The outsourcing of motor claims management to specialist operators is widely accepted in today's motor insurance market, but there are sometimes doubts that savings are really being made. Can outsourcing add value, or is it just another mouth to feed?
Many so-called accident management organisations have sprung up in recent years. Some aim to do little more than get as much income from the insurance industry as they can get. Such activities are the unacceptable extreme of what has become known as claims leakage and most insurance companies are wise to the problem, even though the solution may still be elusive.
Claims managers can usually identify the get-rich-quick firms masquerading as accident management, but even so, they need to know there will be tangible cost savings and enhanced customer service even when they do outsource to a reputable organisation.
In truth, insurers could do a lot more to make sure they are benefiting from any work they outsource. There is no reason why professional outsource service providers should not produce their audit trail. Or make their business culture and costing systems fully transparent.
The professional face of accident management must strive to eliminate any vulnerable market weakness, unlike the exploiters who take advantage of such deficiency for their own ends. Even when totally satisfied that the aims of the outsource company match their own, there remains the question as to whether the outsourcing of claims handling is really a benefit. Surely an insurer is better at handling its own claims than anyone else? Are there hidden extras somewhere to compensate the outsourcer?
The simple answer is specialisation. Otherwise it would be very arrogant for any outsource organisation to suggest they know best when it comes to settling motor claims. In a world where margins are squeezed to the limit, specialists can usually show savings. This is not merely because being a specialist means you can do the job any better. It is because the specialisation is the focus of everything you do.
A motor insurance company undertakes a myriad of tasks, one of which happens to be handling motor claims. This job inevitably becomes embroiled in the overall allocation of skills and resources, alongside all the other equally important disciplines. Within the insurance company set-up, the claims handling system usually has to compete with many other areas for funds and resources. Compromise inevitably raises its head and that usually means delays while the in-house resource is switched from one task to another.
This is particularly true of claims department IT. An outsourcer's IT focus on the other hand is clear – if we don't have a system, we don't have a business.
In my own company we supply our users with an ongoing figure representing the average cost of claims.
Significant strides have been made in controlling average claims costs. Indeed, our figures for the past three years show that our overall average has remained constant.
There is no single reason why this has been achieved. As often happens, the answer lies in a combination of factors. Computerised estimating helps us control the cost of claims. A well-established network of repairers, with whom we have enjoyed a longstanding relationship, helps towards efficiency.
In-house engineers also streamline the process, operating in a similar way to traditional staff engineers, with audits of their performance carried out by an external expert engineer.
The relationship between the insurance and the bodyshop industries was, and still can be, an adversarial arrangement. We proved in our pioneering work in this direction that partnership can work. We want to see a viable bodyshop industry, but naturally we expect our partners to perform, and they expect the same of us.
Claims leakage has always been a problem. The failure to monitor and control repair costs and to recover from responsible third parties or their insurers can be addressed by speedily tackling third party claims and giving unscrupulous credit hirers fewer opportunities. In our view, unless an insurer has dedicated staff permanently employed on this task, particularly outside normal working hours, then they will miss out. This unit should pursue recovery and nothing else, but the vagaries of holidays and busy periods often prevents that. If an outsourcer is providing a permanent resource to this task, particularly during the hours between 5pm and 8pm when most third parties are contactable, claims leakage will inevitably be diminished.
This idea of being proactive towards third parties has been a culture shock to the insurance industry. In times past, the opposite process was practised. Head down, and hoping the claim would go away is now seen as bad practice, not only in customer relations, but in keeping costs under better control. Not only are insurers dealing with their liabilities sooner, but they are making recoveries that much earlier. Possessing centralised recovery statistical information is essential. In the current claims department scene, recovery is often seen as a chore and neglected in favour of other tasks. Traditional claims departments should perhaps take a leaf out of the call centres' book and link staff's actual performance to incentive programmes which encourage more diligent pursuit.
While we save on insurers' front-end costs, we also enhance customer service. Online systems are the way forward. We currently operate system links to our clients, which means we can download policy data on specific claims to speed settlement. This information is read only so we only get the information we require to set up the claim. This gives insurers the security they require over their customer database. New developments in hand promise even better results, including system to system communication.
One delaying factor has been Y2K uncertainty. Now that is out of the way it is expected it will not be too long before routine claims can be handled electronically from beginning to end, releasing valuable people skills for the tasks for which they are best suited, such as customer contact and keeping claimants informed right through the process.
It might be asked that if we are taking on the brunt of call handling, why should an insurer spend money on enhancing their systems merely to help us to do our job better? It comes back to the partnership. Any savings we make have to be shared with the other partners, otherwise we become entangled in short-term thinking and quickly lose our way.
Outsourcing should be a major consideration for any user, whether fleet operator or insurer, and an essential part of their ongoing review process. You may feel you can do it better than the specialist, and are happy to commit to the permanent staffing, systems development, and the other add-on costs. If not, use an outsourcer. You may be surprised how good they really are.
- Richard Perry is director of Elite Repair
1. Visit at least two outsourcers to compare
2. Check quality of their file handling.
3. Ask for an audit sample of their current workload
4. Make sure this audit ties in with the perceived quality of service
5. Ask the supplier to demonstrate the control systems they have and how those are organised
6. Check how the diary system works and how quickly and often internal statistics will be provided
7. Ask for set service standards and proof that these are realistic
8. Ask the supplier to make their costs absolutely clear with no suggestion of anything hidden