David Lewis (chair) - Deputy managing partner, Weightman Vizards
Jonathan Clark - Senior vice president, Crawford &Co
David Grant - Head of multinational sales, NIG
Andy McBride - Dire ...
David Lewis (chair) - Deputy managing partner, Weightman Vizards
Jonathan Clark - Senior vice president, Crawford &Co
David Grant - Head of multinational sales, NIG
Andy McBride - Director claims management, Aon
Philip Wolski - General manager, sales and marketing, Brit
Paul Turtle - Managing director, Butterfield Bank
Steve Brindley - Managing director, Hannover Park
Andy Cook - Editor, Insurance Times
Innes Wood - partner, Weightman Vizards
We did some research just on claims, on satisfaction, and what's been most notable in the UK in the past two to three years, is that there's a high level of satisfaction of people understanding the claims process. They were reasonably well informed through that process and reasonably happy with the outcome, and I use the word 'reasonably' because of the way it was marked, unfortunately, we looked for excellence and we found that about 60%of the people considered a generic claim service giving an excellent result. That contrasts with Datamonitor, which found that, in terms of trust, supermarkets were ahead of the police and they were ahead of insurers.
I'm probably in the best position to be devil's advocate, not being an insurer. The insurance industry has improved no end as far as claims is concerned. I'm always surprised that the insurance industry generally doesn't get better and more press regarding its standing. From a commercial aspect, the insurance industry is a little bit remote from that perspective as far as my interaction with them, and there's still some work to be done on a PR basis to get the insurance industry in the mindset of people in this country.
It's very much an issue of marketing and brand here. We're in the same category as tyres, nobody ever buys a tyre unless he has a puncture. Nobody takes insurance unless he is conscious of that requirement. What we deliver is fabulous customer service and we need to step up as an industry into delivering fabulous customer experiences. It's quite a step for the industry to take, the difference between service and experiences.
You can also get the difference between perception and reality, because the vast majority of claims are handled very well with very satisfied customers. But, obviously, The public and business perception of insurance has not been altogether favourable, but can we change? Law firm Weightman Vizards gathers together leading figures across the industry and asks for their views it's a very small number that the press pick up on, because they always take the angle in terms of the nasty large company.
You seem to get a communication only once a year, which is probably the bad news, and there's no filtering through. A lot of industries these days send out regular newsletters and it might be that some of your organisations do. But it's not common within our industry to get this sort of bad news, such as liability.
That is something we're trying to work on. The clients have said "educate us throughout the year, if it is bad. If it is good, give us updates monthly, quarterly, whatever it is, but don't just hit us ". Turtle Sometimes there's a fear of giving too much notice to the clients, because they'll then shop around. In motor insurance, for example, I sometimes have to fight to get a renewal notice because people are so scared that they're giving too much notice of a renewal coming up.
What is driving claims costs in the casualty crisis here are legal costs and increasing damages, rather than the insurance industry itself. It's a reaction to those costs which are increasing well above inflation every year, and there's an element of catch-up at the moment from a soft market. And the other issue is reinsurance premiums.
This government is not necessarily a great fan of the insurance industry. But there is an issue with this government, as the insurance industry has the reputation of supporting what the government wants to achieve. It's quite telling, as you see the regulation going on now, that there's been some pretty heavyweight Treasury pressure to make it happen. The government was a little bit surprised to find itself having an argument over issues that it thought private industry dealt with, like flooding. It has been interesting seeing this government interact with the insurance industry.
The performance of the industry with the national press has been quite sophisticated in the past 12 months. Certainly, it has been reacting quickly enough on both employer's liability and flooding, to avoid having the finger of blame pointed at it unnecessarily, when it very easily could have happened the other way.
But it also sees the collapse of Independent and Drake as well. Is this industry well organised? Does it know what it's doing? What's its expertise? How will that play a part in how the regulator perceives that we manage ourselves? That has been an issue that has come out in the past couple of years.
How do the courts perceive the insurance industry?
Sometimes the courts don't understand what, as insurers, you're trying to do. Recently, in a Court of Appeal case, a medical agency had been used by the insurer to insure its medical expert. The agency was still in place, but the instructions were going through the insurer as well and solicitors were also involved. So three parties were vying to get the medical evidence. And the Court of Appeal was very critical. It said there were too many cooks here. No one had a handle on it. We have to have a straight line of instruction and it's getting in the way of fair justice for the claimant, because there are delays. One of the issues is that the court really hadn't appreciated why the insurer had gone to the medical agency in the first place as a way of saving costs and speeding up the litigation. The court had interpreted it the other way and said it was slowing it down. It hadn't appreciated that this was the way insurers and claims handlers were dealing with cases pre-issue.
There was substantial disappointment in the final civil procedure rules result in that, yes it speeded up the process, which all insurers supported -a lot of insurers had worked to that end in any event. But there was a feeling afterwards that the scales were, perhaps unfairly tilted in one direction. The biggest disappointment of all was costs. One of the main reasons, again, about the need for the reforms was to control the costs, legal costs; and the opposite has happened.
Are you looking to get more experienced people in your departments, whether on the broking side or the claims side? And what is the balance between process and service? How well do you think the industry strikes the balance between, on the one hand, striving to work together collaboratively to make the most of your collective position and to use your collective strength. For example, you could lobby in relation to rules, dealing with issues like fraud and issues like costs. On the other side of the line you could aim to differentiate yourselves from the competition?
I used to be in the construction industry at a time, about four or five years ago, when it was told by government that no money would be spent on housing or hospitals until it got its act together. So it decided to share information. It decided on the areas it would be competitive in, for instance, design. In non-competitive areas, information would be pooled. We are well behind the construction industry in terms of pooling information for best practice. Why aren't we pooling information for liability claims, both in the workplace and public liability? I understand it was done about ten years ago, but it has since stopped.
Do you feel as though it's too far towards competition and not far enough towards collaboration?
Yes, I think so.
You have to be careful of competition legislation and mindful of making sure that you're not acting as a cartel or colluding with competitors, but particularly looking at processes, costs and those aspects. The insurance industry has been very poor compared to other industries.
Regulation and those sort of changes might drive the industry big time. I've spent the past 20 years in the investment and life and pensions arena, and I look at something like CP160, that's just come out for the general insurance world, and it's just déjà vu. I see lessons that we can learn from the investment world. It's very interesting to see how distribution in the life and pensions and investment world has changed, how intermediaries have formed networks to get common compliance cost reduction. Regulation could drive an awful lot of change.
I would echo what Philip [Wolski ]said, being in the banking industry. To run a bank these days in some ways is easier, because the FSA tells you what you have to do as far as procedures are concerned. Therefore, to a certain extent, I can now get on with running the bank, because I know I have to comply and my back-office has to comply with what the FSA tells me. Parts of your industry are staring the FSA in the face for the first time, so I think it's going to be interesting times for you.
Yes, also if you come back to your earlier point about the courts, we do get lack of clarity from the courts because we allow things to be fought individually. If you look at fraud, we've allowed some extraordinary changes in fraud case law to come in through the 1990s, so that we've reached a point where we're probably not very certain what fraud is any more. That makes it hard for us as an industry.
The general sense from around the table seems to be agreeing with Andy's [Cook ] opening point that there is more that can be done on coordination or collaboration. Anybody any ideas of how we can set the ball rolling a little bit more quickly on that and begin the snowball effect? Does the ABI have more of a role to play?
I know the Association of Local Authority Risk Managers [Alarm ] collaborates quite well. Local authorities themselves attacked fraud and coordinated their investigations with the government and the DSS. That's something that insurers per se should be looking to do as well, just coordinating themselves more.
Defrauding an insurance company does seem to be pretty fair game and that there is a risk that if we do too much, create too much activity and collaboration in an area, all it does is actually suggest that it is fair game and it increases fraud rather than decreases it, so it becomes socially acceptable. Maybe the solution though is to do more at a pre-sales point-of-sale disclosure. I find this happens in all life and investment products. In the key features document it's quite clear what events are not covered, what limitations are on your product, what happens in the event of a claim and also there's a degree of clarity over what will happen in the event of the claim, for instance the evidence you have to produce.
We're back a little bit here to how the industry is perceived by the courts, by the police. That's because there doesn't seem to be a lot of support on the things that you might be doing for society's good.
What you should be trying to do is say, manage expectations, but really it's about telling people what the pressures are and what's going on. I've had people in the industry who've had a flood and often find it quite a process to go through. Perhaps we need to do more in terms of making sure we can provide that information to people when those events happen.
The question then is to what extent has the ABI claims code been useful. One of the things it was designed to do was to provide a degree of certainty about the process and the timescales that would be used across the industry.
Do customers think they're buying a product or a service? Do you think you're selling a process or a service? And how is that developing?
One of the things that's increasingly important is an understanding of customer industries. Their businesses are increasingly complex and unless you understand that business, there's no point in trying to go through a learning curve. You haven't the time to do it. You have to focus on your own business structures around, for example, industry specialisations for the large corporates.
Subconsciously, corporates are a bit more sophisticated than they have been in previous years. They're more fully aware of interlinking insurance products with risk management surveys and health and safety, and the fact that it all integrates into one. If the broker can facilitate that by thinking outside the box a little bit and not just providing an insurance solution, but providing health and safety, risk management and employment law -linking all that together -then that mirrors the client's expectations.
So far we've talked about services or products which are already available and where you're buying them from. But what are customers going to want in the future? Are there lessons to be learned from the US?
Today's market is a great opportunity. Having been over to Ireland quite a lot where, for instance, the property and casualty market is in far worse shape than our market, I found lots of loss adjusters who are making a fortune from managing claims out of people's huge deductibles, and offering risk management services that, perhaps they hadn't done before, getting direct access to the client and cutting out insurers. This is a huge threat.
We see a big demand from clients about total cost management. How do we look at the total cost of employment, which isn't just the cost of employers'liability, it's about private medical care, it's about rehabilitation, it's about pre-employment screening and training. If they look at their profit and loss account, a big part of the cost is salaries, and they have to make sure they're getting maximum value out of them. That's where brokers can step in, because they're discussing the cost of risk with their clients. In some ways the hardening market is the risk manager's friend.
You often see product improvement rather than genuine product innovation. It is much more about the processes, handling claims, news, greater use of imaging, all those types of things. We're seeing things like some of the contingent business interruption policies. Look at areas like loss of attraction, which has had a big impact in places like Prague. We've seen a lot of stuff on alternative risk transfers [ART ], although I'm not sure there have ever been many actually constructed. I know of about two ART deals that have been constructed globally. We're struggling to quantify some of the risks that business looks at and it seems to me there's still quite a problem. There will be new products, but it's difficult to know what they'll be at the moment.
Aon did a survey recently of its clients as part of the consultation process and one of the main outcomes was that corporates felt that the current system didn't meet their needs. So there is a desire for change. But then you have a number of choices at the end and it may be that some of those choices wouldn't meet those clients'perceived needs either.
The Woolf reforms were probably missold, We were all led to understand throughout 1997 and 1998 that, when the drafting was taking place and in the run-up, that we would have a nice fixed-cost regime that required people's mindsets to change. But that didn't happen and hasn't yet happened.
Look at claimants'legal costs as well. If on the one side you have the claimant lobby of lawyers or claims management companies, and then on the other side you have defendants, large corporate defendants largely represented by insurers, it is fairly obvious that one of those groups is a lot more quick-thinking and nimble than the others and opportunistic, and the result is where we are today.
It's much better to keep the customers you have than to be out looking for new business. While you have your own relationships with those customers, you have lots of people who are interacting with the customers on your behalf and your supplier chains. And we're part of that. In other words we have a relationship with your customers as well, albeit in a very small proportion of the work. Do you think you get the best out of your suppliers by using them as advocates on your behalf and them helping to provide an efficient service?
Insurers have made some big mistakes over the past ten years in how they approached procurement, because they failed to distinguish between procurement of professional advisers or partners and people who were providing goods, for example. So going down a very strict procurement route with people like solicitors or loss adjusters, lost them a lot of the value out of the partnerships they had. They had driven down the base line costs and apparently achieved savings. But the cost in terms of service is questionable. We've seen the defendant solicitor structure in this country eroded, partly because of how insurers have driven down fees, while at the same time the claimants'fees have risen dramatically. So if you are an articled clerk today who do you join? A defendant firm can charge £150 an hour. A claimant firm can charge £300 an hour. It's not a difficult choice to make.
That's a very big point because we have faced a drift of some of our better people out of the defendant side of the insurance industry world into the claimant side for that very reason. They can get double the rates and huge incomes from it, whereas in large areas of the insurance world that we deal with the rates have become almost punitive. And it's been very interesting from our perspective to see the very different ways that they've managed those relationships. In some cases it's been to work in partnership and to try to focus on the end customer's perception of the service. But, undoubtedly, there has been evidence of some insurers exerting dominance in the relationship and saying "you will do it this way ".
Historically, most insurer panel appointments, for adjusters and solicitors, were made by claims people who understood what they were trying to achieve through the process. But around ten years ago most insurers discovered procurement and they had new chief executives coming in from other industries saying "well, who's your procurement director? "After that the people who made the decisions didn't understand what they were trying to achieve. And yes they managed to save 10%on legal costs.
There's a broader question of strategies here. If you take the airline industry, there are three very distinct strategies. You have British Airways and it's not just about getting you from A to B, it's all about getting you there in comfort and so on. You have Virgin, which differentiates its services, and you have somebody like EasyJet which works on delivering service A to B at a lower cost than anyone else. As an industry we seem to think, well one minute we're in a focused strategy, the next minute we're in a differentiation strategy, the next minute we're in a cost strategy and muddle it all together. Maybe the insurance industry has to say: "Which one of the three classic strategies is really the one that's right for us? "
How many of you would say that in your own supply chain management and managing the relationships with suppliers, you have really focused on customers'interests in the relationship, as opposed to the financial relationship between you and the supplier?
We're doing studies of our suppliers. We ask them to have various guarantees in place for the customer which we will back up with some compensation if those guaranteed standards are met. So we try to have a kind of service agreement with those people with regard to how they operate with lawyers.