Clive Buesnel and David Rich-Jones add up the costs of expert services
Expert services mean big business within the London insurance market. Lloyd's of London spends some £700m a year on expert services (lawyers and loss adjusters) and this figure is still growing.
However, whereas the necessity of such services is beyond question, the costs involved deserve much closer scrutiny. The simple fact is that insurance organisations don't pay nearly enough attention to expert spend. Ask any CFO in the London Market how much they spent on lawyers and loss adjusters in 2004, and 99 times out of 100 they just won't know. No-one's looking at the bills, and insurance organisations often end up paying duplicate, unauthorised or incorrect charges. In fact, we have found that organisations are often spending around 20% more than they should.
It's a management information issue. For most insurers, and for nearly all Lloyd's syndicates, detailed management information on the cost of external experts is practically non-existent - with hardly any visibility on how much they spend, which firms are used, and what exactly the money is being spent on. Not only does such a lack of insight render a CFO powerless to systematically reduce these costs, it also flies in the face of the transparency demanded by regulation such as Sarbanes-Oxley.
Insurance organisations need to utilise measures that will bring expert spend under control, leveraging technology to manage risks and validate billing. On a basic level, such technologies can rectify invoice error (worryingly, there are errors within 20% of expert invoices). On a more sophisticated level, armed with an accurate breakdown of a company's expert spend, with individual costs attributed to each expert firm, management is able to examine where their money is going, and begin the crucial process of bringing these costs down. When a softer market arrives, as it surely will, efficient management of expert spend will be a key factor in ensuring insurance organisations remain profitable through challenging times.