Lloyd's has developed an efficient, peformance driven claims system which is helping syndicate profitability. Bev FitzGerald and Alex Murray explain
The news that eight out of the top 10 Lloyd's insurers have increased their capacity for 2007 is further proof of the healthy and profitable state of this market.
It's a market which has been counted out by the media more than most British heavyweight hopefuls. However, unlike that hapless breed of sportsmen, Lloyd's doesn't go down – it just gets stronger. The liberalisation of the US reinsurance market will only encourage Lloyd's even further.
This is because Lloyd's remains the most entrepreneurial, flexible and innovative insurance market in the world. It leads where others fear to go.
For example, a third of the waste from the world's energy plants and a quarter of all wind farms are insured at Lloyd's. A lot of this success has come from facing up to the challenge of claims. Last year, Lloyd's paid out £9bn in claims, accounting for 80% of its costs.
In recent years there has been a whole new raft of internal and external standards to meet. The Ernst & Young survey (Lloyd's Claims Principles and Standards: a survey of managing agents) revealed that 90% of businesses believe that Lloyd's claims management principles and minimum standards will help the market further improve its claims handling record.
These standards provide a framework, helping businesses put the right procedures in place when handling claims.
Published in July 2005, the first minimum standards focus on claims reserving, measurement of claims performance, and the selection and management of external experts.
Though regulation may be part of the sandwich, it's not the meat. That has come from a far more proactive attitude towards claims. Not only are the best Lloyd's syndicates managing rather than reacting to claims but they are being far more innovative and efficient in the way claims are handled.
A lot of this dynamic proactivity has come from an intelligent analysis of what has and hasn't worked in the past. Often this work is done by external, independent specialists who bring an expert, objective perspective to the work – which invariably has sensitive "political" angles.
Detailed analysis of hundreds of past claims, by technically qualified and commercially astute auditors, allows them to make far-reaching recommendations on best practice – and increase an insurer's profitability.
Being proactive is thus not just a piece of insurance management speak. Those Lloyd's syndicates which are succeeding are doing more than just mouthing platitudes, they have changed their whole claims management philosophy, the way departments are run and the way they do things.
Nick Sinfield, group claims director for Catlin in London, feels that the key to success lies in focusing on outcomes with the claims team setting, as early as possible, what he refers to as "the end in mind". This defines a clear end game objective and takes responsibility for driving the claim forward, rather than letting the process set the pace and abrogating responsibility to outside advisers.
"We also celebrate our successes together, and are not afraid to take a cool, objective look at past performances as a team to drive us on to even better outcomes," he says.
"Feeding the outputs from constructive audit and review of cases into a programme of training and development has proved to be an effective support for this strategy."
Not least, these review disciplines can be developed into performance related salary structures.
Performance criteria has to be related to intelligent scoring systems which reward staff for adding value to the claims process not just scoring the soft tap-ins which always occur in the claims process.
Setting and maintaining these performance criteria and keeping management fresh and alert is a major part of why some Lloyd's syndicates are at the forefront of the claims process.
The efficiencies are to be won not just on large, high profile claims. The mass of small claims which are usually farmed out to third party administrators can also be put under the management micro-scope and tested. Too many outsourced processes get flabby, inefficient and unnecessarily expensive through lack of management focus.
Major, complex losses – whether relating to liability or property damage and business interruption – also offer very significant room for improved savings.
Again, analysis of past cases can provide very revealing information on how to secure these improvements.
For instance, the best insurers are ensuring that these losses are handled by top-flight, multi-disciplinary teams under strong project management, undertaken either internally by the insurer or hired in externally.
The best Lloyd's syndicates, which manage claims efficiently from the outset, have found that they are more likely to get the all important reserves right. They are leading the negotiations on the claims much to the relief and benefit of both co-insurers and reinsurers.
Nothing unnerves reinsurers more and eventually pushes up their price than continually changing reserve estimates. Excellent settlements are of course also most welcome.
But the real reason why Lloyd's syndicates are very much on top of the claims process is because of the bottom line.
By getting on top, and staying on top, of claims, highly incentivised and well managed claims teams speed up the claims process.
This, once again brings the cost down for it is invariably the case that the longer the claims process, the more expensive the claim. IT
Bev FitzGerald and Alex Murray are directors of specialist claims consultancy, FitzGerald Consulting