“ How many insurers would replicate their existing structures if they were starting up today? ”


“ The need for change is hard to miss


4. How many insurers have the ability to “lose” the expense cost when they lose the policy?


5. Why do insurers have some of their highest paid staff (based against average salary) dealing with claims, and yet this is the least controlled part of the post sales expense chain?


With most companies still producing underwriting losses, with mid-term cancellations running at around 40%, and overall persistency rates at sub 30%, the need for change is hard to miss.


The truth is that too many insurers have either failed to recognise the urgency of the situation, or they lack the resolve to make some of the draconian changes necessary. History is littered with companies and industries that failed to recognise the need to change their approach. As we have already seen in insurance, the list of casualties is growing and will continue to do so. Deep pockets do not prevent the ultimate failure, they merely delay it.


What are the options?


Ways in which the few successful insurers and the new(er) entrants have dealt with the challenges and opportunities include:-


● Dealing directly with the aggregator sites and retaining the value currently lost to intermediaries. When the leaders in the market can extract upwards of £70 per customer for ancillary related sales, why do others achieve less than half of this figure?


● Outsourcing claims to either one overall administrator, or choosing specialist operators for different types of claims


● Re-aligning the expense base so that the costs are truly variable i.e. when the policy lapses so do all associated costs. Traditionally insurers retain the cost and just allocate against the remaining policies. An easy way to price oneself out of the market.


New and old


It’s often useful to pose the questions as to the differences between new and old procedures; why they exist; and what can be done to bridge any gap. Basic questions such as:-


● How many start-up operations have developed a


conventional administration infrastructure?


● How many insurers would replicate their existing structures if they were starting up today?


● What can insurers do to start recovering their position?


Those insurers with large existing infrastructures face more of a challenge because of the complexity and cost of unwinding what they currently have. But unless they address the issue they are at a severe disadvantage.


Many insurers will not change because their management believe that they can do everything better than anyone else. Shame that results would indicate otherwise.


Claims


Claims handling has always been a strange bedfellow for many insurers. Historically the reserves retained would generate a significant level of investment income. Thus most executive groups and boards would turn a blind eye to the closed door mentality shown by


many members of senior claims management. In days gone by it was clear that many of the attributes required to make someone a good controller of claims were not necessarily the same qualities needed to make them a good manager.


The position today on claims requires senior executives to take a completely fresh look because of factors such as:-


● The significant growth in third party claims, especially those which are injury related


● The growth in fraud related claims


● The need to invest in modern customer focused claims technology


● The lack of investment returns


● The fact that most customers fail to renew into a second year


● The escalating costs of managing claims in-house


● The risk exposed by poor reserving practices


The gap between the front end of selling policies and the ultimate settlement of third party claims can be 5-6 years, and yet the customer is only involved for one year. As insurers fully recognise the need to take control of the sales process, and the need to maximise income on a per customer basis, they may also realise that retaining management of third party


”


claims is incongruous to their makeup.


Many insurers have made significant and beneficial strides towards enhancing customer satisfaction through improved access to repair networks and the supply of hire cars etc. This however, whilst potentially assisting in reaching TCF goals, does not deal with the current issues.


Insurers need to resolve the issues created by fraud; increased third party claims frequency and severity; the need for certainty about future handling costs; and to invest in technology which matches claims accessibility with that of sales. With the ever present need to have pricing as segmented and as keen as possible, many management groups do not have the resources or time to be able to tackle all of the issues listed. It’s easy to argue that we are moving ever more quickly into a situation where customer related activities (sales, pricing, marketing, retention, and own damage etc) will be classified as short-term activity and seen to be core.


The other activities such as third party claims handling, reserving, and certain back-room activities will be left to external specialists.


Just as new insurers are entering the market with different set-ups, so the newly emerging external claims handling operations will bring new technology, charging matrices, and preventative solutions. The time to change is now but how many insurers will be brave enough?


Contact: Kevin Durkan, New Way Service Solutions, The Granary, Manor Courtyard, Sherington, MK16 9PR 01908 217862, 07802 444599 kjdurkan@novomanagement.co.uk


JUNE 2010 insurancepeople 17


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