The case for outsourcing is well made. Very few insurance companies have the required volumes of claims necessary to retain highly trained and motivated claims and restoration experts, the seminar was told.

John Spillane of Eastgate Assistance told the gathering that only the five largest insurers in the UK had enough claims volumes to support competitive networks of claims handlers. He also claimed that many insurers, even among the big five, had accepted that claims handling was not going to be one of their core management competencies. He revealed that his organisation handled more than 500,000 claims each year for a variety of insurers, which he believes is sufficient to provide economies and efficiencies of scale.

A representative of Europe Assistance in France told the seminar it had added value to its call centres by expanding beyond medical claims into motor and property losses. It had also formed a hands-on alliance with one of the largest loss adjusting groups, Texa International, to achieve critical mass. It claims to have driven down claims costs by as much as 20% to 40%. Most claims are relatively small and 70% of claimants accept cash instead of repair. A cash settlement is often a far cheaper alternative for the insurer.

Phillipe Roux, European president of Munters, says that fewer than one in three insurance companies now see a claims service as a necessary core service. The vast majority view claims handling as a service to be outsourced. However, he said that with only 25% of those who provide property restoration services delivering a quality service, the best suppliers of outsourced claims handling are beginning to corner the market.

For those providing outsourced services, the trick is to maintain and grow a quality service, says Roux. But, he stresses that there is a growing conflict over insurance companies acquiring assistance and recovery companies, while at the same time offering their own non-claims service.

“Strategically, claims service providers have to decide whether to extend their service, and if they do, how to maintain standards; whether to dedicate processes to one particular customer and how to adapt to a high number of transactions per insurance customer,” says Roux.

With each insurer having different rules on who does what, and how it is managed, the market can be very complex. Service providers must juggle the competing demands of insurers and keeping technicians busy and profitable. This can be difficult when contractors are used in high-volume, low-cost claims, while others such as roofers are used for low-volume, high-costs incidents.

Tony Boobier, head of the Royal & SunAlliance's subsidence division grabbed this particular nettle by demanding that service suppliers must make a choice. He says: “Service providers must decide who they are going to serve, they cannot serve everybody and they must back those insurers that give them the quantity and quality of work.”

Boobier adds: “They must choose who they want to work with, not least so they can incorporate their values into their own systems.”

Brand equals safety

Boobier says RSA believes firmly in the brand being the first tangible sign of safety and confidence for the insured in the potentially traumatic claims situation. So not only must the service provider be indivisible from the insurance brand, but the insurer will want to ensure that he has a monopoly of the service, otherwise how else can he differentiate his service, Boobier says.

He admits that this could be a source of tension and that service providers may have to start up dedicated offshoots to serve demanding customers.

Phil Manchester, senior supplier manager at Halifax General Insurance Services, says it tests and reviews its suppliers on a monthly basis, to make sure the service provided is not only of the right quality, but that it stays that way. Suppliers are expected to score at least 70% on its quality index. So thorough is Halifax in its demands that the bank has even checked its suppliers' capital structure to make sure that there is the capacity for growth.

Manchester said: “The whole idea of these checks and assessments is to achieve a partnership where the two managements implement improvements, which for Halifax will bring greater customer loyalty.”

But as Marks & Spencer and its long-time suppliers have recently found out, these partnerships can, when markets turn, come to an extremely painful end.

The deeper the relationship, the more expensive and difficult it is for the insurer to change its service provider.

As proof of the continuing pressure for improving services and decreasing costs, Karlheinz Poll of the German insurance company Allianz Versicherung-Aktiengesellschaft outlines how its loss adjusters had improved their productivity and the quality of their service by using an interactive claims system. This allows adjusters and insured to sit down and relay back to head office all the details of a claim and to agree then and there the cost of repair and replacement. Poll says this has not only cut down on adjuster visits but its transparency has increased the insured's satisfaction. There has also been a 5% cut in claims costs, not least because many of the exaggerated repair bills, fraud and bad repair jobs have been cut out. In addition, the system encourages better co-operation between service and restoration companies, Poll says.