If the shoe fits …

The economy may officially be emerging from recession, but it remains in a fragile state. And this low-growth scenario, which experts predict will dog the UK for several years to come, is likely to lead to a sharper focus on claims functions within insurers.

But, as Ernst & Young’s claims advisory head, Imran Ahmed, puts it, claims retains a ‘Cinderella’ status within the industry, even though it makes up the largest single chunk of an insurance company’s spending.

Ahmed is the co-author of a new report – Strategy matters – driving claims to the next level of performance – carried out by E&Y in association with the CII claims faculty, which aims to bring this oft-neglected discipline into the limelight.

Claims’ status is clearly reflected in the proportion of senior claims managers who sit on the boards of their companies. According to a survey of senior claims executives carried out for the report, less than half (43%) said they reported directly to their chief executives, with the remainder reporting either to the chief underwriting officer (16%), the chief operating officer (16%) or another business unit head (20%). Half of the respondents felt that claims were not fully involved in company strategy development.

Chartered Institute of Loss Adjusters’ executive director, Malcolm Hyde, is “staggered” that so few senior claims executives report directly to their chief executives. “At the end of the day, it’s what people are paying their premium for,” he notes.

Zurich’s UK motor claims director and chair of the CII’s claims faculty, Tony Emms, believes it is “critically important” for claims functions to have a stronger voice at boardroom level.

“Given the importance of claims functions, it is critical to both the claims function and the organisation as a whole that claims have a role in the overall strategy development process,” says his faculty’s report.

“It seems odd that the part of a company responsible for customer fulfilment and spending the largest budget is not fully integrated into the company strategic planning.”

It argues that, given the economic conditions that are likely to prevail over the next five years, it would be foolish to maintain this approach. But companies appear to be responding: the study claims that corporate boards are becoming more interested in understanding how claims can help with bottom-line objectives.

No need to outsource

The research also shows, however, that while 61% of respondents said they update their claims strategy on an annual basis, a fifth reviewed it only every two years or more. Ahmed comments: “Given the rapidly changing economic and claims environment, it is surprising that some insurers do not review their claims strategy more regularly than on an annual basis.”

When quizzed on the top factors driving their claims strategies, more respondents (75%) cited cost management than any other issue. The report says: “Managing costs has always been imperative for the claims industry, but it would appear this has intensified due to the poor economic environment.”

For Hyde, this finding rings true. “If they are not getting money from elsewhere, they will be looking to how they can control costs,” he says.

The report reveals, however, that the approach towards cost management is changing, with a declining appetite for both offshoring and outsourcing. While 40% of companies had some form of outsourcing in place, the proportion of companies planning such activity over the next three years shows a significant fall, with the number of respondents planning insourcing initiatives heading in the opposite direction.

Posing the question of whether these findings show that the offshoring and outsourcing of claims has ‘run its course’, the report says: “Perhaps this indicates a view from the insurers that this is not the optimal way to reduce costs at this point in time.”

QBE’s claims director, Andrew McBride, believes that the findings on offshoring and outsourcing point to a more sophisticated approach to cost control. “While the key driver is controlling costs, that is being tempered by a focus on quality,” he says. “If you invest in technology and skills within insurers, you can get a better result than by offshoring.”

This more nuanced approach reflects the way that claims functions must balance cost management with the requirements of increasingly demanding consumers, according to the report.

It observes: “The increasing propensity for consumers to shop around, fuelled by the significant marketing spend from the aggregators, is driving expectations of ever-better deals. But while they expect lower premiums, many interviewees felt customers’ service expectations of service were continuing to rise.”

Upgrading – technology and staff

Technology could provide claims functions with a way of squaring this particular circle. While, according to the report, most insurers have developed streamlined web-based sales and service processes, very few have replicated this in claims.

Ahmed says that insurance companies have traditionally neglected investment in IT, tending to rely on generic policy platforms. By definition, such platforms are not well-geared to handling claims functions’ more specialist demands.

“The policy platforms that will have been put in five, 10 or 15 years ago are now struggling. It makes it difficult for claims professionals to handle the claims,” he says, citing as an example the fact that some IT systems were installed by companies before they had even set up their call centres.

The survey shows that insurers are now waking up to the issue of out-of-date technology.

Technology is cited by respondents to the survey as the most important issue they face over the next three years, replacing indemnity reduction. Half have plans to refresh claims technology within the next year, with another 30% expecting to undertake a similar exercise within the next three years.

For McBride, who sits on the CII’s claims faculty board, this is one of the report’s more striking findings. “It’s remarkable at this stage in the insurance cycle that we are seeing a lot of investment in claims,” he observes.

But companies are not just looking at hardware; they also keen to upgrade their human capital too, in the form of increased training.

The strongest demand exists for technical claims skills, listed by 57% as one of their top three skills requirements. But there was also strong and growing demand for softer skills, like commercial acumen (51%) and managerial skills, such as process improvement (45%).

A better-trained workforce will be better-placed to vet customers’ claims before their expectations of a payout have been raised, Hyde points out, saving the insurance industry both money and reputational damage.

Overall, McBride argues that an improved claims service can help insurance companies to deliver a better total proposition. “It’s a main driver of activity,” he says. IT