Alex Wise, from Eastgate Assistance, explains how outsourcing stops leakage and fraud in claims handling - but only if the price is right.

Outsourcing is 'in'. It has gained wide acceptance in the insurance industry as the most effective way of controlling claims costs and improving levels of customer service.

Not only do good outsourcing companies keep your customers happy but they also clamp down on leakage and fraud.

The argument that outsourcing was a danger for insurers because they would lose control of a core element of their business has been lost.

In fact the contrary is true. Outsourcing increases the control of claims because of the high standards the insurer can impose in the contract.

The insurer is then free to concentrate on the business of winning more business.

But the answer to cost control is not a simple matter of selecting the lowest cost alternatives.

If the standard of the service is important, which it clearly is, cheapest is not the best. After all, one in ten claims passed to the cheapest supplier results in a complaint.

The answer is to set Key Performance Indicators (KPIs) both to measure the claims team's performance and to ensure that the team is aware of what is being measured.

Typically, these KPIs will measure the response times in answering claims calls, claim lifecycle and service quality feedback from policyholder in terms of compliments as well as complaints.

But establishing KPIs is not simply a quick fix.

Once they are set they need to be reviewed and updated to ensure they remain relevant.

Using the right KPIs will limit the opportunities for leakage or fraud by continually reviewing and measuring performance against specific elements of the process.

In the outsourcing scenario KPIs will form a specific part of the service standards. Quite simply, if the KPIs are not achieved the service standards are not being achieved and the outsourcer is not performing.

Experience shows that the success of outsourcing is largely due to the close working relationship between the outsourcer and their client.

This partnership approach helps to build a service that achieves the objectives of excellence in customer service and control of claims costs.

The ability of outsourcers to provide responsive services, including 24-hour helplines that enable the customer to report a claim and have it validated over the telephone, can have a noticeable impact on fraud.

Dealing almost immediately with the caller eliminates the opportunity for inflating claims or fabrication.

Recording calls ensures that clear evidence is available for claims staff to review should a problem occur.

It also helps to prevent claimants resubmitting claims that have previously been rejected.

However, the balance between the level of service and claims indemnity cost is equally as important.

Eastgate Assistance finds that strict adherence to an established claims procedure, including the use of negotiated supplier agreements and KPI helps to prevent leakage occurring.

It is certainly true to say that if a claims team does not follow the 'rules' they will experience problems. In fact leakage and adverse customer feedback will be inevitable.

The use of an approved supplier network with agreed rates, customer satisfaction feedback and regular monitoring also has a role to play.

Claims teams must use these arrangements if leakage is to be controlled.

Supplier agreements for contractor services and replacement products provide control and clarity of costs.

Gaining the understanding and commitment of a supplier is a key part of the process.

If you have specific service standards that impact on the supplier make them aware so when you need them to perform they know what is expected of them.

Monitoring and feedback of performance enable them to understand what you want and, of course, eliminates opportunities for fraud.

The days of the outsourcer being viewed as a simple claims reporting service are long gone. Tackling fraud and leakage is integrated in the service.

The skills of their staff, supported by call centre technology and a close working relationship with clients can have a significant impact on these threats to the success of any insurance business.