is a term Maggie Cowing, technical director for Cunningham Lindsey, says she is mindful of. "You don't need a whiz-bang new label; it's about constantly looking at ways of improving service. We look to enhance what we do and listen closely to insurers. Yes, they are looking harder at what we do and we welcome that."
She says even the most experienced adjuster has to now have in place processes to justify how a decision has been made. "We believe in allowing adjusters to use their flair and imagination to assist the insured, but they will also account for what they are doing and we have the tools and IT to assist with this. In terms of reserving, we tell insurers the best and worst case scenarios and allow tracking from day one. We also screen for fraud - you must provide a complete service."
Teceris has also argued that quality control is "the battleground for 2008" (Post, 10 January 2008, p6), but not everyone agrees. Peter Farrelly, regional field director for GAB Robins, comments: "Quality control is always an issue, but I would say service is the battleground." He adds: "Adjusters must listen to insurers and show they can achieve a reduction in the life cycle of a claim. Transparency matters as does having excellent IT behind the scenes, which also reduces costs, but that should be a given. You don't need fancy labels for this. We are responsible for spending the insurer's money and we don't forget it."
For their part, smaller adjusters argue they can offer a guaranteed service because they are more likely to only employ experts. Trevor Latimer, managing director of McLarens Young International, comments: "We have noticed insurers taking a more flexible stance and going outside of their panel arrangement if the case merits it, particularly if there is a broker nomination."
He says large and complex claims are the essence of what loss adjusting is about. "We only do commercial claims and believe in project management approaches. Insurers want more case conferences and face-to-face interaction - and we support this. We always take video footage and work with insurers and brokers at the loss site. It's been shown some of the larger adjusters came unstuck last year, so this has worked in our favour."
Joe McMahon, is chairman of Charles Taylor, a specialist firm that deals with aviation, energy, marine and non-marine on an international basis. "We are not about piling it high and selling it cheap; a number of our people have joined from larger firms because they want to focus exclusively on complex losses," he says. "These can range from offshore energy in Houston to earthquakes in Japan." Mr McMahon says the value of clams is rising and adjusters must have the ability to provide clear strategies for insurers, involving financial modelling, and be effective communicators. "We work on wordings with some insurers and, particularly in the US, I have been on claims where underwriters have turned up, wanting to know what is going on. That often means establishing a website so all parties stay involved."
And he says there are good examples out there. "Look at the recent hurricanes: little litigation followed. I think the Lloyd's market is committed to quality adjusting services as part of its claims service."
Mark Pocock, director with loss adjuster Buckley Scott, says his firm has recently opened a Fenchurch Street office to work more closely with the Lloyd's market. "Insurers want adjusters who really understand the issues of their policyholders. We have four distinct areas: property, liability, construction and engineering; and we guarantee there will be senior adjusters who know their markets." James Long, director with Davies International, agrees. "We always have directors closely involved with claims - they have input into everything." Davies also recently set up a special and complex loss unit aimed at claims in excess of £100,000, and Mr Long says: "This was in response to talking to insurers, but we won't be coming up with any extra names for what we are doing. We are too busy handling claims."
Meanwhile, Neil Ventris, managing director at Argent, adds: "We don't get involved in panels and in recent times have been asked to act more as expert witnesses - for example, when a large adjusting firm has mishandled reserves in property claims we have been called in by the insurer or solicitor. It is about highly experienced people who can produce tangible results consistently."
A number of players in the Lloyd's market prefer to work with niche adjusters. Ashley Lawrence, claims manager with Kiln, says he has a strong in-house team but also wants the flexibility to pick the adjusters he thinks are right for a particular claim. "We look at skills and past performance; what matters to me is plenty of experience and being able to put a strategic plan in place quickly. I'm pleased to see adjusters are responding to insurers: we want to work with firms that we feel are an extension of our claims department."
He adds that insurers that are solely concerned about driving down costs will potentially experience more problems because the claim will not be handled by top professionals. "If you are let down, you will have real problems. Leading insurers are measured on their willingness to pay and the way we handle claims."
There may be new approaches and it would be churlish to say these are not positive. However, boutique adjusters are making their mark - and insurers now have greater choice when picking their complex and major loss partners. This has to be beneficial and should drive quality upwards as well as be welcomed by brokers and insureds. The biggest challenge now is to ensure there are enough quality adjusters to meet future demand.
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