You have five days to respond

One thing irritates insurer's clients and consumers above all else - the slow pace of claims handling. A recent report commissioned by the Society of Claims Technicians (SCT) highlighted the rise in 'claim rage' and the public's high expectations of the insurance industry.

The problem is exacerbated, according to the SCT report, by what loss adjusters and claims handlers regard as "ridiculous" advertisement slogans promising exemplary service standards. The report says: "The industry is under-resourced and many policyholders do not feel they are getting the level of service their premium justifies. This leaves staff dealing with the claims overworked... and demotivated."

Unreasonable delays in claims administration is an area of risk the regulator has decided to address. On p82 of the FSA's consultation paper 160 (CP160), a proposal has been put forward that a response to an initial "notification of a claim or impending claim" must be provided promptly, and "at the latest within five working days".

An FSA spokesman says: "We think five working days is a reasonable and appropriate timeframe for an insurer to respond.

"But this is only for discussion," he adds.

BW Consulting, a specialist division of law firm Beachcroft Wansbroughs, has been advising its insurance and broker clients over the possible changes.

BW Consulting managing director Oliver Lodge says it is a "significant departure" for the regulator to specify a timescale.

"It is without precedent from the FSA, but it must be put into context. This is about implementing the EU Directive. The FSA does not have a free hand - but it can control the detail."

He says the FSA's raison d'etre is to protect the consumer and bad claims handling is one of the risks the consumer faces in the general insurance market.

"One or two insurers could be accused of dragging their feet when it comes to dealing with claims. Many people have been on the receiving end, filling in endless forms for days or weeks, only to find things suddenly stall.

"It could be said that some insurers may have a vested interest in claims not being processed quickly," Lodge says.

One claims manager at a leading insurer, who wishes to remain anonymous, says the industry is worried that the regime might become too rigid, but hopes the dialogue between the industry and the FSA will thrash out a practicable model.

"The likelihood is that there will be a compromise. The FSA won't close its ears because it wants to create a realistic system that everyone can abide by.

"The regulator doesn't want to create a regime that becomes discredited," he says.

CILA council member Harry Roberts, who has been monitoring the new regulatory proposals, said if loss adjusters worked directly with insurers, and could by-pass intermediairies, the claims process would be more efficient.

"The timescale is a challenge but not unachievable," he added.

One insurer, FM Global, says the issue may not be speed, but making more of the pre-loss work to handle claims.

FM Global UK claims manager David Henderson says: "When dealing with large commercial property and business interruption claims it is not simply the speed of payment that is important, but really focusing on minimising the impact on business operations.

"We put considerable effort into working with customers well before any claim occurs through our in-house claims service. This involves the customer, insurer and broker, if appropriate, as partners in loss management and to help them fully understand the claims process, cover and ultimately minimise the effect of a major event should it occur."

He gives an example of how this pre-loss work can help clients. A serious fire took place at an engineering workshop in the West Midlands. The works manager had attended an FM Global pre-loss seminar and quickly took the correct steps to mitigate the loss. He was able to pre-empt all the areas the insurer needs to cover initially when handling a loss, making the process quicker and more efficient.

"The manager's actions ultimately enabled the claim's total value to be considerably less than expected and the business was fully operational in weeks rather than months," says Henderson.

Document transfer time
Technology would seem to be the industry's natural saviour. The growing interest in repositories across Lloyd's and the London Market could not only eliminate the countless files, but also speed up the way brokers and insurers interact.

Aon executive director Phil Tyson says the broker has begun using the August Group enterprise business process management (BPM) solution, called augANISER.

"What it allows is a system of document management that now handles 90% of the work in the London and Romford offices. Our specialty and reinsurance products are all electronic," says Tyson.

This system improves the speed and efficiency of document transfer. August supplies a repository by the use of which data can be transferred between underwriter and broker.

"The repository August supplies will take in the document then, as soon as it has been logged, will send an email indicating that the document is in the box. It basically offers a real-time operation," says Tyson.

He says the proposals in CP160 are "not any more ambitious than the market is trying to achieve through the Lloyd's Market Principles (LMP)".

August Group chief executive David Ives says: "Insurance is a document-led business. What intermediaries need to do is integrate all that data into one area.

"What the FSA wants to see is not just business efficiency, but that business has control of those systems."

Both Tyson and Ives want to see the end of brokers wandering the City with thick binders under their arms filled with hundreds of pieces of paper.

"It reduces time, saves money and benefits company and client," says Ives.

Other systems allow the broker to inform - and to be informed - of the claims processing. Acturis co-chief executive Theo Duchen says: "Effective claims handling is the moment when the promise of cover is delivered, so the claims management module of any system is critical.

"We have developed a claims management system that allows brokers passively to maintain full claims records and actively manage claims under delegated authority in a compliant and efficient manner. Compliance is particularly important, and if a broker is required to acknowledge that the claim is being dealt with within five days, the system will automatically trigger a reminder.

Insurers have suffered through their dependence on legacy systems and have often patched together the front and back office systems but have never properly unified them. This causes yet more delays.

US and French based software company ILOG is trying to break into the European insurance market with its specialist underwriting and compliance system as the new regulatory regime looms. ILOG industry marketing director Maneeza Malik says insurers must automate their processes to cut time-consuming and costly manual processes.

"What they can do is leverage the legacy systems. The process is about making sure there are quick fixes to problems or addressing problems as they arise.

"Insurers must meet the commands of the whole business," says Malik.

She says that the greatest challenge is to change the culture of the underwriter.

"Underwriting skills are 'territorial'. This escalates the costs and inefficiencies in a system. The real challenge is to change underwriters' mindset and culture.

"They must maintain their individuality, but they must also create one system and maintain it. Not doing this is what got them into trouble in the first place.

"If the process becomes more efficient there should be no problem and the FSA wants to introduce common standards."

Lodge sums up: "Many insurers act punctiliously, but there are others who could definitely improve."