Market analyst Datamonitor charts the rising profile of insurance claims management, from cost controller to core brand builder.
Insurance companies have a notoriously difficult job building themselves meaningful brands. Large marketing budgets spent on advertising and sponsorship have gone some way to improve name recognition amongst consumers, but this is a long way from recognition of an insurance company’s brand values or establishing any customer loyalty. Insurance largely remains a grudge purchase that consumers purchase on the basis of price and not service.
Nevertheless, claims service is increasingly being viewed by insurers as a potential escape route from this cycle. Superior claims service is being held up as a key brand builder that can not only help to retain existing customers, but can also attract new business on the basis of service and not price.
A new report from Datamonitor, 'Claims Management in UK General Insurance 2001', examines consumer attitudes towards their insurance companies and found that price was the reason why 68.8 per cent of switching household policyholders and 83.7 per cent of switching motor policyholders changed provider.
Many industry observers conclude from this that, as many consumers will not have to make a claim during the course of their policy, claims service is largely irrelevant, and many policyholders will switch on the basis of price even if they are aware of the high quality claims service. However insurance companies that choose to focus on cost while ignoring claims service will be left behind in the battle for the customer. Datamonitor’s survey revealed that 46.5 per cent of loyal household insurance customers and 48.5 per cent of loyal motor insurance customers remained with their current providers as they were satisfied with the service.
Insurance companies are looking to increase this proportion of satisfied customers, thereby increasing retention rates. To be successful they will need to develop tailored claims solutions to enable a more fitting service for different types of customer. This will cut across different customer types, according to risk profile, age, sex, Internet proficiency etc. This will require sophisticated notification and triage processes and automated back offices to enable the right claims solution to be found for the customer.
Use customer contact to retain custom & brand build
"Whilst historically claimants may have been viewed in a rather confrontational light, and may been treated with suspicion from the moment of notification, insurance companies now seem to be transforming their attitude towards claimants. The view is increasingly that the claims process is the key moment that an insurer can prove its worth and make the customer see exactly why they have been paying their premium. Rather than treating claimants as a blot on a book of business, insurance companies should seek to maximize the benefits that can arise from this point of contact with the customer and provide a positive claims experience. Not only can superior claims service help to retain existing customers by building upon the relationship of trust and the promise of high quality service, it also has the potential to attract new business,” comments Vicki Summerhayes, Datamonitor financial services analyst and author of the report.
The difficulty with this route is that insurance companies have long battled with the claims dilemma of service vs. expense. Whilst claims costs need to be kept tightly under control, an increasingly sophisticated customer base and competitive marketplace are demanding marked improvements in claims service. It is a trade off that insurers have to make and, particularly during the soft market period that has been sustained over the last couple of years, reducing claims costs to a minimum has been the key focus of many insurance companies. With suppressed premiums and growing claims costs inflation in all of the markets, the underwriting losses sustained over the last 2-3 years do not make happy reading. The pressures on claims departments and on supplier relationships have thus been immense.
Short-term approach jeopardises customer service
The average total business loss ratios of the top 5 general insurers in the UK has increased by 11.3 per cent to 77.1 per cent between 1995 and 1999. Insurance companies are therefore focusing on minimizing both indemnity spend and claims expenses, however, the two are inextricably linked. An increase in claims expenses can reduce indemnity spend, just as a decrease in expenses can increase indemnity spend. Insurance companies therefore need to look at the whole picture rather than simply focusing on cost.
Insurers are attempting to reduce claims costs through staff salaries, outsourcing and leveraging supplier relationships, to name but a few. However, an over-emphasis on claims cost control, or rather a short-termist approach of focusing on quickly reducing the top line internal claims bill can backfire by having an adverse effect on indemnity spend and customer service.
Tackling the entire claim chain
Rather than simply providing a cheque for policyholders, a growing number of insurers are looking to provide ‘total problem solutions’. Insurance companies will seek to develop relationships with a wide range of suppliers that enable the customer’s needs to be met, from contents replacement, and building repair to re-housing requirements. As well as providing the policyholder with a quick and efficient resolution to the problem, insurance companies can themselves save money. Insurance companies can potentially save 15 per cent on repair and replacement schemes within the household market for example.
Insurers can take this one step further and start to build a positive association with their policyholders through proactive service offerings. Harnessing the benefits of eProcurement and the supply chain will enable insurers to provide cheap white or brown goods or car parts for their customers even when they have not had a claim. This will provide added value for the customer, as insurers would pass some of their supply chain discounts onto them directly. This would therefore have an enormous positive impact on an insurer’s brand and could help transform the public perception of the industry.
Some insurance companies are gradually starting to move their claims departments down this route. Royal & SunAlliance is a notable example of a company that has spent time building supply networks and is developing proactive event management, as witnessed in Lewes in the floods at the end of 2000. The company set up a mobile office in the area and operated outbound calling to policyholders living in the area to establish whether they needed to make a claim or not, generating a considerable amount of positive PR for the company in the process.
In order to establish a claims service that is wide-reaching enough to encourage insurance customers to shop on the basis of service and not price, insurance companies need scale. The more important the insurer becomes to the supplier in terms of providing work for a fair price, the greater priority the suppliers will accord to the insurers’ customers and the greater care they will take over the work required.
Supply chains not an easy option for smaller companies
Not all insurance companies have sufficient scale or organizational resource to establish effective supply chains or networks. In establishing effective supply chains a lot of work goes into the strategic and technical analysis in terms of understanding suppliers’ positions in the market, understanding their base costs, and getting to grips with logistics. Once the network has been established there is a constant management and improvement process that needs to be tightly controlled.
For the smaller and medium sized insurers who do not have sufficient resource or volumes of business to establish these networks, one choice is to use an outsourced service provider with its own established and monitored networks. Alternatively, smaller-sized companies could club together to use their collective weight in establishing a network.
Reservations surround both routes. However, if the smaller and medium insurers wish to benefit from the cost savings that some of the larger insurers have established, and if they wish to maintain the same speed and national coverage, then these may become even more important options. Several of the larger insurers are arguably not capitalizing enough on the potential for supplier networks. Merger and acquisition activity has often stood in the way of such developments, and more could be done to benefit from insurers’ pan-European scope.