Identifying areas for improvement in claims has become a differentiator thanks to Covid-19 and the whiplash reforms

Personal lines insurers will need to place a greater emphasis on claims benchmarking, as the continued impact of Covid-19 and the upcoming whiplash reforms accentuates claims performance as a competitive differentiator.

Benchmarking is one of the most powerful forms of data analytics, used to measure competitor success and find areas for improvement.

Because an abundance of data accumulates in the claims management process, relaying critical facts about each claim, claims benchmarking provides valuable insights.

Claims benchmarking platforms, therefore, can help boost insurers’ performance - as well as the overall user experience provided to insureds and claimants - through improved use of claims metrics.

The Covid-19 pandemic, described as being unprecedented in its impact and one of the biggest insured events of recent times, could provide multiple opportunities for improving performance through benchmarking, as insurers have received claims across business interruption, life, critical illness, travel and other product lines.

The latest data from the ABI showed that UK insurers will pay up to £2.5bn for Covid-19 insurance claims.

Huw Evans, the ABI’s director general, said: “This data was collected from individual firms by the ABI in mid to late January - millions of pounds continue to be paid every week in claims settlements.

“However, we recognise the pandemic has also illustrated some uncomfortable gaps between what people expected to be covered for and what their policy was designed for.

“We need to learn lessons from this unprecedented event and redouble our efforts to improve consumers’ trust in insurance products.”

Under the organisational bonnet

Benchmarking involves comparing one company’s data and performance against the industry’s best, which helps identify opportunities for improvement and establish long-term goals.

Benchmarking evolved out of the quality improvement movement in the late 1980s and early 1990s.

Its initial intent was to identify leading companies, regardless of industry sector, and apply their best practices to other organisations. Over time, benchmarking has become synonymous with process improvement.

The traditional view of benchmarking required two separate disciplines focused on performance improvement: measures and methods.

Identifying and capturing performance indicators is the first step here. Developing and implementing performance improvement is the second, and most important, step for the benchmarking process to be truly effective.

Benchmarking doesn’t always have to involve comparing one organisation to its peers, however.

Internal benchmarking can be even more granular, by undergoing claims comparisons within an individual business unit or department.

Tom Helm, director and claims practice leader, insurance consulting and technology, at Willis Towers Watson, explained: “The Covid-19 pandemic has served as a watershed event, accelerating digitisation efforts and challenging insurers to understand better customer needs.

“The unpredictable environment that lies ahead, compounded by the upcoming whiplash reforms, suggests to us that consumers and businesses will increasingly rely on and choose insurers offering resources and tools that can best meet their needs, particularly as digital adoption continues to grow.

“The major boost in performance and user experience has sharpened the capability of claims, pricing, reserving and underwriting teams to independently analyse detailed claims performance against market data, track claims inflation and understand emerging trends.

“Claims benchmarking enables insurers to look below the layers of financial reports and really understand [how] they are managing their costs and serving their customers comparative to their peers.”

Trend spotting

Data analytics can improve claim outcomes and, in some cases, help to prevent future claims by identifying trends and outliers that may otherwise go unnoticed.

Earlier this year, Willis Towers Watson released Claim Metrics 2.0, a bespoke motor claims benchmarking platform specifically for UK personal lines insurers. The platform allows insurers to make their claims operations more efficient by digitising processes.

These processes use increased segmentation, making it possible to filter with granularity – for example, to compare average repair costs versus other subscribers.

This adds a level of sophistication when adjusting an insurer’s benchmarks to mirror its chosen business footprint or when seeking to diagnose the root causes of claims inflation.

Claims benchmarking also allows trend analysis. This is rigorous, fact-based analysis based on years of historical granular data.

Results can be presented on a settled claim, underwriting or accident year basis, as well as quarter-on-quarter development patterns. This enables insurers to evaluate the results aligned with their own internal approach, as well as gives invaluable context and insight into current and emerging market trends.

Willis Towers Watson’s Claim Metrics service is built on insights based on £14.5bn of claims spend, so it benefits from a large benchmarking pool.

Helm continued: “On a financial report, all you can see is your loss ratio whereas claims benchmarking takes how much has been paid out on your own customer vehicles, on repairs that your customers have hit or for sustained bodily injuries.

“Claims benchmarking takes it down to a completely different layer of measurement and understanding. It enables [firms] to see if [they are] spending in line with the market.

“Claims benchmarking gives the pricing, reserving and underwriting teams the ability to dynamically filter the results.

“It allows [them] to assess if average costs in certain areas are targeted for [their] footprint. That can help them better understand the pricing in their underwriting footprint compared to their peers. It can help them identify any new trends that are relative to that.”