The insurance industry is slow to use technology in supply chains, although systems can now offer highly-automated claims processing Caroline Jordan reports.
From the moment a policyholder reports a claim, to the time it is reconciled on the insurer's books, constitutes what is often a complex chain.It can be labour intensive, often involves many parts and is fraught with the possibility of error.Technology has the potential to revolutionise supply chain management.Systems for the claims handler's desktop are available that could lead to far greater levels of automation.They can eliminate the need for re-keying and allow insurers to both ensure service level agreements with suppliers are being met and to analyse expenditure.But there is reluctance to invest. Many insurers rely on a mish mash of technology and claims handlers are often involved in an unwieldy paper chase that results in slow service and spending far more than is necessary.
Tapping inOne of the specialist suppliers of supply chains systems for insurers is SAP. It produces systems that can be used by insurers and adjusters.It has also recently signed a major deal with Capita.SAP head of insurance Norman Black says there can be multiple points of access to the system, with brokers and policyholders able to tap in.Adjusters visiting a client can, for example, be linked to the system on their desktop or be in contact with the insurer's call centre, suppliers of replacement goods or contractors. It also allows realtime update of financial performance.But with the squeeze on spending in many companies, insurers continue to rely on manual operations and stick to legacy systems, rather than looking at new developments. Many say they are way behind other industries.Black says the insurance supply chain, with a value of £16.5m in terms of the volume of goods and services, is the fifth biggest in the country."It's larger than aerospace, chemical or beverages, yet the insurers lag behind some of these sectors in terms of technology and have fragmented systems."He argues the amount of investment needed to feel tangible difference will cause the industry some pain, but that it should be viewed as essential.
Moving forwardHassan Sadiq is chief executive of The Innovation Group (TiG), which manages claims for motor and household. He says the insurance industry has seen some tough times, but he is now cautiously optimistic that there will be more IT investment and that claims is currently the area under most scrutiny."It is now possible for the claims community to communicate. The arrival of XML as a transporter means data can be captured and the need for re-keying eliminated."In the case of a motor claim, after notification the information is transferred to the repairer, which in turn contacts the hire car company. It's straight through processing and we can show savings for insurer of up to 15% where it's been implemented."Sadiq emphasises that beyond buying a system, an insurer will also need to look at its existing processes and make changes, often to the culture."Savings are only part of the benefits. Service can be dramatically speeded up and staff can be freed up more, perhaps to switch between motor and household when one sector is under pressure."Loss adjusters are increasingly looking to offer their insurer clients more advanced services and supply chain management is a key area. Cunningham Lindsey IT manager Mark Dobson agrees that XML has been a major step forward."There are cases of triple entry in some cases. XML removes this and we are using an IBM solution, Websphere, to provide outsourced claims management services for clients."But it is not purely a matter of IT. Setting in place the right relationships with suppliers and sourcing these is critical. A number of insurers have in recent years increased their number of procurement professionals. Substantial savings can be made in replacement goods ranging from electrical equipment to jewellery, if purchased from the right suppliers and manufacturers.Contents insurance is only one aspect. Buildings insurance now increasingly involves the use of networks - but supply chain management in the property insurance sector is largely viewed as being behind the motor market in terms of technology.Oracle, the world's second largest software company, has a presence within most insurers, often through its database technology. It is also focusing heavily on e-business solutions that automate internal processes, extending across the supply chain.Oracle insurance industry director Chris Westwood says insurers need to take an integrated approach to both front and back office systems so that the supply chain is managed end to end.The company has its own consultants who will assess insurance company needs."Research from Swiss Re has shown that 75% of insurers' expenditure is involved in the supply chain. Managing these costs better is one of the most effective ways of having an impact on the operating ratio," he says.
Procurement costsE-procurement - which is of particular relevance to the replacement goods sector - is not being used widely across the insurance market. Oracle is one of the few to produce a solution and Westwood says this has already been proven."Research we did with the Chartered Institute of Purchasing and Supply, Bristol Business School and consultants KPMG has shown an 8% reduction in the cost of purchasing goods can be achieved.Westwood says much of the claims function is paper based. "E-procurement is rarely used. Claims handlers are too often involved in time consuming processes linked to dealing with suppliers, when in effect, it is the supplier who should be doing more of the work."He says a claims handler should only access contracts. "Whether it is a carpet company or an electrical contractor, they should only need to validate the claim and ensure that the contract is in place and leave it to the supplier to take the claim on."He says the supplier should be responsible for managing the cost and distribution and the insurance company should use the information produced to monitor suppliers' performance.
Investing to surviveWestwood urges insurers to bite the bullet. "They are risk averse. We need to see a move away from legacy environments. As top players such as Aviva and Royal & SunAlliance (R&SA) invest more they will produce ever greater savings and there will be greater pressure on smaller firms."AXA claims director David Williams says IT companies and consultants may criticise insurers for under investment, but he says all the technology in the world cannot prove a complete panacea. "Of our total claims spend of £1.5bn, we can control only £700m."Examples, he explains, can be seen in motor claims."Repairer networks have brought control, but the insurance industry, through driving down costs, has contributed to a reduction in garages. A shortage of mechanics has meant they are now earning more than ever before - something again we have no influence over."He says AXA has been approached about various e-procurement packages."It may well help us to buy paperclips, but we also have to look at how it will interface with the whole claims process. It needs to be embedded across all parts of the chain and with our suppliers and this is a massive task."There is a big role for technology in the future and we are currently analysing how we can automate more. We expect the project to be complete by 2006."R&SA supply chain manager Stewart Murray comments: "There are some items where it is impossible to control costs. Some manufacturers of luxury jewellery items or entertainment systems operate virtual cartels - they are not discounted."R&SA is one of the most advanced in terms of its commitment to new technology investment and has a team of 34 supply chain consultants based at its offices throughout the UK.
Driving out wasteR&SA has already installed an e-procurement system, which is costing over £3m to develop, but is expected to lead to savings of £20m a year.It is linking this up to replacement good suppliers and labour providers in addition to its own company requirements for office supplies and other goods. Murray says: "Bolting everything together remains a challenge, but we expect to see this lead to considerable advantages. There will also be additional pressures on smaller insurers to be competitive."The pressure on insurers to save costs and improve their services is immense. Halifax General Insurance head of claims Jim Pittman advocates the use of insurer collaboration. "We need to drive waste out of the system. Having many different relationships set up with the same suppliers is not effective."Because of the number of potential suppliers, Pittman says collaboration between insurers and a common IT platform would bring huge benefits. "Smaller insurers cannot have the same buying power, which is why they should work together. We're the fifth largest, but can see clear benefits. I am confident this will happen."