Competing on claims

Commercial insurance buyers are concerned over insurers' willingness to pay claims and would like to see this benchmarked against key performance indicators. But would insurers be prepared to publicly compete against their peers in this way, asks Veronica Cowan

"We never forget you have a choice" went the marketing slogan for British Caledonian Airlines - but it could equally apply to insurance buying. More specifically, it reflects the current call made by the Association of Insurance and Risk Managers for a commercial claims league table to serve as a reminder to insurers that companies with a large premium spend do have a choice - and are keen to exercise it in an informed way.

In March, Paul Hopkin, Airmic's technical director, publicly voiced the continuing concerns of commercial buyers over insurers' record on paying claims - citing a wide variation in willingness to pay, combined with a lack of available data to compare performance (Post, 15 March, p2).

He explains that members can face big claims as well as high volumes of smaller claims, with compulsory classes of cover. "The biggest UK recent catastrophe was Buncefield, and there are statistics around businesses closing, so risk managers would like access to a claims index before they place business." He adds that, while an insurer's financial capacity to meet claims is important, so is its willingness to pay them fairly and promptly.

Fairness and transparency

Fair play is at the heart of initiatives like the Financial Services Authority's Treating Customers Fairly regime, and the Unfair Commercial Practices Directive, set to be transposed into UK law by June and directed at outlawing sharp practice. So what are the real issues of concern to buyers - is it just speed of payment or attempts by insurers to avoid policies altogether?

Many commentators perceive the laws on non-disclosure and breach of warranty as too harsh, and traps for the unwary. The Law Commission's current proposals to reform them will be set out in a consultation paper this summer, whose raison d'etre is likely to be that consumers - and in some instances businesses - should not suffer a complete loss of rights if they have acted reasonably. Dominic Collier, an associate with Eversheds' insurance litigation department, comments: "It will become more difficult for insurers to obtain remedies and to resist paying claims. In cases involving innocent misrepresentation or innocent material non-disclosure, insurers would no longer be able to avoid the policy. In cases involving negligent misrepresentation or negligent material non-disclosure any remedy would have to be 'proportionate', which is unlikely to include totally rejecting the claim. The commission now suggests that these changes should be mandatory in business insurance."

This means Airmic members would benefit from some of them, although the issue of how different insurers apply the law would remain. It is these differing approaches that Airmic members would like to see set out in a table of key performance indicators and Mr Hopkin confirms that the latest member survey conducted will be presented next week at Airmic's conference on 5 and 6 June: "We are not looking to 'name and shame' but some insurers have a reputation for being poor payers," he explains, "and one way to find out if this perception is justified is to have an objective survey on how well different insurers handle claims."

Insurers seem to want to keep their powder dry until the Airmic forum, although Sebastian Kadritzke, spokesman for XL, tactfully keeps the lines of communication open: "We would be very happy to discuss this initiative with Airmic. We would be especially keen to understand more about how the performance would be measured and evaluated."

In the absence of specific company comment, what does the Association of British Insurers make of the proposal? "My initial reaction is that any company worth its salt must be committed to paying valid claims as quickly and efficiently as possible," says Malcolm Tarling, general insurance spokesman at the ABI. "To do otherwise would be commercial suicide." He adds: "We did a bit of claims benchmarking several years ago in connection with monitoring compliance with our claims code but this was superseded when the FSA took control of implementing and monitoring the Insurance Mediation Directive (Conduct of Business Rules)."

As to what kind of factors Airmic plans to focus on as key performance indicators, Mr Hopkin has devised a list which neatly translates into the acronym 'Praise' (see box, p26). And presumably the choice of word is intended to convey the message that this is about persuasion rather than prescription. Mr Hopkin accepts it is difficult to measure performance in the commercial scenario, given that big claims do not normally fall into a formulaic model. That said, this might be an area in which the consultation on the claims process issued by the new Ministry for Justice could affect the issues raised by Airmic - at least in respect of smaller claims.

Steve Thomas, technical claims manager for Zurich, comments: "Claims up to £25,000 will be more streamlined, with a reduced role for claimant lawyers in personal injury claims. For commercial customers - like employers' liability or big companies with a large motor fleet - it should speed up claims."

Higher value commercial claims will not fall into that regime, and Mr Hopkin's hoped-for index remains at the scoping stage. "I appreciate how complex it is," he comments. And he is wise to tread carefully because, notwithstanding the odd rogue insurer, claims are repudiated for reasons that are many and varied, and some might argue that the concept of a league table is overly simplistic. It will certainly put the cat among the pigeons, but perhaps that is Airmic's aim. In seeking the effective pooling of confidential information about insurers, the trade body could be pitching higher than it knows it can achieve - a bit like a trade union seeking a 50% pay rise, knowing it will settle for 10%. And if it makes the big established insurers take a fresh look at themselves, that is no bad thing.

Building credibility

There is certainly no room for complacency when you are a relatively new-kid-on-the-block, which is why Alan Barlow, claims director at Endurance, is willing to address the issues. "Newer companies have to build credibility externally, but we started with a blank piece of paper, not encumbered by old claims and legacy issues." He insists that in writing a property insurance book of business, performance is measurable. "Although personal injury claims are easier to measure than commercial - where we don't have frequency but do have severity - there is a responsibility to write the risk properly. If you understand the clients' business, and risk-manage it properly, you are more likely to meet the claim. We are there to protect the corporate asset, and as an industry we should be measured."

Noting that a co-insurer could be tainted by the poor approach of a lead insurer, he continues: "That is why being the lead insurer is the best way to manage a claim. Key matters should be dealt with quickly, such as notification, instructing experts, keeping in touch, being proactive in facing issues and, above all, flexibility." Stressing the importance of reputation, Mr Barlow observes that the best performance indicator is whether the company renews its policy.

Loss adjusters are at the sharp end of claims handling, and therefore likely to be affected by any attempt to benchmark insurer performance. While Maggie Cowing, regional specialist director at Cunningham Lindsey, acknowledges that there are "exceptional cases where there are unnecessary delays", she says there is often more variation between claims from the same insurer than between different insurers. "The typical issue is policy liability, and the need to ensure a policy condition has been complied with. This can take from a week to several months, but I have not detected a trend towards a reluctance to pay. If anything the pressure is on us to deal with claims quickly because insurers are aware of their brand image plus FSA requirements on speed of claims and payments to be made."

Quite understandably, one aspect Airmic considers very important is having well-trained, experienced staff, but Ms Cowing argues that insurer de-skilling is less in evidence in commercial lines. "With large commercial claims you still find the claims handlers are experienced; there does seem to be a concentration of experience at the higher level." She notes one factor that might slow up the handling of large claims is that "as the claim gets bigger it is higher profile and more is at stake, so it is looked at in more detail." Presumably this is why Airmic also considers authority levels and escalation of claims a key factor for scrutiny.

Brokers are the link between commercial clients and their insurers, since so little commercial business is sold direct. And Mr Hopkin points out that the big brokers are already looking at key performance indicators - they just don't have the same models. "If you are talking to a single broker it will rate all its insurers in the same way, but our members cannot compare what Aon, for example, says about an insurer with what another broker says, because brokers are developing different indices. I would hope insurers would welcome being measured on a single standard."

Yet some people might think that asking insurers to share sensitive information, which could show them in a bad light, is like expecting turkeys to vote for Christmas. The chances of getting any meaningful index demonstrating a single standard must be slight, given that brokers and insurers are competing in the market place, and - just like Airmic's members - will be fiercely protective of their commercial data.

Keith Tuffin, a forensic accountant and partner at RGL specialising in business interruption, does not think enough information could be gathered to have a credible league table, and comments: "During the claims process, the key is co-operation. An insurer would be reluctant to pay without information, and commercial clients don't always provide that as quickly as they should." However, Michael Annison, head of claims at Marsh, supports the concept of insureds having a formal benchmark on the expected speed of payment and a formal monitoring of the actual performance, although he spells out which areas are appropriate. "The three key stages of the settlement cycle, which ought to be measured are presentation of documentation, insurer agreement/acceptance (including proof of loss if applicable) and transfer of money. The more subjective and difficult measurement is the willingness of insurers to pay, which impacts on the negotiation time between presentation of the claim by the client and insurer agreement. In the current climate we undoubtedly do see some insurers taking a policy point where there is opportunity; opinions can vary considerably in a disputed coverage situation, which is where the brokers' claims advocacy capabilities are vital."

Fraudulent claims

Perhaps one aspect insurers are entitled - obliged even - to bear in mind when investigating claims is data that shows the cost of commercial insurance claims fraud to be £550m each year. That is bound to have an impact on investigation times. Larger firms are the most likely targets for claims by third parties - a MORI poll in 2005 found that 64% of companies employing more than 500 staff reported at least one fraudulent personal injury claim by a member of the public - but insureds themselves are not immune from exaggeration and thus fraud. In the same survey, some businesses revealed that they committed commercial insurance fraud for gain, because 34% believed policies might not cover all the costs involved, and 31% simply wanted to claw back the money they had paid in premiums. So any bad faith is not all one way, and figures released on 9 May saw the ABI estimating the cost of fraudulent insurance claims generally to be more than £4m every day - equating to £1.6bn annually.

While some information might be shared and standardised, Airmic might do well not to hold its breath on being able to publicly share sensitive information. But individual member access to brokers' own indices could be about to improve. Willis' global network devised a 'quality index' last year, and is now developing a pilot to get the right type of measurement on factors such as how insurers pay, and policy accuracy. "But this will not be shared with other brokers, and we are not intending to publish a league table," says Sally Bramall, managing director of global market security, adding: "We want to foster a positive relationship, and ensure insurers understand what information we are recording in a responsible way to drive up standards and help insurers and re-insurers decide who to partner with, so decisions are made on more than just price."

Observing that Airmic's focus is wider, while Willis' is limited to clients, she reports that the reaction from insurers has been positive. "They are keen to be recognised for good service, and we are doing it privately with insurers to help them do better." Although Willis has developed a scoring system, it is not telling the carrier exactly where they fall within it but giving them an indication within a general category, and "not comparing apples with pears". According to Ms Bramall, the detail will be shared in the next four months: "We want to be able to tell the Airmic member which is the best, and the relative merits of going with a particular carrier. Companies have different needs, and it is not a claims scorecard."


Procedures insurer has for notifying/handling escalation of claims

Resources devoted to claims, including staff experience/training/retention/quality

Accuracy of interpretation of policy wordings by claims handlers, ensuring all work to same level

Impartiality by even-handed implementation, approach and objectivity

Speed of investigation and settlement

Evaluation of insurers' own performance.

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