Panel politics

Insurers' criteria for the selection of loss adjusters have changed greatly in the past three to five years. For the most part, the industry claims these decisions are not price driven and instead are focused on keeping the customer happy.

Unsurprisingly, it is the big five loss adjusters that dominate the panels more than ever, but the companies say this is not the result of having swallowed up their competitors through mergers.

The table overleaf shows how drastic some of the panel changes have been. St Paul International, for example, has cut its panel from 12 to three, while Direct Line's panel of 12 adjusters has been replaced by the dedicated use of just one - Capita McLarens.

While insurers accept that keeping costs down is part of the reason for their selection, most deny price is the driving force behind their choice of adjuster. CGNU spokesperson Liz Kennett says: "We have adopted a wide range of selection criteria, and although price was one of the aspects that was evaluated, it was not the deciding factor."

Optimum balance
During 2001, the company undertook a complete review of all loss adjuster contracts and, as a result, decided to move away from the familiar panel arrangement towards a more flexible basis of selection.

"The successful adjusters were not those that tendered the lowest price, but those capable of delivering the optimum balance of service and claims management to our customers," says Kennett.

The new head of loss adjusting at Royal & SunAlliance (R&SA), Bob Fitzsimmons, says the company looks at the influence and culture of the adjusting house before price and whether it can align that with what R&SA is trying to do with its customer proposition.

Price does not have to be a factor if a company instead reduces the number of adjusting partners, according to client relationships manager Kevin Larman at Cunningham. This, he says, will result in savings both in terms of administration and the costs of maintaining the relationship

He adds: "In the old days, when there were 12 different adjusters, the insurer's message had to go out to 12 sets of adjusters. You had to make them all consistent, you were dealing with lots of different issues, and actually managing all that was time consuming from an insurer's point of view.

"Now, the drive is much more to smaller panels, and panel is not a word that insurers use as much: it's more a partnership."

Fitzsimmons agrees and adds that the smaller number of large adjusters in the UK makes it easier for them to get a consistent service delivery. "In the past, insurers were dealing with perhaps ten firms on their panels and there was a greater risk of inconsistency.

"Nowadays, with just two or three, it is easier to get consistent delivery of service." If an insurer were to have a panel of as many as four adjuster firms, it would be considered an exception, he adds.

More communication
Some insurers such as Direct Line carry out an audit on the loss adjusters' files every 12 months, while others such as Zurich hold weekly liaisons between the claims director and the adjuster.

By contrast, Fitzsimmons says that while adjuster performance is under constant review, there is now a tendency to move towards signing three- to five-year contracts.

The dedication to service line by most insurers for the changes in adjuster panels, is given short shrift from some in the market. Malcolm Harvey is managing director at Loss Recovery Group.

He says: "Price is everything. In the past few years, most composites have been worrying about their cost line, particularly in service and claims. I think it always a false economy to study one year's total payments to loss adjusters with a view to cutting it down the next.

"None of them will admit this, but now most decisions are made by insurance company cost accountants.

"What they have been doing is working out national deals and strategies with the major adjusting companies, and this has been very much to their own detriment. They have removed from their panels a great raft of incredibly specialist and talented loss adjusters.

"We may well see here what has happened in North America, where it is very cyclical. Every four or five years the carriers there have a shake-out - either to national strategies with loss adjusters or by taking the role in-house.

"They then realise it is too costly and their loss ratios increase and they have to go outside again. It is almost a case of cutting off your nose to spite your face: they have cut their loss adjuster fees down, but to a detrimental effect on the loss ratio," he says.

Despite the apparent new desire for insurers to be customer focused, Harvey is sceptical about the trend for economy changing in the near future.

"It will take three years for the loss ratio to become apparent. By that time they will have a knee-jerk reaction and maybe start looking at specialist loss adjusting companies again."