In an effort to settle claims quickly and cost-effectively, insurers are bypassing the middlemen and going direct to the claimants – just like a certain controversial Irish insurer … Have the antics of Quinn taught insurers how not to go about using the proactive approach?

As every insurer knows, settling claims can be an expensive and often fraught business. Industry players have long complained that wrangling with solicitors, accident management companies and credit hire operators pushes up costs and creates lengthy settlement times.

But the fight-back is underway. The majority of major insurers are now openly pursuing a proactive claims settlement policy: approaching claimants directly in a bid to cut out middlemen and achieve a prompt settlement.

On paper, it makes sense. Insurers say it helps keep balance sheets healthy and benefits claimants who want quick settlements minus complications.

But this approach is not without problems. Trade unions and claimant solicitors are up in arms about third-party capture, where the insurer deals directly with a person who may have a potential claim against their policyholder. This prompted the FSA to launch a review last year.

Further, insurers have to deal with the long shadow cast by the troubled Quinn Insurance Group. Of all the insurers, Quinn was seen as the most aggressive in its proactive approach.

Following Quinn’s virtual exile from the UK market, the question remains whether the insurer forged a new path in lower-cost claims handling or left a stain on the proactive approach that may be difficult to rub out.

Quick smart?

When interviewed by Insurance Times last year, Quinn chief executive Colin Morgan defended the insurer’s methods. “Traditionally, the insurance industry has had a process around claims and they tend to take a long period to get sorted. Our approach is to try to sort claims sooner rather than later,” he said.

“There’s a lot of leakage in claims costs to third parties,” Morgan added. “We feel in some cases that those third parties, whether solicitors or accident management companies, are not required to get a fair settlement for the claimant. So our approach is to cut those costs out wherever possible.”

In theory at least, many insurers agree with these sentiments. As Allianz motor claims director Martin Saunders says: “We look to settle the claims as soon as we can. There is no advantage to us if claims remain open on our books. We want the claims settled at the fair and right price, whether that is for a customer or a third party.”

LV= head of technical claims Martin Milliner says the insurer tries to settle half of its claims using a proactive approach. He points out that it has cut out credit hire charges and reduced motor claims settlement by half, to an average of 11 days.

Elsewhere, Zurich’s UK property claims operations manager, Jon Crawley, says this has been a successful policy for the past eight years, while QBE has set a target to increase the proportion of its direct settlements from a third to a half, according to strategic claims director Mike Noonan.

Moreover, Groupama’s claims director Phil Bird points out that the imminent Ministry of Justice reforms will require insurers to act quickly once a claim is notified, bringing the proactive approach even more to the fore.

But, unsurprisingly, all the major players are eager to distance themselves from any association with Quinn’s approach. Milliner believes that, while Lloyd’s pioneered the proactive approach in the 1980s, Quinn’s approach went beyond a level that was “reasonable or acceptable”. Indeed, since the insurer’s entry into the UK market in the early noughties, it has attracted many unflattering headlines.

Last year, a former Quinn claims handler, Tommy Scott, blew the whistle on the insurer, claiming his job was to dissuade accident victims from seeking legal or medical advice, getting them to “settle there and then in their living room”. Consequently, speculation has mounted that Quinn may face a wave of claims from disgruntled claimants unhappy with their settlements.

AXA’s claims director, David Williams, says: “I can see a claims farmer or claims lawyer seeing an opportunity to reopen a large number of claims. I can certainly see that being a problem for them in the future.”

More haste, less speed

The major insurers insist that they stress claimants’ right to seek independent legal advice, offer different settlement options and never sign on the dotted line before the claim is validated by medical reports or receipts. Most importantly, they argue that everybody is left happy.

“For third parties with low-level injuries, proactive settlement allows us to offer ‘cash in hand’ quicker, while at the same time avoiding the impact of additional credit hire and legal costs,” Fortis’s claims director, Rob Smale, says. “Industry research shows that third parties are not in any way penalised by dealing direct with the insurer rather than through a solicitor.”

Williams believes that Quinn’s impact on the market taught insurers some important lessons on the potential cons of the proactive approach, however. “I’m all for proactivity, but the insurers need to maintain controls and transparency, and you have to be able to show in the future that it was a fair and transparent process. Otherwise you leave yourself open to a claims farmer to start targeting claimants and saying ‘right, you haven’t been dealt with fairly and we are going to reopen all these claims’.”

Law firm Beachcroft’s partner and head of claims solutions, Duncan Rutter, warns that when approaching claimants directly, insurers need to remain wary of making snap decisions and be sure that claimants can make sound choices without independent advice.

“The claimant has to be confident that they can make judgments themselves about their entitlement to compensation and also be confident that they can make an assessment about the proper value of the claim,” he says.

Unlikely inspiration

So did anything positive come from looking at a more proactive approach to claims settlement? Williams concedes that Quinn may have forced the industry to take a long overdue look at their claims-handling policies. “Sometimes to do things differently – even if that ends up causing problems – can cause insurance companies to reflect. I think it is important to reflect on how we handle claims in insurance, and if that approach made some insurers become more proactive than they were, that is a good thing.”

Others believe that Quinn forced insurers to look at potential pitfalls in the proactive approach, leading to the FSA inquiry and a response by the ABI in the form of a code of practice for third-party capture, due to be published by the end of May.

“The only thing you can say that Quinn has done is to raise the issue in the market and, consequently, the ABI is coming up with a good practice for managing and compensating innocent claimants,” Milliner says.

But the chairman of the Motor Accident Solictors’ Society, John Spencer, dismisses suggestions that Quinn was the only insurer taking this approach. He argues that there has been widespread bad practice with some insurers; offering settlements to minors without legal representation and pushing settlements through without proper validation is widespread.

“I think there is some evidence for a more general problem with practices on the ground,” Spencer says. He believes that, as the forthcoming ABI code is voluntary, it is a fairly toothless framework. “The ABI’s proposed code is the wrong approach and the practice requires legislation similar to that regulating claims management companies,” he says.

An ABI spokesman believes the take-up of the code will be widespread, however. “We have put a great deal of work into this code and we believe that this is something that is going to be widely applied in the market. We want to highlight the fact that insurers are there to ensure that people get the best possible deal and that they understand all of their legal rights.”

It seems that, with or without Quinn, the proactive approach is likely to continue to cause controversy. But insurers show no sign of turning their back on the concept, as all agree that, so far at least, the pros far outweigh the cons. IT