The sharp end

Claims is the Cinderella of the insurance world: overlooked and undervalued. While claims has done all the hard work, keeping clients happy and costs down, those ugly sisters sales and underwriting have taken all the glory and had all the fun.

But no more. A host of vital legal and regulatory issues – from pleural plaques to personal injury claims reform – have come to a head. And with a new focus on customer service spreading across the industry, Cinderella is ready to step into the limelight. Insurance Times met seven budding Prince Charmings – claims directors at some of the UK’s biggest insurance companies – to find out what they were doing to change the way the market moves – and what keeps them up at night.

Personal injury

The reform of the personal injury claims process has been the most recent claims issue to hit the headlines. While not surprised, insurers were dismayed in June when the government announced that the reforms to the onerous and costly system would be limited to motor claims under £10,000, excluding employers’ liability (EL) and public liability (PL) claims altogether. Many claims directors, including Allianz’s Graham Gibson, smelt foul play.

“The exclusion of EL and PL was very sad and, to my mind, was done for political and financial reasons,” he says, referring to the widespread belief that the unions, which benefit from solicitors’ referral fees for personal injury claims, successfully lobbied government to water down the original, more radical proposals.

“The relationship between the unions and the government and the revenue generated from that relationship is well rehearsed. We did have a very well thought-out and enlightened set of reforms put to the government. Irrespective of what side of the fence you were on, there was agreement that the system did not work – everyone agreed it could not be allowed to continue. Effectively, that is what has happened for a very large proportion of claims.”

Gibson’s disappointment and frustration was shared by the other claims directors, many of whom also cited the unions and expressed anger with the government. But for AXA’s David Williams, a positive outlook comes naturally. He insists the industry must remain optimistic.

“We’ve now got to recognise the best of the situation – there was no way the government was going to do anything too radical,” he says.

“There is no way the government was going to do anything too radical.

David Williams, AXA

Williams believes the challenge for the industry is to meet the tough targets outlined in the proposals.?These include fast-tracking motor claims, for example, to admit liability with 15 days of notification of a claim. He worries that given the tough economy, smaller insurers with less cash to spare may stint on meeting these targets – but warns that failure to do so would undermine the industry’s case for further reform. This case was made recently by Williams’s boss, Philippe Maso, chief executive ‘ ‘ of AXA Insurance, who has written to Jack Straw, the justice secretary, and the Conservative party in a call for action.

Flooding

One of the most absorbing issues for claims professionals remains flooding and, while our claims directors did not always agree on the best way to tackle the problem, one thing was for certain: the government has to provide more money for flood defences – and quickly.

“The insurance market will lose patience,” warns Gibson. “We’re here to insure risk, not probability – to insure against whether or not something will happen, not how often it will happen. That’s a fundamental difference.”

Gibson adds that because the government receives 17.5% VAT on repairs to flood-damaged homes, it made more in tax from the floods than it spent on flood defences in 2007 – an estimated £1bn, compared to £800m.

But the government must make sure it is spending money on the right things. Most of the money it has committed to date has been for coastal flood defences, while much of the damage in 2007 came from surface-water flooding.

“We are committed to an extension of something that frankly isn’t good enough,” says Williams. But, like his peers, he was pleased with the recent agreement between the ABI and the government, which lasts until 2013, pending further funding for flood defences.

Insurers also have a role in fighting floods, believes Norwich Union’s Dominic Clayden.

“We, unfortunately, have a lot of flood experience so we have to do more than pay claims.

Dominic Clayden, Norwich Union

NU recently funded the development of a flood-resistant home that, when flooded, took just a few weeks to repair, compared to up to six months for a traditional home. The insurer has also launched a design competition with the Royal Institute of British Architects to design flood-resilient homes.

“We are one of the bodies that – unfortunately – has a lot of flood experience, so we have to do more than pay claims. We have to try to have an influence. Is that something that will make us money? Probably not – but it’s the right thing to do.”

Groupama’s Bird agrees. He believes that no matter what the government does, the insurance industry cannot risk the public relations disaster that would follow a blanket withdrawal of cover from areas at risk of flood. “It would be very difficult to come out of the statement of principles,” he says.

Fraud

As the economic gloom depends, insurers have steeled themselves for an upturn in fraudulent claims. But our panel of directors was divided on whether this had yet occurred.

Gibson believes fraud has gone up significantly: “Our internal fraud committee has been talking about the tidal wave that’s about to hit us. It’s very well publicised that theft increases in times of economic difficulty, and this time, it’s all happened so quickly.

Last month, the amount of claims we identified as potentially fraudulent had doubled.”

But while total savings in instances of detected fraud spiralled from £140m a year in 2003 to £480m in 2006, the industry has put a much more effort into that detection.

“Credit hire is the biggest own goal that our industry has ever scored.

Graham Gibson, Allianz

Opinions vary over whether the actual levels of fraud have gone up. Insurers dealing mainly with commercial clients seem less susceptible to rising fraud.

But it is agreed that more must be done to fight fraud – particularly the public perception of it as a victim-less crime. “A lot of people think it’s acceptable to inflate an insurance claim,” says Clayden. “It’s a ‘have-a-go’ culture and that’s just part of the game.”

For such inflated claims, a media campaign highlighting the cost of insurance fraud to the ordinary policyholder might be one solution – though when the ABI originally proposed such a campaign, funding failed to materialise.

But for large-scale insurance fraud, a form of organised crime, police commitment is vital. Our claims directors all agreed that the police had started to take insurance fraud more seriously compared with 10 years ago, though forces often suffer from lack of resources. Several praised the Insurance Fraud Bureau, which uses shared data from member insurers to track fraud.

“The IFB has done great work in building relationships with the police,” says Allianz’s Gibson. “On those large cases of organised crime, we are being taken much seriously than a few years ago. But there is still work to be done – it’s a constant war of attrition. If you put all your money into one way of beating fraud, professional fraudsters will identify it and find another. It’s a moving target.”

The biggest difficulty with fraud was the tension between treating honest customers fairly and attempting to catch dishonest ones: our claims directors were quick to emphasise this, particularly those that deal mainly with commercial clients.

XL’s Lambourne says: “We must not forget that the vast majority of people who pay our premiums put forward reasonable claims and we must continue to ensure we settle claims quickly. There is no substitute for top-class claims handling as the first defence against fraud.”

Credit hire

“An awful lot of people thinks it is OK to inflate an claim, it is a have-a -o culture.

Dominic Clayden, NU

“Credit hire is the biggest own goal our industry has ever scored. It’s a disaster,” says Allianz’s Gibson, referring to the companies that hire out cars to accidents victims on credit and bill the insurer of the party that caused the accident.

He believes the extortionate cost of credit hire accounts for more than 10% of the motor premium that policyholders pay. His peers agree: every claims director who’d encountered credit hire companies was outspoken in his anger.

In the words of NU’s Clayden: “I don’t believe that credit hire companies add a huge amount other than cost into the process. I think we’ve reached a sticking plaster compromise with the credit hire industry, but those companies are looking to raise their profits. I know we can provide cars at a cheaper rate to someone who needs it and is entitled to it.”

Credit hire companies were accused of sharp practice, or even fraud, and Gibson himself is preparing to take legal action.

“I’ve instructed lawyers and I’m building the case right now,” he says. “I have no times for companies that are crossing the line to what are now clearly becoming fraudulent activities.”

Gibson had several anecdotes concerning huge credit hire bills that have been presented to Allianz, but have not stood up to investigation. Often, the credit hire companies involved have backed down when challenged.

So what can the industry do about this growing problem? Bilateral agreements – where terms are agreed between an insurer and a credit hire company, or two insurers – are one solution to keep costs down. Three of the directors featured in these pages had a number of these agreements in place.

However, they can be extremely complicated.

“We will be looking to challenge the Scottish parliament in any way we can.

David Williams, AXA

“They are incredibly difficult

to implement, particularly in intermediated markets,” says AXA’s Williams. “Brokers get involved, and they have their own arrangements. I’ve said in the past that these agreements are a lot easier to talk about than to get in place.”

Zurich’s chief claims officer Bill Paton claims the industry might have brought the problem on itself by failing to acknowledge the credit hire industry when it first emerged. “It’s obviously fulfilling a customer need,” he says.

What is needed is an industry-wide solution – such as an agreement to provide courtesy cars to all people involved in accidents, regardless of fault.

But it would be incredibly difficult to get the whole industry to sign up to. “I wish we knew the answer,” says Groupama’s Phil Bird. “If we did, we would have acted on it.”

Pleural plaques

The political row over whether or not pleural plaques should be compensable has been making the news again. Insurance Times revealed last month that a group of insurers including AXA, NU and Zurich are prepared to take the Scottish government to court if it presses ahead with plans to make them compensable. Pleural plaques are symptom-less growths on the lungs caused by exposure to asbestos, but they are not dangerous and are not linked to the fatal illnesses that asbestos can cause.

However, the Scottish government argues that plaques should be treated as an injury and that they signify a greater risk of developing mesothelioma, a fatal form of cancer nearly always caused by exposure to asbestos.

“We have sold ourselves down the river as to the real benefits of insurance,

Phil Bird, Groupama

The insurers are worried that action from the Scottish government could pressurise the UK government into following suit, at a potential cost of billions of pounds to the industry.

“We will be looking to challenge the Scottish parliament in any way we can,” said AXA’s Williams, confirming that legal action is an option.

“We are currently investigating possible options and cost, while it’s absolutely right to push back as much as we can, suing the Scottish parliament does not sound like a cheap thing to do.”

The claims directors were united in the belief that the industry should be allowed to focus on what is really important: getting compensation to mesothelioma sufferers, who have a limited life expectancy.

While the battle is on with the Scottish government, there was a sense that Westminster is less likely to attempt to overturn the House of Lords ruling that pleural plaques are not compensable.

“If they were going to overturn the ruling, the commentaries they are putting out would be preparing us for it, and they’re not,” says AXA’s Williams. If they did, they would certainly have a fight on their hands.

The claims community

There were some differences of opinion between our panel of claims directors, but they shared a passion for their work and a commitment to customer service. The difficulty of recruiting and retaining good staff was also a common concern.

“We need to attract the right people in order to secure the future of the industry,

Bill Paton, Zurich

A report published by the CII in January says finding and keeping good quality claims professionals is the second biggest challenge facing the sector – just behind fraud detection.

The study, based on feedback from 528 claims professionals, also revealed that 14% of respondents believed there had been a decline in quality claims staff in the past five years.

As Zurich’s Paton says: “We need to attract the right people to secure the future of the claims industry. Claims receives little in terms of good PR, so people don’t realise what a rewarding career it can be. Once they actually do join, we very seldom have people leave. It’s the perception that we have to change.”

A number of the claims directors we interviewed talked of the enjoyment they got from working on the front line – from decisions that affected both people’s lives and their company’s balance sheet.

There was a consensus that claims is now taken more seriously within insurance companies and that is something that needs to be reflected in the outside world.

Fortunately, our claims directors are no shrinking violets. As this summary shows, they are ready to get tough: whether it’s negotiations with the government over flood defences, the police over fraud, the Scottish government over pleural plaques or credit hire companies over spiralling bills, claims directors are taking a stand.

As the economic gloom deepens, their determination will be more important than ever. So too will their focus on customer service. But with these princes on the front line, Cinderella can take heart: she’s in safe hands.