Reducing claims costs is the Holy Grail of the insurance industry. The Innovation Group and IBM sponsored a round table discussion of ten senior industry figures. This is part one. Part two follows next week
For every £100 that insurance companies take in premiums, more than £70 is paid out in claims and that doesn't include all of the overheads.
The cost to insurers is huge, but companies have seldom made attempts to drastically reduce it. That is, until now. With investment returns looking shaky, many chief executives are looking for claims managers to come up with savings that will make the end of year figures look better.
There are many opportunities to stem claims leakage. Some of the most popular options are:
Indeed, there is a bewildering array of choices. Which ones do you back? Spread your efforts across all of them or focus on one or two? To help clarify the situation, Insurance Times asked a panel of ten senior industry figures to thrash out the subject in a round table discussion.
Here's what they said
Jonathan Clark: Don't forget what business we are in. It is the ability to service claims and provide trauma support.
David Harris: One of the things that has damaged us is call centre mentality. Claims is not just a process. We are in danger of producing a potato-chipping machine. We need to build people's skills back up.
Jonathan Colson: The key is simplicity. We need a system where everyone knows what is happening and at what point in time - the management of events in a well understood sequence.
Jim Pittman: I run a call centre that takes one million calls. I need a process. But I need the right skills at the right levels in the right place. And I need a transparent process so customers can follow the claim and see we are performing.
Bill Pierson: The best value-creating companies have consistently better claims performances than their rivals. If you dig down, there is no single strategy that works. It depends on geographies, segments, distribution and pricing. But what is clear is that all of them have a fine balance of three things: loss costs, costs of adjusting, and customer satisfaction. Over-emphasising any one of these three causes distortions. Too much of a focus on customer satisfaction and costs run out of control.
Not one of the value creators I have studied in a decade has outsourced a meaningful portion of its claims operation. Studies actually said outsourcing led to mediocre performance. I worry about insurers that say they can't manage the claims process.
Technology is not the answer, but it is part of the solution. Where claims is not supported by world-class IT infrastructure, performance would lapse back more than 18 to 36 months.
Professor Gerry Dickinson: Handling the emotional side is very important. What came through from my work on the board of the insurance ombudsman is that companies do not look after their customers. If they looked after their customers, there would be no ombudsman.
Gareth Holt: The industry is poor at presenting itself. When we do good things, we do not get the message across well.
Jonathan Clark: If outsourcing didn't work, then car manufacturers would be managing herds of cows for leather car seats and running rubber plantations.
Management of claims must always remain inhouse because that's where you set how you want to behave. We have to know what the drivers are.
One of our key advances is rehearsal of claims. So if there is a flood coming we've got people ready with wellies.
Jonathan Colson: We're insourcing our claims. But we prefer rightsourcing. For instance, we now own four garages, because in that market it is right to bring garages in house and own the capacity. It all depends on the supply chain and where demand exceeds supply.
Bill Pieroni: For huge catastrophe claims you need to outsource, but what I was referring to were the core claims.
David Harris: We believe claims is a core competence for our organisation. Once you start outsourcing a core competence, where do you stop? Do you just become a capital provider? Do you do the underwriting yourself - yes or no?
We need to make sure our processes are mapped and we know where everyone fits in and where they add value. Manage the supply chain but never lose control of a core competence.
Jonathan Clark: We recently ran a fully outsourced claims function for a Scandanavian insurer and provided its first ever real-time feedback loop to the underwriting department.
Gareth Holt: Look at Ford's link with Kwik-Fit - outsourcing and supply chain management can work.
Gerald Finden: Supply chain management is a good example of the change in core competency of claims.
David Harris: The reason we have got ourselves in to trouble is supply chain management. We haven't taken time to understand what makes us tick. We have to ensure value from all sides and ensuring a sensible return for the supplier.
Is supply chain management just the latest buzzword for what we've been doing for years?