Aone of the more striking features of the insurance market in recent years has been the willingness of insurers to invest heavily in their infrastructure to support more efficient claims delivery to their customers.
As costly as this has been, it makes sense from several points of view. Effective and efficient claims delivery leads to greater cost control in the long term and ultimately reduces claims spend. It also aids in customer retention and business growth by providing a “feel-good factor”, critical in the industry, which is undergoing significant market segmentation and consolidation, and emergence of affinity and scheme-based portfolio.
One area that has huge potential in terms of business development, and which has yet to be fully exploited, is the area of proactive third-party claims handling. At the moment, there is general agreement in the motor insurance industry that there is a strong need to reduce third-party claims costs, which have been climbing dramatically. Implementing a more proactive approach to these claims will not only help to keep costs down, but will also open up dramatic opportunities to develop business.
The potential for making significant savings in this area are huge, not least by helping to remove the need for innocent third parties to actively seek legal representation, which immediately injects considerable additional expense by adding to the claims process.
The process by which third-party claims are handled has a direct and immediate impact on the incurred cost and the profitability of the book of business.
A fast game's a good game
Essentially, the key to successful proactive third-party claims handling is speed – speed in apportioning blame and speed in contacting the motorist at the point they are considering their next steps. Maximising savings is dependent, in the first instance, upon the cleanliness of the claim notification procedure and the emphasis placed upon third-party activities.
This can, of course, be affected by the specific channel of distribution and how many hands the claim must go through before the information about the third party becomes available. If the car involved is a fleet vehicle, for example, it may be some time before the information emerges from a number of different hands. If the business is non-direct, the process of advising the insurer through the intermediary, commercial policyholder or risk manager quickly and effectively is vital.
In effect, there's no need to change the more traditional aspect of the claims notification process. Hence, there is a tangible advantage to speeding things up.
One way to do this is for companies to refine their notification process to create a system which leads to fast reporting and cause allocation.
Having established contact with the third party, any offer made by the insurer must be heavily service-based, as this is likely to have the strongest appeal. It should at least include provisions for repairs and a replacement vehicle. Other services should be added where practical.
It is critical to identify the key needs of a post-accident motorist, regardless of insurance provision or cover arrangements. Broadly, the motorist requires two things – repair or replacement of their vehicle and mobility while that occurs.
By adopting this proactive and solution-driven approach to third-party claims, insurers are able to reap a number of benefits.
Primarily, there is the chance to control any spending, thus helping to keep costs down. In fact, average incurred costs can be reduced by more than of 30%, subject to the clarity of process.
The proactive approach can also serve as an effective early warning trigger for potentially contentious or complex cases, such as those involving personal injury. It can provide early activity in terms of investigation or rehabilitation. This has clear advantages, given the requirements of the Woolf reforms.
In addition, this service renders a real opportunity to heighten and develop insurers' brands and extend the potential customer database. This can ultimately lead to a new stream of business building on a high standard of service delivery that has already exceeded expectations. Building upon the relationship that has been forged will support new business growth objectives.
Of course, the process is not all smooth sailing, since there are significant challenges in following this approach. For example, although there is nothing particularly complex about proactive third-party claims handling, it does require a dedicated focus. This obviously means resources in terms of time and costs.
Solutions must truly be proactive. This is not a passive procedure, but one that demands high levels of service and commitment and full management of all aspects of the process and third-party expectations. Similarly, as has been emphasised, speed of notification is vital. This implies streamlined procedures and simplification of the notification process.
Finally, there may be danger of the insurer reducing capacity of its vehicle solution by utilising this for adopted third parties. This can potentially prejudice the insurer's service commitment and promise to their policyholders.
But no business process, whether in the motor insurance industry or elsewhere, ever comes without some form of risk. However, with increasing competition and reducing margins, the importance of reducing cost and finding new ways to secure potential business and brand building has never been more critical to long-term success.
