Graham Newman, Head of Claims Solutions, FINEOS, discusses how leading insurers are turning claims in to competitive advantage.
Recently, I was on a discussion panel billed as “Turning Claims to Competitive Advantage” at the Insurance Insider conference at The Mansion House in the City of London. Now, I find this a very interesting title; interesting for what it reveals about an industry that can ask it. It clearly implies that it is not that now. There is something jarring about that title. To talk of “turning” claims to competitive advantage implies that the claims process is not currently assumed to be part of the competitive differentiation for which all successful companies strive. One can easily infer that, while claims are a necessary part of the process, they are not seen as providing a competitive edge, that their successful operation will not bring advantage to the insurer. Well, I have to take issue with that position.
The major theme was posed as a question: “Is claims transformation a necessary reform or a costly distraction?” My starting position in response to this question was – had to be – that claims transformation is never a distraction if it keeps you ahead – or even abreast – of the market. Standing still and doing nothing is rarely a good option in today’s fast moving business climate as if you are not doing anything you may be certain that at least some of your peers are, and you will fall behind in relation to those who are actively investing in improvements.
Can Claims processing be competitive? Speaking as someone who believes that any and all parts of a business can provide competitive advantage if you do them better then the answer is clearly “Yes!” But what sort of edge can they provide, and why is that important? Why focus on claims when traditionally insurers have concentrated on the more readily recognisable and glamorous components of the business such as Product Design, Distribution, Marketing? Well, for all the focus on the front end of the business process, the Claim is the product in the eyes of the customer. It’s the result of the business process.
It can often be informative to draw an analogy with other types of business. The world of insurance likes to talk of itself as an “industry”, even though it does not produce material goods, and the making of its products is not an industrial process but a highly intellectualised exercise in economics and actuarial calculations. When you take the activities of companies that are more recognisably in the industrial sphere then sharp contrasts can often be discerned. For example, BMW improves its cars – offers more options, makes them greener, designs more variants etc. because that is their product. If Claims is the ultimate product in the insurance world – at least from the consumers’ perspective, then perhaps the question may be paraphrased as:
“How can a better claims service improve the attractiveness of the proposition?”
The answer is – must be – in several ways. For the sake of brevity here I’ll take three of those ways: Reputation – Pricing – Relevance.
It is surely a truism that if you improve the quality of your Service then this will enhance your Reputation. Where claims are concerned the obvious ways to achieve this are to carry out your service:
• more accurately,
• and ensure that the end result is perceived as “right” or “appropriate” by the customer.
Claimants have a problem – they need it solved so they can get their personal life back on track or their business operating properly again – quickly. No matter that some claimants can be litigious, at bottom everyone wants what they are entitled to and will usually be happy with that and no more – as long as they do not get less. An accurate claim process will cover exactly what is required – with no quibbles, no lawyers, no disputes. If all parties feel that the process has been carried out correctly and satisfactorily then all should be able to agree that a good service has been achieved. Your reputation gains by each, small, satisfactory fulfilment of the promise you made when the policy was written.
There are number of ways in which you can improve your Financial Performance within the claims process. Any financial improvement is eligible to be passed on to make your Pricing more attractive.
If we consider the constituent financial components of a claim we may settle on the following four. The cost is made up of the Product – which in my terminology is the claim, so therefore the claim value, what actually has to be paid out. Often this is not clear cut and can have many elements, all these must be assembled quickly and without error. Secondly, the actual processing of the claim costs money, and is certainly not cheap. Thirdly, expenses accrue, particularly on complex claims where various experts, assessors, salvage experts, medical professionals all need paying. Fourthly, there are mistakes, which act as a drain on finances.
Processing costs may be lessened with automation, with accurate triage, with automatic, accurate and appropriate segmentation ensuring that the right claim is delivered to the right person at the right time. So many claims managers tell me that one of their biggest problems is that their highly experienced claims handlers are spending inordinate amounts of their time on low-level work; simple claims, administration etc., because they are simply unable to segment the claims quickly and accurately and route them to the right people.
I have heard from several industry sources that expenses may average out at 5% of the total cost of a claim. Many I have spoken to in claims management believe that it should be possible to cut those expenses costs by 20%. If you can save 20% of that you will have cut the total claims cost by 1%. Now, £10,000 for every £1 million of claims value soon adds up over a year. With a modern party centric claims process built on Case Management with integrated Expert Management and integrated collaboration, then managing the third party experts will be much more efficient, and savings will be made without sacrificing quality of service, in fact the service will be improved.
As far as mistakes are concerned I am thinking here of leakage, paying out what should not be paid because somewhere along the line your process is flawed, or rushed, or understaffed. You cannot check the policy components and coverages accurately because there is insufficient access to the policy detail. I also include fraud under ‘mistakes’. It is a mistake to allow fraud to happen, and a mistake not to detect it and follow it up afterwards. A claims process that is driven by a properly controlled and monitored environment will be far more able to reduce the opportunities for fraud; with detailed recording and tracking it will be far better able to spot fraud or suspicious activities when they do happen and alert the organisation. It is also a mistake not to fully recover everything that should be recovered or to fail to fully reclaim on reinsurance. If it is currently too costly to recover some ‘lost’ costs then the process or system is again at fault, as automation and controlled follow-up should be integral to the process.
There are other, related areas hinging on improved Business Intelligence where financial performance can be improved and passed on to the customer. I am surprised when I talk to some insurance professionals at the comparatively lax attitude taken to reserving; some insurers not getting around to updating their reserves until weeks after a claim has been notified. If reserves for a claim are recorded immediately, accurately and, perhaps crucially, kept concurrent with reality as the claims total fluctuates over the lifetime of a claim, then this will surely result in better Capital Management. With Solvency II in full flow and increased focus on capital then surely an accurate capital management operation will have advantages over a lax one. Talk to those real-goods manufacturing industries where financial accuracy and cash flow are vital to see another area where the insurance “industry” differs in its attitude to cost.
Decent Business Intelligence also allows claims management to do proper trend analysis, to understand what is happening on a broader scale while it is happening. A good early warning system enables preventative action – all processes contributing to greater efficiency and reduced cost. An accurate analysis of what has happened with claims means that the claims experience is better understood, and claims experience must inform the underwriting decisions, which allow for better rating and therefore better pricing.
This is about efficiency and financial management within the process. It’s about using Business Intelligence to close the loop with Underwriting with the relevant claims experience.
Any efficiency gains should be felt by the customer in better Prices – and potentially better Service.
There is one other element I referred to earlier. In this I wish to consider Expert Management. This is not just about cost, it has another dimension. Providing the right assistance and advice throughout the claims process brings Relevance. Claimants want restitution above all, they want things back they way they were before the accident, the fire, the theft, the flood or whatever catastrophe – minor or major – interrupted their lives or their business. At a time of stress claimants need help and advice, not just a quick cheque. With access to expert suppliers, contractors, lawyers and other service providers the insurer can readily assume the role of trusted advisor. With expert management embedded within the claims process insurers can control and drive the support their customer is getting during the whole recovery phase. With support like that the insurer moves from just a service provider to a partner, and there are few better places to be relevant than as a partner.
So, with emphasis on Reputation, Pricing and Relevance the claims process can most certainly be relied upon to improve the service proposition and provide real, practical competitive advantage.