15 days later

April is the most unpredictable month of the year. One day can be warm and balmy, and the next could see a snowfall. It is also a peak period for tornados worldwide.

But come April 2010, insurers could be thrown into a storm that has nothing to do with the weather. During this month, the controversial proposals of the Ministry of Justice (MoJ) to reform the personal injury claims process are expected to finally kick in. While this is set to streamline the existing methods and reduce costs, it is feared it could expose cracks in many insurers’ claims handling.

The reforms were first proposed in 2007 in response to concerns about escalating legal costs. Originally set to cover all personal injury claims, the proposed reforms now only cover motor claims worth up to £10,000. It is widely expected that this process will pre-empt the roll-out of reforms to cover all personal injury claims, however.

While these proposals were originally slated for implementation in October 2009, they were later postponed to the following year. Many argue this has given insurers ample time to prepare for the transition, but some are less convinced. The proposal for claims notification, in particular, is raising hackles. Currently, insurers have 60 to 90 days to decide on the liability of a claim. Under the proposed reforms, this has been whittled down to just 15 days.

For and against

The advantages offered by the new proposals are obvious. On paper, it will provide the framework for speedy, efficient and transparent claims handling. The Forum of Insurance Lawyers’ president, Anthony Hughes, believes it will remove any ambiguity in the claims process. “I think the major advantages are the certainties in terms of costs … it would provide complete predictability and transparency of costs if you are able to operate a large volume of your claims within this framework.”

AXA director of claims David Williams is confident it will offer insurers a much-needed boost when it comes to public perception. “If we all try and stick to the protocols, and the systems are in place, then we should have much greater transparency throughout the process, which would make a claim settlement not only quicker but also fairer,” he says. “Nobody will be missing information … it will massively improve the man in the street’s perception of the process.”

But as Williams points out, the success of the reforms depends on whether “everybody plays ball”. And given the often fiery relationship between insurers and claimants’ representatives, this is unlikely to be an easy task. He also believes there could be scope for unscrupulous claims management companies to take advantage of this added pressure on insurers by failing to deliver the necessary information on time.

“Our concern is that some claimant organisations will seek to benefit from falling outside the system in terms of going into the more long-winded process,” he says. “This is where higher fees will be deliverable from a bargaining position if the insurers aren’t responding quickly enough.”

Aviva’s head of motor claims, Richard Ellis, echoes this concern. “It should enable us to take care of claims quickly and have fewer associated costs. The difficulty is around what type of behaviours it will prompt and will they [claimant representatives] be accepting of reduced fee-earning capacity.” Insurers also argue that the reforms are outlined in a manner that favours claimants. Under the proposals, there is no corresponding deadline for solicitors.

The other big worry is fraud. Many argue that the scramble to meet this tight deadline will make it easier for suspect claims to slip through the net. “You have to complete a whole batch of enquiries very quickly and, in the current climate, when we are seeing a lot of fraudulent third-party injury claims, there is a real potential for some of those to slip through,” says Groupama director of claims Phil Bird.

Despite these concerns, most insurers seem to be a putting on a brave face at the prospect of an April deadline, insisting they will have the systems in place to meet the challenge. But some believe this is a fantasy.

“It is completely unrealistic for insurers, because they have not invested in the workflow technology to enable their staff to do it,” says

Tim Roberts, senior partner at Plexus Law and consultancy firm Parabis. He claims that only one major insurer has made the significant investment required to meet the deadline.

Donna Scully, vice-chair of the Motor Accident Solicitors Society is a tad more generous. “I think some of them are semi-prepared,” she says, but concedes: “Some have not done very much in preparation.”

Roberts, meanwhile, is impatient with insurers’ complaints about the scope for fraud. “I think it is a valid concern, but I also think that it is something that they are trotting out to excuse the fact than they are not going to be ready.”

He points out that systems of managing these risks are readily available. “There are fraud tools like Detica and EMB. When you get notified of a claim and you have that 15 days ticking, you can send that data electronically to wash against databases, which can tell you very quickly whether this is something you need to investigate further.” But he adds that few have even made that investment.

Digital back-up

Indeed, the role of technology in this new process has become a touchy subject for many insurers. They argue that it will be crucial in enforcing timeframes in this new deadline as well as support existing case management systems. But, as Roberts highlights, some insurers don’t even have that basic system.

Under the new process, insurers are required to be more proactive when dealing with claims, producing different documents at various stages of the claims and also providing interim payments. While the MoJ report does not specify technology as necessary to support these extra demands, Scully argues that many will struggle to meet this deadline without it. “It will be very onerous, much more so than it is at the moment,” she says. “There is an awful lot that has to be done in the early stages.”

Meanwhile, the MoJ and ABI have jointly approached Insurance Database Services to put out a tender for the creation of an interface or industry web portal. This will be designed to deal with the notification and process of claims within the set deadline. But it is widely believed that, while this may smooth the path for insurers, it is unlikely to remove the need for increased investment in their own in-house claims handling.

Insurers are arguing the role of technology in this new process has been overstated, however.

“It is a generalisation. It depends what your own technology allows you to do,” Ellis says. “We don’t feel that there is a need for a technology investment.” Bird also feels the need for a widespread overhaul of the existing process has been exaggerated. “There is a question of resourcing of course, but I would be very surprised if it is a wholesale restructure.”

Roberts, however, insists that insurers are not only lacking in technology but also the cultural mindset to deal with the change. “The fundamental way these claims departments work is by overloading claim handlers with too many claims and no technology to drive these claims through the process,” he says. He points out that some handlers are often left with 300-400 cases to deal with at any one time. “How in God’s name are they going to be proactive in 15 days?” he asks. Even Williams concedes that, after the reforms were announced in 2007, AXA discovered that only 17% of their small injury claims were being dealt with during the existing set timeframe. But, unsurprisingly, he adds that the process has now been streamlined to deal with the deadline.

Counting the costs

The financial burden of implementing these changes is also problematic when budgets are tight. Insurers are reluctant to invest in revamping existing processes when the benefits of the proposed system remain so unclear. “They ask ‘how much will we save’ but nobody knows because it is a new system so it depends on how well you work and how organised you are,” Scully says.

Roberts believes that, while costs will vary, some insurers will need to divide existing claims teams and, in some cases, build a team from scratch to deal with RTA claims. Meanwhile, consultancy, technology and labour force costs will also pump up overheads. He predicts that, for some, the overall total could reach up to £4m.

But while the sanctions of non-compliance have yet to be revealed by the MoJ, the consensus is that the price paid for falling outside the set timeframe could end up costing considerably more than the implementation. “The financial incentives to insurers are quite significant … the expectation is there will be plenty of financial incentives to be compliant,” says Graham Jackson, associate partner at IBM’s insurance consultancy practice. Roberts predicts that some insurers will incur huge litigation costs if they fail to get their act together.

The MoJ’s delays in setting up this process and the prospect of a general election in 2010 may have proved a psychological barrier to substantial investment by insurers. It has been suggested that a potential new government, with the likely opposition of the trade unions to reforms that would clamp down on profitable referral fees, could lead to the scrapping of the scheme.

But the MoJ has invested too much in these reforms to see its time and effort go to waste. The pending recommendations in Lord Justice Jackson’s review, which are expected to link up with the reforms, is also accelerating the drive to overhaul the process. There is a dawning realisation throughout the industry that, while reforms may be delayed further, they will be eventually pushed through whether insurers are ready or not.

“I had great scepticism, given that it is going to come in at a likely time of a general election,”

Bird says. “In truth, the tone seems to have really firmed up. Now we are beginning to believe they will happen.”

For the optimist, it is a golden opportunity for the industry to tackle the existing problems in the claims handling process. “The intention of the MoJ rule changes – to speed up claims, reduce costs, make thing more efficient and more transparent – is the sort of thing insurers should be doing already,” AXA’s Williams says.

But others need more convincing that insurers will be ready for deliverance day. “It comes down to whether they have the in-house skills and capability of bringing in the sort of workflow that allows them to be able to deal with the claims,” Roberts says. “That is what the government is setting for insurers, and I think they are going to fail big time.” IT