There can be few claims managers who watch the announcements of claims panels without experiencing increasing levels of concern for the loss adjusting community and its ability to meet the levels of service demanded by insurers in the 21st century. The market could well be heading for trouble over the “musical chairs” of loss adjuster panel appointments.
The risks increase as contracts get bigger and the terms get closer to being uneconomic. There are some who will accuse insurers of short-termism – deals that are too tight could push loss adjusters to the edge because they simply cannot afford to service the insurer at the agreed prices.
From an insurer's viewpoint, and it is one we at Allianz Cornhill concur with, there has to be a benefit in creating long-term relationships with a limited number of partners. This provides stability, consistency of service and more standardised processes that improve efficiency. These factors, coupled with concentrated, and sometimes guaranteed, volumes, help panel partners to more effectively manage their costs, which is to the insurers' advantage, while still maintaining their margins.
It's important to remember that there has to be a mutual benefit in such contracts; otherwise, potential panel members will simply walk away. There is only limited short-term advantage to an insurer that seeks to strike a deal loaded in their favour and face the very real prospect that their partner might not survive the length of the contract. The insurer's reputation will certainly precede them for the next review and tender exercise, and they could find they are unable to secure future services.
It follows that insurers need to balance immediate needs with longer-term interests. Because services will be required in the future, insurers have a vested interest in making sure that there will be a variety of competitive service providers in the market from which to make a selection.
For most services, there is a healthy competition and choice at present, but there is a genuine risk that loss adjusting may soon approach a crisis point. Some insurers and loss adjusters appear to be playing a game of Russian roulette with large contracts on offer but with tight terms and potentially unrealistic penalties. The handful of loss adjusters capable of servicing these contracts are facing the dilemma of whether it is better to be in, and risk bleeding to death slowly over the life of the contract, or better to be out, and suffer the sudden haemorrhage of downsizing in a hurry.
Loss adjusters are not the only ones facing a dilemma. Insurers with lower volumes of business may be reluctant to engage in a partnership with loss adjusters carrying one of the big contracts. This is partly from concern at their long-term viability but more particularly because of suspicion that they would get a second-class service and be asked to pay fees at a higher level to subsidise the large contracts placed by their competitors.
Curiously, this might have the effect of encouraging some insurers to look to the second-rank adjusters and, over time, build them into major players.
Importance of industry players
The industry needs healthy competition. But it can only sustain this provided enough players are able and willing to play and their shareholders can see value in continuing to support them. If an adjuster was to go bust, the claims would not stop and finding the available capacity could be extremely hard in the current market.
What I have been talking about is a responsible attitude towards partnerships, a principle which should extend to all claims service providers. I am not a fan of the word “outsourcing”. To me, it implies we ask somebody else either to do something we are already doing for ourselves or something we think we ought to be doing. I prefer the word “partnership” – this is a much more accurate description of our own relationships.
Apart from anything else, we have the keenest possible interest in maintaining control over what is done with our money and in the name of Allianz Cornhill.
There are times, such as when the need for specialist services or expertise arises or to manage activity peaks, when external partnerships are crucial. When we do look for a partner, we have very particular requirements. Our partners must:
Allianz Cornhill recently formed a partnership with CWA to launch Claims Start, a 24-hour motor claims reception service which went live in May.
Partnerships have to be able to deliver value, not only to both partners but, most importantly, to our brokers and to the end customer – the policyholder. It is about service as well as cost containment.
At Allianz Cornhill, we regard it as our duty to equip ourselves to provide and deliver all the essential services to be expected in an insurance package. I believe that at the forefront of this pledge is claims handling.