The Challenge of Change

To download the Power Point presentation for David Sandhu please click here (897k)To download the Power Point presentation for Adrian Palmer please click here (1.21MB)To download the Power Point presentation for Adam Cockburn please click here (770k)The insurance market has been warned to change its ways or suffer from a spiral of rising costs and customer disenchantment. The warning was issued by Auto Indemnity at the Insurance Times Future of Claims conference. Auto Indemnity chief executive Adrian Palmer said: "The cost of claims continues to rise, yet motor insurers have remained largely unprofitable. In 2003 the market made its first, small, profit in nine years. But, this market is remarkably complacent when it comes to facing up to major challenges." Palmer said that the market was not sufficiently customer focused to capitalise on the untapped market of uninsured drivers. "One in 20 drivers is currently estimated to be uninsured. Some are antisocial or criminal, certainly. But for others - people who are in niche markets or who fall outside the norm - the whole process of buying insurance can be so daunting that they simply don't bother. "That's a potential revenue opportunity of £550m a year. In today's world, where customer service and customer relationship management is easier than ever to achieve, that is an appalling performance," he said.Other speakers at the event, including Accenture and Microsoft, echoed the importance of operating a truly customer-centric service and the need for the development of strategic alliances to generate purchasing power within the market.A straw poll of delegates attending the Future of Claims conference backed up Palmer's theory that the market was obsessed with cost, not customers. This approach has blinded insurers to the root of the problem, said Palmer. "Given the lack of customer orientation, is it any wonder that we have seen the growth of service providers who take on the job of providing the customer service that insurers don't? "These service providers do it at a price that causes millions of pounds of leakage from the insurance market each year. It all adds up to a lose-lose situation. Insurers lose money through leakage. Claims managers certainly don't do much to earn the trust of insurers. And customers? They lose out to poor cover, poor service and high premiums," he added.Palmer's answer: " We need to adopt a truly professional approach to claims management. We need centres of excellence in this market that can deliver efficiency and customer satisfaction as well as generate the volume necessary to have real buying power."Any insurer that believes it already has sufficient buying power is, according to Palmer, deluding itself. "The simple fact is that no single insurer in this country has the capacity alone to deliver the necessary volume. There are some very, very big players in the market, but there's no truly dominant force."By outsourcing claims management to centres of excellence, Auto Indemnity argued that sufficient volumes and scale can be generated. Auto Indemnity's own performance supported the argument, said Palmer. "When we double the number of referrals we receive, we take around 10% out of the cost of each claim," he explained. "Yet, despite achieving these cost reductions, we also maintain a high quality of service to both insurers and their policyholders. "Our customer satisfaction levels are consistently over 98%. In fact, we are often asked by our clients if we can provide their car insurance," added Palmer.Even so, given the traditionally confrontational relationship that exists between claims management companies and insurers, many are still wary about outsourcing this key component of their service.Auto director of claims David Sandhu criticised the confrontational relationships that existed between claims managers and insurance companies. "The traditional model assumes that the whole basis of every relationship between insurer and the supply chain is based on mistrust and a constant struggle to discover hidden cost," he said."The trouble is that to actually police and manage relationships based on mistrust is a major cost in itself," said Sandhu. "Within Auto Indemnity we've calculated it costs £30 to manage every claim that is contested. This figure will be mirrored in the defending insurers. "For each 10,000, cases that's a minimum of £600,000 added to the total cost. The only way to change this situation is to change the way the insurance market and its supply chain work together."The alternative, said Sandhu, is a modern, professional relationship based on transparency and co-operation. "We, the claims management experts, and insurers should easily be able to agree rates for the vast majority of claims," he said."As claims managers, we should provide insurers with all the data and management information they need, presented in a clear, transparent and totally auditable format. Auditable, by the way, at any time and to any level of detail. Under this system, insurers simply get a bill and pay it. "As for the inevitable disputes and disagreements, these should be the exception rather than the norm and can be resolved through reasonable discussion."If insurers are serious about reducing the cost of claims, we all need to attack the market's traditional ethos of confrontation - and its causes," said Sandhu.

Why think outside of the box?"The insurance market is built on some very traditional values and ways of working," said Adam Cockburn, business projects manager for Cox Insurance Services. He told the seminar: "It's all about managing or controlling risk. So, there's one popular way of managing that risk - don't change anything," For change to be truly effective, said Cockburn, it needs to be driven and supported from the top. "You need to make the reasons for testing an idea bigger and better than all the reasons against doing it. "But, you need data to support your view that the idea will work, and that can be hard to find. Many suppliers tell me that their latest idea will save money, but they have no hard evidence that their service actually makes a difference. "Auto Indemnity came to the table very quickly with actual data. I'm interested in its open approach and its commitment to change the way the market works. We now have several pilots underway that we believe will deliver substantial savings."As Cockburn says: "The future of claims is all about accepting the challenge of change."