All change, but how?

Are claims out of control? When you look at some recent claims highlights - four major hurricanes, a tsunami and a reserve shortfall estimated at between £43bn and £61bn - it would appear that insurers have a problem.

The number of complaints against commercial insurers over claims compared to the number of transactions is just not even chartable, it's so big. And our record on handling large losses is unbelievably poor.

A realistic assessment of the claims situation is that some of them are being handled well. But there needs to be a lot more effort if we are to progress further on the others.

The claims process is, or should be, very simple. It is the delivery of a bottom line promise that we will pay policyholders their claims in a timely manner.

But are we looking at process and procedure in the way that we should do? Leadership is important here. Because leadership is an important facet of what the claims community in this market has to offer.

Leadership capabilities
There are many claims specialists who have fantastic leadership capabilities and are backed by organisations that are prepared to stand by their decisions. But unfortunately they are increasingly rare.

It is heartening to see that claims are now on the agendas of senior managers, and more claims specialists are being elevated to positions of responsibility within organisations.

Three years ago there wasn't one document that mentioned claims in any significant fashion, aside from the Lloyd's reconstruction and renewal initiative.

But now, the Lloyd's market claims group has a business plan. It looks at what the market needs to do over the next three to four years be in a position to compete with any market anywhere in the world.

The Lloyd's franchise board introduced an outline of minimum standards and a claims agreement, to be implemented during the course of 2005.

Claims have reached the desks of senior management mainly because of the pure economics of losses. More chief excutives are realising the impact of claims on the bottom line of their balance sheets.

The industry has come to terms with the scale of the problem and has embarked on managing the process of change.

The force of change is mainly directed at people and skills. Most senior claims people have not been trained to be board members and have not been trained in management techniques. They have learned their skills through the world of hard knocks. That's what needs changing.

My vision would be that senior claims people would have the same status as actuaries, lawyers and accountants.

To achieve this, we need to work at a grass roots level, in the most fundamental areas such as qualifications. And we need to be training our senior claims practitioners to be good board members.

Claims specialist already have a range of executive skills, such as the ability to reserve properly, to negotiate savings on those reserves, and then manage to improve the bottom line. These skills are largely not recognised, even though they are being used day in and day out.

Data provision and processing are also significant part of our process of change. We are concentrating on developing audit requirements and reviewing all data functions.

The move towards claims management and key performance indicators will help to show what a number of us already believe, which is that the claims activity in this market has been first class. But we've never had the data to prove it.

We do need to have an overlay of process and procedure to prove that our purchases are effective. And during that process we will find that there will be inefficiencies and there may even be savings.

Any of the changes that we envisage just cannot be made without complete buy-in of the broking community. They need to be as much a part of this change as the underwriting community, and it is important that we engage them, and engage them early.

I have a view that certain roles and certain jobs currently done by brokers should be carried out by underwriters. For example, collecting our experts' fees. In the main, brokers are disinterested observers, and if we wish to ensure that we can get proper terms of engagement, proper terms of trade, and leverage our volume purchasing, we have to give those service providers certainty in terms of payment and certainty in terms of volume.

I for one would like to take a hold of those services and do it myself.

This is not just claims, not just new ideas and innovation within the claims community. It's everywhere. It's LMP; it's contract certainty; it's everything that we do. We must avoid falling into the trap of coming up with good ideas and leaving them to die of neglect.

Social good
Risk management and loss prevention are areas that we've never wholeheartedly thrown ourselves into. For example, rehabilitation services within personal injury in the UK market. I am a huge fan of that. It is a virtuous circle, in so far as it achieves a social good as well as a business good.

If you have an injured person and you are able to rehabilitate that injured person, you are doing that person good. Equally, you are driving down the cost of that claim. In some instances, moving from 24-hour care to somebody who can take care of themselves or maybe even go back to work on a part-time basis reduces the value of the loss significantly. That is the sort of risk management loss prevention that I'm looking at.

A particularly weak area is the claims process. The sooner we embrace electronic claims handling, the better.

We must maintain momentum. I'm looking at class, claims agreement and electronic claims agreement support. And in order for this to work effectively, for it to be introduced, it has to be everybody signing up to it, all of the underwriters and all of the brokers.

To a certain extent, the success of that is driven by piloting. And at the moment, there are relatively few people who are piloting. There must be a greater commitment to these pilots if electronic claims is to work. Adjusting claims electronically is also a vital part of any change.

Unlocking claims value is important. If we get our reserving correct, we buy our services properly, we are more efficient, and we deliver a better product to our client, it will improve our bottom line, it will improve our business, it will attract business, and it will be a distinguishing feature for us.

This is where I think that a number of chief operating officers, many of whom have come from outside of our business, have spotted that this particular sleeping giant needs to be woken up so that it can add value.

But a lot of these initiatives will only occur if people wish them to occur. People are going to have to change the way they do things, such as handling claims manually with a broker sitting next to them and a paper file. It's going to be very different in the electronic world and people are going to have to change.

It is not just claims people, but also senior management and organisations. Probably this is the biggest challenge in terms of bringing about these changes.

Claims will probably never be under control in the way that some people would envisage. There will always be the natural catastrophes that will cause significant disruption to our market. But we can add significant change and value to the bottom line of our businesses, more so than we've been able to do in the past. IT

' Gary Bass is with Faraday Underwriting