The ABI is trumpeting its claims code. Theodore Agnew is impressed, but says controlling claims by computer is the way forward
Congratulations to motor insurers. The Association of British Insurers (ABI) is hailing its own claims code as a resounding success. According to its recent survey, 86% of claimants were satisfied with the level of service they received when making a claim. And we all know that the acid test for a consumer is how well their claim is handled and that a bad experience by either a private or corporate client can result in the loss of a customer.
I can't help being impressed, if not a little cynical at the same time. After all, what motivation would the ABI have in demonstrating that its claims code was not working?
Putting my credulity aside, however, this high level of customer satisfaction has serious implications for such a highly competitive and cost-driven market as motor insurance, ones which are diametrically at odds with that well-worn phrase: "Laughing all the way to the bank."
True, motor insurance as a class now accounts for 28.9% of the total insurance market in terms of gross premiums. And the good news is that it was the fastest-growing insurance class in 2000 with gross premiums totalling £9.3bn. But the bad news is that it is also probably the most competitive insurance class in the UK with more than 70 insurance companies and numerous Lloyd's syndicates.
Intense competition means motor insurers are facing a difficult balancing act. The highly competitive nature of the business has created an industry in which customer satisfaction is in danger of eclipsing profitability. The consumer is being persuaded by insurer advertising campaigns to insist on low premiums and high quality of service. This has resulted in insurers having to put their money where their mouth is: on a premium service at a knock-down cost in order to survive - but at what cost? What's more, the pressure is on to hold down the continuing rise in premiums in a class where only three of the top 20 firms writing motor insurance in 2000 were able to show an underwriting surplus. This, together with the increasing cost of claims resulting from a host of external factors such as conditional fee arrangements and levies, begs the question if this pressure can realistically be sustained.
Cost of efficiency
Insurers can and, indeed, should take a share of the responsibility for keeping premium rises in check. After all, some, if perhaps not all, can be expected to benefit from this in the long run. In order to survive and prosper, however, it is imperative that they evaluate their operational strategies to focus on the degree of efficiency required to deliver a high quality service through lean means.
But is this happening? There are certainly some insurers who have looked to systems as a means to achieve competitive advantage, and more who recognise the need for change, finance permitting. However, during my years in the motor claims industry, I have learned for myself the enormous cost of achieving efficiency, both in both time and energy. This experience has led me to have nothing but sympathy for those insurers whose inefficiencies drive them into the red.
At Town & Country, we are fortunate in that our investment in claims software and web technologies is focused specifically on incident management and motor claims administration. Insurers have a host of objectives and priorities to address, which, in turn, means that their investments are diluted. The consequence is that the return on investment they can achieve is either compromised or takes years to implement.
Information systems cannot only improve claims productivity, however, they can also assist in other business areas. For instance, it is in the insurer's interest to provide corporate fleet clients with detailed and useful claims experience data in order to help it manage its risk effectively.
The right information about who is having the most accidents, and why, enables clients to address the problem at source, often through driver training. And tie-ups with service providers such as driver training organisations, not only provide financial benefits to insurers and fleet operators alike by addressing major risks, they also add value to the insurer's service. This helps to develop a longer and more profitable client relationship.
I have come across many cases, however, where our fleet clients are frustrated by the lack of claims information provided by their insurer. The result is the relentless rise in motor claims. The statistics relating to motor insurance make depressing reading: the cost of claims for private motor insurance has increased by 7% in the past year, while fleet claims experience is also on the rise, from 22% in 1999 to 26% in 2000.
I have no doubt that there will come a time when smart operations (either internal or outsourced) will provide the benchmark for the commercial success of motor insurers. Quite simply, there is no alternative. However, the stark evidence of what is happening in our industry points inexorably to the fact that this needs to happen sooner rather than later.
If it does not, insurers' shrinking margins will ensure that the systems overhaul and levels of investment required will be beyond their means.