Insurance companies are spending millions of pounds on claims processing, according to a recent Datamonitor report.
The research shows claims processing takes up between 70% and 80% of the running costs of a typical general insurance company. A staggering 20% of this is on administration costs.
The report, 'Building Process and Product Excellence for European Insurers', was commissioned by Hyland Software, a provider of enterprise content management software to the insurance market. Ruth Fisk, director for international insurance solutions at Hyland Software, commented on the report: "Despite recent attempts to improve processes, claims processing remains a black hole for many insurance carriers as they struggle to reduce their operational costs in this area. This situation is particularly worrisome against the backdrop of severe weather events as witnessed recently in the UK.
"Floods this month in the Midlands and Northern England have hit insurance companies hard, as their workload has rocketed and they are struggling to process over 34,000 urgent domestic and business claims. The Chartered Institute of Loss Adjusters (CILA) calculates these claims will reach £1505 million. The frequency of extreme weather events through climate change will only increase in years to come and those insurance companies which do not become more efficient may have to increase premiums to stay viable.
"Insurance companies need to ensure that the streamlining of operations and the automation of processes rise to the top of their business priority list. Only by improving process efficiency will insurance carriers be able to survive within the increasingly pressurised environment in which they operate.
"Climate change is only one of the pressures currently facing the industry. Over 60% of insurance companies (life, non-life and multi-line) in the Datamonitor report stated that complying with regulation will be the top initiative for increased IT investment in 2007. A swath of regulation including the forthcoming introduction of Solvency II means that insurance carriers need greater control over the information management lifecycle. As a result, large carriers are planning for data management and risk modelling contingencies in order to provide greater transparency into their capital structure.
"The FSA's 'Know Your Customer' initiative is another important regulation which is requiring investment in IT. Having speedy access to the right information on customers and being able to share this information as stipulated by KYC requires digitised processes which many carriers still lack.
"Fortunately, the report does show that insurance companies are beginning to recognise the need to improve their core operational efficiency. Over 65% of medium- and large-sized enterprises plan to implement process and workflow automation as well as data integration and management in 2007 which is encouraging news. Furthermore, workflow improvements have supplanted imaging as the top priority in European claims operations in 2007 when compared to 2005 priorities.
"The intense cost, revenue and compliance pressures faced by the European insurance industry means that carriers must seek to optimise each and every stage of their operations in an effort to improve operational efficiency and business agility. Highly paper-intensive and primarily manual processes must emerge as critical areas of focus. It seems as if European insurance carriers have started down the road of process efficiency, but there is still a long way to go."