Last year, the UK motor insurance industry ran at a £1.3bn underwriting loss. Net premiums amounted to £7bn, while total expenditure, including claims, ran up to £8.3bn. To date, the industry has largely accepted this situation - an underperforming core insurance operation, safe in the knowledge that profits can be shored up by investment performance.
However, with the volatility of today's stock markets and an uncertain global economic climate, the long-term viability of this business model is questionable, to say the least.
So what needs to be done? Insurance companies must drive profitability by improving the performance of their core insurance business, namely claims. This becomes even more important given a certain set of underlying changes to general insurance. These factors include a growing litigation culture, increasing demand on insurers to cover accident-related medical treatment, and rising claims for bodily injuries.
So what's the problem with the claims process? One of the primary culprits is the issue of leakage, the bane of the claims operation. For insurance companies, leakage represents a crippling and unnecessary cost during the claims process. It shows up either as the result of fraudulent claims or extra handling costs caused by administrative inefficiency. And with conservative estimates putting leakage at 8% of total settled claims, the resulting amount can be quite sizeable.
What is contributing to this inefficiency? Key factors include the amount of time lost to low-value functions, the high level of human intervention required in any claims case and the acres of paperwork involved in handling a single claim. On top of all this, there is the small matter of effectively managing all the relationships involved with any one claim. And these are just some of the likely causes. With so many stumbling blocks, you may be forgiven for thinking that effective claims handling is impossible, but this is not the case. The answer to the problem lies in technology.
An effective claims management system can orchestrate the bulk of the tedious error-prone processes tied up with claims, and reduce the time spent doing routine administrative tasks by half.
Using workflow automation, such a solution can tie in call centres and include specialised internet links for interested parties, so that information can be accessed easily and tasks triggered and monitored automatically. Easy integration in real time with a range of document, legacy and third-party expert systems, such as ISO's Claims Outcome Adviser solution or Glasses Guide vehicle selection, are also essential elements in speeding up the process.
A system like this can transform the performance of a company's motor claims process, cutting the costs associated with claims handling by as much 25% and helping to reduce reserves by up to 1%. For claims handlers operating in today's economy, this transformation is not a luxury, it is a necessity.
Michael Kelly is chief executive of Fineos