A customer’s bad claims experience and the overall reputation of the insurer can have a correlating impact on claims costs, agreed expert panel

Insurers need to look to their reputation and to delivering a good claims experience if they want to mitigate any “hidden” claims costs within their business, said Peter Emson-Sewell, delegated claims, process and governance lead at MS Amlin.

Speaking at a webinar hosted by Gallagher Bassett, titled ‘Opportunities and outcomes 2021: Understand the true cost of claims for insurers and improve financial outcomes’, Emson-Sewell said that an insurer’s reputation clearly correlates with its claims costs, making it something that more businesses need to bear in mind.

He explained: “The claims experience is a shop window for most insurers these days. There are narrower and narrower differentiators between insurers, so it really comes down to that service provided.

“When you have grumblings from customers that they want to leave because of a poor claims experience, that is a hidden cost that doesn’t always get highlighted.”

This point was supported by Peter Edgar, head of motor claims operations at RSA.

Providing further detail, he said: “When we’re looking at the true cost of claims, there’s the traditional measures of the operational cost, the indemnity cost and the customer triangle that most carriers will talk about – having that balance is crucial. How we reserve cases is a true cost of claims as we’re looking at investment and actuarial projections; they’re key for us as well.

“What’s often overlooked is reputation. It’s often overlooked from a claim department [perspective] that what we do has a direct impact, not only on the industry but on our customers and our policyholders. How we manage claims for them, how we manage claims for ourselves and how we control those costs – it really is where we come to play, where we come to the fore.

“The claims department and claims department’s supply chain is the heartbeat of any insurance company. We are what the policyholder is buying; it’s how we react, where we make the most difference, so when we look at the true cost of claims, we should always be considering our reputation.”

Gordon Vater, director of the carrier practice at Gallagher Bassett, added that reputation is very important – regarding the business interruption (BI) test case and the reputational fallout, he said that the insurance sector could be better at explaining what it does well.

Furthermore, for him, a poor claims experience has a “direct effect on renewal”. Despite this, for many customers insurance is a “grudge purchase” which means it can still be “price sensitive”, especially in motor, Vater added.

Whiplash reform education

If insurers don’t want another business interruption-sized dent in their reputation next year, Edgar recommended that they look ahead to the whiplash reforms.

He explained: “With the whiplash reforms, we’ve committed to passing on £35 [worth of] saving back to the customer. That’s a commitment that the industry has made and will deliver.

“At the same time, the cost of repairing motor vehicles is going up, vehicles are much more complicated now. A bumper on a Volvo used to cost £200 to repair, it’s now nearer £700, £800 because of the amount of tech that is in this vehicle.

“At the same time as the industry has said we’re going to pass on savings, the end user, the costs are probably going to go up or won’t change, so the customer’s not going to see that difference. There’s lots of reasons for that.

“From an education point of view, how we explain that is key to what we do reputationally. We need to be very cognisant of that and we need to have the right controls and the right visibility so that we can explain that situation, whether it’s to a fleet carrier or to a private motor person.”

Claims costs

In terms of other factors that influence claims costs, Edgar noted investment in insurtechs, while Emson-Sewell said there could be hidden operational costs within governance requirements, for example around staffing and system costs. As this isn’t tangible as such, it can be difficult to predict, he added.

According to Vater, there are challenges ahead in terms of factors that could drive claims costs – primarily, of course, this is centred around Covid-19. For example, Vater said accurate forecasting around claims volumes has been tricky and there are also coronavirus claims themselves to consider.

Equally, the FCA is “bearing teeth”, he said, noting the additional compliance costs that may surround dual pricing actions.

Talent is a further challenge. Despite claims being very much a “people business”, Vater added that technology is here to stay, which means staff will need different skills and more technical knowledge in order to deliver services.

Emson-Sewell agreed with Vater’s point around talent – he noted there has been a change in roles and responsibilities within insurance organisations.

He said that there has been an uptick in the number of younger professionals entering the market who have keen, technical knowledge, however he believes this has to be balanced with more senior, experienced insurance colleagues so that there is not a disconnect. Both skill sets are needed, he added.


Meanwhile, Edgar observed that digitalisation within the claims journey is occurring, however he emphasised that this has to be part of a broader communications strategy that incorporates a range of different methods, for example phone calls - Edgar warned that digital is not a “catch all”.

One of the advantages of digitalisation, however, is that it can produce better management information and data, Edgar continued.

Plus, it is cheaper to operate and there is a high customer demand for this type of interaction with insurance businesses, although staff will need to be trained in order to have the right skills to operate any new technologies being used.

Vater added that technology is an enabler, not a panacea.

Fraud focus

Fraud is also still a prominent issue for the claims sector, noted Vater. He said he has seen an uptick in fire claims for out buildings that allegedly contain a lot of contents as well as some “dubious” claims from SMEs around retail premises.

Furthermore, BI claims are also being affected by potential fraud due to financial desperation caused by the Covid-19 pandemic – Vater added that claims management companies could assist insureds in getting their claims paid, however this could lead to inflation.

Vater warned, however, that the industry shouldn’t lose sight of genuine claims – paying these will help to rebuild customer trust in the industry.

Edgar agreed here, noting that insurers shouldn’t put genuine claimants through an “arduous” claims journey, as if they have not committed fraud, then this will lead to more reputational damage.

Other fraud trends Edgar has seen include exaggerated claims, which be believes is a cultural issue, and ghost broking.

The session, held on 20 November, was chaired by Peter Diskin, chief client officer for the UK at Gallagher Bassett.