Breakfast Club: Don’t miss a trick

Claims inflation continues to create major headaches for insurers. From the spiraling expense of bodily injury claims to the ever-increasing burden of fraud, claims directors are fighting on all fronts.

At the Insurance Times Breakfast Club, claims optimisation was the theme, and industry leaders gathered to outline the problems and look at ways of getting the best out of the thorny claims process. On the agenda were the causes of inflation, the best way to beat fraud, and the use of recoveries to cut claims costs.

The panel comprised AXA managing director of claims David Williams, Davies Group director of fraud Peter Taylor, and SAS principal pre-sales consultant Scott Thompson. The event was chaired by Insurance Times editor-in-chief, Ellen Bennett.

Going up

AXA’s Williams took centre stage first, with a keynote address centred on claims inflation, including a particular focus on bodily injury.

First, he acknowledged the scale of the bodily injury crisis facing the industry. He admitted that AXA got its reserving wrong between 2000 and 2003, but said that it had spotted and resolved the problem early.

Now, according to Williams, AXA prices accordingly. “What we do sometimes causes us difficulty in terms of pricing, but I would rather be marginally less competitive than insolvent.”

He suggested that some players had been fooling themselves that claims inflation was less serious than it was, adding that AXA believed employers’ liability inflation had been running at 10% each year over the past six to eight years, with public liability calculated at 8%.

He added that actuaries had calculated a 30% increase in bodily injury inflation in 2008 and 2009, with 10% owing to frequency inflation and the remaining 20% the result of rising average costs.

Other causes of claims inflation, Williams continued, include changing terms of care regimes for the injured, with trends towards expensive case management and more luxurious holidays. “Holidays seem to have developed into cruises. Cruises are incredibly popular now on these claims, genuinely because they’re more expensive. It’s as simple as that.”

There was one bright spot amid the gloom, however: Williams said that periodic payments were not making the impact AXA had anticipated. At least, not yet.

Williams also spoke out on the record £13.75m award to injured Guernsey cyclist Manny Helmot. He said the potential impact of the case was “absolutely scary”, and expressed concerns that the ruling would cause problems writing business in Guernsey.

He concluded by advising the industry to be proactive in tackling claims inflation, adding: “It’s much better to get the truth out early. You can then get it into your pricing.”

Spotting the scams

Davies Group’s Taylor, whose presentation focused on keeping claims costs down through good fraud management, began by pointing to some figures.

Taylor said the latest ABI data showed that detected fraud cost the industry £730m a year, while undetected fraud cost £1.9bn a year.

He also referenced an ABI survey, which revealed that 6% of the population admitted filing a completely false claim, while 7% have exaggerated a claim.

Taylor warned: “There’s probably a bit of crossover, but if we’re looking at 10% or 11% of your volume of claims being potentially fraudulent through being staged or exaggerated, that is a tremendous amount.”

Cost control was the driving factor that should lead to good fraud management, he said, cautioning the audience not to be complacent.

“I think we’re fooling ourselves if we think we’re winning with £1.9bn of undetected fraud.”

Though praising the use of programs such as Detica NetReveal, Taylor warned that databases could not spot some fraudsters, such as lone agents, those without financial difficulties, first-time claimants and the previously honest.

And, with fraud on the rise, fraudsters are looking for new ways to dupe insurers. Taylor said he had noticed a 35% increase in escape of water claims, calling it “the new fire”.

He suggested that this could be down to fraudsters cashing in on the increase of storms and floods over the past 10 years, helping false escape of water claims seem more believeable. In addition, other factors, such as decreased risk to the property and the lighter legal consequences, made escape of water claims preferable to arson.

Pointing to staged accidents, casualty fraud and liability fraud as growing areas for concern, Taylor advised insurers, loss adjusters and claims management companies to focus on screening claims.

Stressing the importance of good process and auditing, he said: “You can’t beat the hunch of an experienced claims person – that’s one of the best ways of spotting fraud – but what you have to build in is good process to be followed.”

Taylor also appealed for more accountability from managers of claims departments, adding that fraud costs each honest policyholder £44 a year on average.

He concluded: “The amount you save is related to answering the following question: how serious are you and your organisation about beating fraud and pulling back some of the £1.9bn that goes undetected?”

Number crunching

SAS’s Thompson kicked off the final segment of the Breakfast Club with an anecdote to demonstrate how analytics can be used to improve recovery rates by analysing the data at hand.

He outlined how the SAS analytics system allowed him to make a tangible, positive impact on a major UK insurer’s books. “I went to their claims unit, and we sat down and looked at these claims.” he said. “Lo and behold, within the first five claims we recovered around £18,000 straightaway.”

Adding that SAS analytics had increased retrospective motor and home recoveries from 22% to around 27%, Thompson said that the model could also be applied to other areas.

He concluded: “What I’m trying to demonstrate is that even though most organisations do use red flags, having analytics working at first notice of loss in real time can increase any type of book of work you’re looking at.

“Whether it’s policy testing, fraudulent claims, subrogation or withdrawal rates – the model we’ve developed can be applied across all of that.” IT

For more photos see our gallery: Serious about claims.