Insurers and reinsurers can build competitive advantage through providing a better claims service. Martin Thomas demonstrates how this can be done.
Insurers and reinsurers are in the business of customer service – and claims delivery is no exception. Carriers, even in the subscription markets, are fast waking up to the reality that in a soft and increasingly global marketplace, customer service is an essential client delivery component and a fertile ground to differentiate value.
Clients expect good service. Bad service is a lost client, not just for the broker, but increasingly for the carrier as well. Exceptional service hopefully translates into customer loyalty, as well as additional sales and a positive brand. So what constitutes exceptional service in today’s claims environment?
First and foremost, clients want help and seek support, understanding and the benefit of experience that carriers and claims brokers can bring when a disaster strikes. It matters not the size, scale or complexity of the disaster at hand – what is of utmost importance is that the broker and re/insurer bring the depth of experience they possess and a can-do attitude to help the client in these difficult times. How often this approach is witnessed in the real world is another thing entirely. Through legal paralysis perhaps, the industry too often calls for the lawyers.
How often do we hear phrases such as, “I haven’t sufficient evidence to be able to confirm indemnity”, “there are exclusions that could apply” or “the client should act as a prudent uninsured”? These are lines that are perhaps spoken too often and could indicate inability to offer guidance or support.
Coverage needs to be investigated and confirmed of course, where appropriate, but this should be done quickly. Relevant information, and ultimately cash, needs to flow in a timely fashion and expectations of both client and carrier need to be managed throughout this phase. Insurers and reinsurers would do well to think more carefully about the stresses placed on their client’s business while they wait for a response. In fact, insurers and reinsurers should have a clear claims strategy or philosophy, which needs to be shared with prospective clients in advance of placement.
Brokers should expect insurers and reinsurers to articulate their claims philosophy, or even share them by way of documentation? Lloyd’s has established minimum standards for claims, which includes board commitment and oversight of an effective claims management process, a documented claims philosophy that is communicated to all claims staff, a commitment to respond to claims appropriately and the appointment of a board member to be accountable for claims. All of this represents robust, logical governance.
However, to improve the speed and quality of service to clients, these principles need to be more granular and visible to policyholders.
“Lloydâ€™s is actively taking steps designed to speed up the claims process
At a claims level, there should be a clear journey of discovery – a path to determine all relevant facts, but this must be restricted to the scope permitted by the contract of re/insurance – after all, it is not the claims handler’s role to retrospectively underwrite the risk. Information requests made by an insurer or reinsurer should all drive (quickly) towards achieving certainty for the client that the risk transfer purchased is engaged or not.
Carriers all over the world have deep technical knowledge of the product. Are they doing enough to document, prior to inception, the needs and expectations of the client when it comes to claims? Plus, if they are, could they do more? Importantly, how can one market’s claims performance be compared against another? Are the carrier’s security rating, product offering and experience the only appropriate measures?
Competing on all levels
The London market is waking up to this changing world. It now appreciates that it has to compete on all levels. In discussions with senior claims executives at some of the Lloyd’s managing agents, it is clear that many are planning to differentiate their organisations through a better claims service.
Lloyd’s has recently undertaken further business process reviews and is actively taking steps designed to speed up the claims process. It is running a number of initiatives with a view to maintaining a competitive position. Much has been reported on the switch to electronic claims files (ECF). This is a significant piece of change management for brokers and carriers alike. While the technology does not yet cater for all types and structures of business placed in this complex market, progress is being made to increase month on month the volumes of claims transacted via the ECF.
Aon has been running close to 100% compliance on ECF transactions for all in scope classes for a number of months. It looked at the end-to-end time for processing claims pre-ECF and determined an average end-to-end time of 44 days in one of its reinsurance areas. This data compared with an average end-to-end time of 23 days for US domestic markets and 11 days for Bermuda. Post-ECF, the end-to-end number has now been reduced to 15 days. This is a phenomenal improvement in a short space of time, however further improvement is possible.
Whilst ECF is not the panacea for all classes of risk, it is a tool long overdue in the subscription market. It needs greater levels of investment, the introduction of workflow and a good management information suite, the latter two being close to delivery. To see the ECF opened up to international insurers and reinsurers beyond the London subscription marketplace would be a further improvement.
Further projects are being undertaken to improve this performance. One is Lloyd’s segmentation plan, separating simple cases from complex and making sure each has its own relevant path and the process is focused on results. The segmentation plan will deliver significant improvements in end-to-end time for approximately 80% of all claims handled by Lloyd’s. Now that the syndicates’ senior claims handlers no longer need to handle simple claims, they will have more time to focus on the complex cases creating the opportunity to improve the quality and speed of response.
“Now that the syndicatesâ€™ senior claims handlers no longer need to handle simple claims, they will have more time to focus on the complex cases
Another project involves driving a straight road through the historical claim process and is aptly dubbed the “Roman” project for this reason. This Aon project is designed to define up-front the factual matrix required to adjust a claim first time, plus eliminate errors, re-work and reduce hand offs.
Keeping clients happy
The client has a lot of advice available at the point of placement. Due to contract certainty, they now have the contract of re/insurance which defines the scope and any limitations. They have the premium quoted by competing carriers and their security ratings. The broker layers this factual platform with his knowledge of each insurer or reinsurer – advocating one carrier to lead over another, based upon a combination of personal experience and the trading relationship.
Claims handling can affect the broker’s decision when deciding which carrier to recommend. The assessment challenges faced when dealing with a subscription market are different to those faced by a single carrier. The subscription process is more complex. While this structure allows clients to spread their risk efficiently among many carriers, one has to be clear about the start and end point for each carrier in the chain. One has to understand when each carrier has access to the claim event and how a cascade agreement process effectively works, ensuring any blockages are clearly understood and fairly attributed solely to the carrier concerned.
The correct methodology is a combination of fixed and subjective measures. Aon’s model factors in issues such as the proactiveness of carriers, their speed and quality of response and track record of working with the broker and its clients to solve problems. Their claims paying history is also important. It is important to know if that particular insurer or reinsurer pay claims fairly and quickly. Carrier operational excellence and payment performance is also measured.
All of these factors build towards a time when brokers, on behalf of their clients, will design and implement service level agreements and measure a carrier’s performance against that service level agreement. Is the next logical step to include penalties for slow response, perhaps rebating to clients an element of retained premium for breach?
Martin Thomas is executive director of Aon UK.
London Market: AIRMIC's Willingess-to-pay index
The UK Association of Insurance and Risk Managers (AIRMIC) is expected to launch its willingness-to-pay index for insurers very soon. The index is being devised in response to huge demand from risk managers.
According to a survey conducted by AIRMIC last year, 69% of risk managers backed the idea of an index and it has since become one of the association's priorities. The survey showed a massive level of concern among commercial insurance buyers over the way that claims are handled and paid. Less than half said their insurers were good or excellent in terms of their claims handling speed and accuracy (42%). A quarter said they had had a claim refused by their insurer in the past two years.
"As far as risk managers are concerned, willingness to pay can be every bit as important as the ability to do so," said chairman Colin Campbell. "There are rumours - and that may be all they are - that some companies are better than others in this respect. We seek hard evidence, and we expect that our efforts will ultimately help to drive up standards."