Some insurers have responded to the current economic climate by cutting expert staff and making lower cash settlements. Muireann Bolger finds insiders divided on whether policyholders and the industry’s reputation are suffering.

AS THE recession continues to exert a grip on budgets, financial forecasts remain bleak. The Chartered Insurance Institute (CII) estimates that 6,000 jobs were shed in the industry last year and more are set to follow in a market where cutting costs can be a lifeline. Insurers have turned their spotlight on fraud to maximum brightness to help spot false claims. But this policy has led to concern that as the scramble to save claims costs intensifies, the interests of honest policyholders could be put at risk.

According to the Financial Ombudsman Service (FOS), the number of consumer complaints on claims settlements has risen by nearly 10% over the past year, with overall complaints about insurance services almost doubling to more than 50,000 from March 2008. Meanwhile, an Insurance Times’ investigation shows that some industry insiders believe vigilant cost-saving measures have resulted in a crackdown on the costs of legitimate claims and a rise in the number of dissatisfied customers.

A spokesman for the FOS believes the economic gloom has led to a hardening of attitudes from insurers. “Certainly we know that firms are looking at costs more closely. In the past they would have been more willing to make a goodwill gesture or perhaps meet the policyholder halfway, but insurers are now saying that they will not pay the complete claim.”

Brokers also have reported several cases where insurers have been excessively vigilant in assessing claims. “We have come across quite a few where claims should have gone through a bit easier,” says Biba’s head of technical and corporate affairs Graeme Trudgill. He adds that insurers’ zealous approach to weeding out fraudulent activity could potentially stall other claims.

More worryingly, Aon head of claims John Bell says the increased focus on fraud could mask a suppression in the costs of all claims.

“There is a major initiative on fraud underway, so sometimes it is difficult to tell whether claims are being slowed down because insurers are genuinely looking to see if there is anything untoward about the claim or whether they are just nitpicking.” Bell warns that claims handlers need to tread carefully before applying a one-size-fits-all approach. “Insurers have to be careful not to penalise the honest policyholder by applying the same procedure to every claim.”

Meanwhile, the unprecedented curb on cashflow is leading insurers to actively reduce the amounts that they pay out in claims, argues the chief executive of claims consultant Lorega, John Sims. “Insurers are not able to rely on sizeable returns from the stock markets and their investments are giving lower returns than ever before,” he says. “For every pound they take in, the biggest chunk they take out of that is on claims.”

He agrees that more settlements are likely to be delayed in the current climate as insurers step up their measures to ensure that every aspect of a claim is analysed. “Brokers are telling us that insurers are looking more closely at the cost of the claims. It is also likely they are trying to slow things down,” he says. “They are dragging the process out, taking weeks to come back, asking lots of questions and then asking some more.”

Bell adds that insurers are now more likely to appoint specialists to oversee every aspect of the claim, while reducing the level of interaction with brokers and clients. “Sometimes there is reluctance to share as much information as we would like to see.”

Quick cash settlements

By contrast, Sims believes that some insurers are rushing to settle claims in an effort to encourage the client to agree to a reduced settlement. “In this market where cash is king, a lot of insurers are taking the option of making lower quick cash settlements.” He believes this approach is taking advantage of customers struggling during the recession. “I heard that some insurers will come back with an unrealistic settlement. In many cases the client is in such a dire financial state because of the economy, that the offer is accepted.”

Others believe that any reports of inadequate handling of claims are simply a by-product of the loss of experienced claims handlers who are replaced by more junior, less expensive, staff.

Judith Gledhill, head of personal injury at solicitors Thompsons, says this loss of expertise has racked up the number of cases brought to court. “We are hearing that insurers are replacing experienced staff with junior people who are taking decisions on liability and who don’t have the authority to negotiate settlements,” she says.

“It means that we have to issue cases more frequently and of course that will push the costs up. I think it’s quite a short-sighted way of doing business.” Bell agrees that staffing can be a major factor when claims are delayed: “Insurers are straining to cut costs and reduce their head counts. There then can be delay in the process because there are not enough people to deal with the claims that are coming through.”

FSA guidelines insist on fairness

Nonetheless, some industry stalwarts are confident that while insurers are casting a beady eye on all aspect of the claims process, the interests of honest policyholders remain a priority. “Obviously fraud awareness takes a front seat during any recession,” says the chief executive of claims consultancy GAB Robins, Kieran Rigby. “Customer service is still pushed very hard. Costs are a major issue at the moment but when it comes to the actual claims we have not seen any change in how we want claims settled.”

Garwyn’s regional technical director Michael Maher believes that most insurers are careful to abide by FSA guidelines on policyholders’ rights.

“I think insurers have taken to heart the principles that the FSA set out with requirements to treat customers fairly,” he says.

“Policyholders who submit a bona fide claim will receive the same treatment that they have come to expect from their insurers. They have nothing to fear from them trying to wheedle out of claims.”

Meanwhile, insurers have strongly refuted suggestions that the recession has led some companies to compromise their dealings with claimants. Allianz divisional claims manager Roy Hebburn says the FSA guidelines act as a bulwark against any mishandling. “If we were putting barriers in the way of claims settlement, we would get a hiding from the FSA and rightly so.”

He also pours scorn over any suggestions that insurers are now tending to rush claims proceedings to tempt policyholders to settle for less. “We don’t want dissatisfied customers. I accept that we don’t want to overcompensate, but it is worse to undercompensate. If you shorten the cycle time and improve the service, that is going to have a positive impact on costs and that doesn’t reflect on the money that goes to the customer.”

Groupama technical claims manager Karl Parr says there has been close scrutiny of the costs of claims processes but is emphatic that customers’ interests remain unscathed. “We are all the more focused in the current climate to ensure that we do not have any leakage and that unnecessary payments are not made,” he says.

“We have invested in counter-fraud activity. These are the ways we are trying to manage our claims costs; not by taking advantage of policyholders’ positions.”

‘I don’t accept that we have de-skilled’

Both dismiss suggestions that policyholders have suffered because there has been a cull of experienced claims handlers. “You can’t get into the situation where you don’t have the right people or systems,” says Hebburn. “You need experience, particularly when dealing with customers and when dealing with fraud. Processes can be introduced that can be manned by less experienced staff but I don’t accept that we have de-skilled.”

Parr adds: “We pride ourselves on the technical skills of our claims staff and we feel that having experienced staff results in claims being settled more promptly. That is better value for our policyholders and better value for our shareholders.”

Sims believes the problems affecting the claims process could tarnish the reputation of the industry. “Yet again, clients are looking at the insurance industry, and they are not looking at us in a favourable light because the claims service is not particularly good at the moment.”

But Hebburn is adamant such fears remain unfounded. “If we were not delivering settlements as insurers it would be a very sad day for the insurance industry and I do not believe this is the case,” he says. “There is fraud and exaggeration and they have to be addressed, but not at the expense of the genuine customer.”