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Following the Business Interruption claims debacle the latest buzzword in the industry is ‘Transparency’. There is belated recognition that policy wording, pricing practices, and underwriting criteria are all in need of an overhaul if we are to have any hope of regaining some of the customer trust we have lost in recent months.
But what of the claims department?
How will we respond to these new demands and what will the consequences be for our core values, operations, and customer management? It seems to me that there are 3 key pillars of thought and action that will need to be adopted in the claims department of the future.
There is much mistaken talk in our industry about claims being the ‘Moment of Truth.’ This is supposedly the point at which the policyholder can finally see and feel what they have bought. The service interactions delivered by claims handlers, suppliers, and a host of associated characters will speak volumes about the business and how it works.
But consider this.
Would you rather have a dreadful service and receive a settlement from your policy, or a great service and be denied coverage? We can be quite sure from the BI shenanigans that what the customer wants and expects is ‘value’.
It is not the Moment of Truth that the claims department delivers (of which there are many, and most of them occurring outside of the claims function) but the Moment of Value. The point at which the policyholder receives what they really want and need – or is disappointed and frustrated. The claims department may well contribute to the ‘Truth’ of the matter, but their real job is to provide the policyholder with ‘Value’ – or not.
Of course, ‘Value’ is not merely the paying out of vast sums of money at the behest of policyholders.
There are other factors that affect the perception of value. Service provision and the impact of claims on renewal pricing to name just two. However, let us be clear in our own minds that if we are truly committed to a new concept of transparency then the first guiding principle on how we should position the claims function must be to understand our customers real needs. To my mind, their primary concern when making a claim is to test the financial value being offered for the premiums paid.
Our obligation is not to provide a largely operational ‘Moment of Truth’ but a core and underlying ‘Moment of Value’.
As we develop and sell policies, design TV adverts to persuade the masses, make promises to allcomers and (supposedly) price our goods fairly and transparently, we are constantly faced with choices. Sometimes difficult choices.
Every marketer worth their salt knows how to hide the real truth about what we do and what we are selling. As we speak, I’m sure pricing gurus are busy working out how to get around the new strictures demanded by the FCA. Comparison websites that were supposedly heralding a new era of consumer power are fined millions of pounds by regulators for practices that achieved the exact opposite of what they promised.
In the often cutthroat and competitive world of insurance there is much to lament about what we do and how we do it. But all is not lost.
The C-Suite Claims Directors and their supporting teams have a duty, it seems to me, to act as the inner conscience of the insurance industry. Many of the problems that arise from poor policy wording, underhand exemptions, and confusing sales practices will eventually land at our door when a claim is made. It’s not in the sales, underwriting, or actuarial departments where the frustration and disappointment of policyholders will be felt – it is in claims. If we take the hit, then it is surely it is our role to be the Jiminy Cricket of the insurance world.
In other words, we will counsel caution where others may seek to cross the invisible line of integrity. We will demand massive investment in claims technology as we seek to forcefully represent customer desires for progress and development in service delivery. We will make sure that true consumer power lies with us – the claims department. We will bring the customer into the boardroom.
Claims as the Conscience of Choice will help us to deliver better standards for the industry and, of course, for our customers.
When I last looked the seemingly never-ending world of Insurtech investment had committed just 7% of its money to the claims arena. Rumour has it that the tide may be shifting towards the ‘back end’ of the insurance eco-system but, in truth, there is a long way to go.
Moreover, for so long as claims is seen as a cost centre by the C-Suite of executive decision makers then progress will be slow. And whilst it is certainly true that most of the money that flows out of an insurer goes through the claims function we are simply seeking to fulfil the sometimes grandiose promises made by the slick sales and product design departments.
However, this responsibility for managing these outflows should make us the prime candidate for innovation and investment.
Claims is not a cost centre. It is merely the manager of transfer payments from one group of people (the policyholders) to another group of people (the claimants). Given the sums of money involved, that management process is deserving of a new approach built on best use of technology, behavioural science application, and offering customers real choice. Equally, as we fulfil indemnity spend demands we have a responsibility to drive ever better ways of meeting the legitimate needs of our customers. ‘Saving money’ is not a suitable lifestyle choice for the claims department.
Instead Claims as the Big Innovator should characterise our development in the coming years. Now it’s our turn!
As we battle to control rising indemnity spend across many lines of business, meet the demands of our C-suite masters, and adapt to radically different methods of working, we can lose sight of our core foundations. The claims department lives and breathes the problems – and the opportunities – of being at the coalface of policyholder rights. Our contribution to corporate profitability is matched only by the sales department. Our commitment to workforce development is second to none in the insurance arena.
Claims as the Moment of Value, the Conscience of Choice, and as the Big Innovator are the core foundations on which we can start to rebuild the trust and support of our policyholders. Goodness knows – we need it!
Price comparison websites were invented to provide open, transparent, and easy access to the ‘best’ insurance prices for their users. They heralded a new dawn of consumer power in which individuals would have previously never had available opportunities to ‘shop around’.
What we didn’t know is that perhaps the most famous of all of those sites, Compare the Market.com, was deliberately preventing customers from seeing the best prices by restricting the rights of insurers to advertise keener prices elsewhere. Hence the reason they have been fined nearly £20m for ripping off customers.
Whilst all this is going on, the courts are due to finally rule on the rejected Business Interruption claims that have affected around 370,000 commercial customers. However, the case is finally decided, and you can bet the consuming public, both private and commercial, will have made a very negative and perhaps deservedly poor judgement of our industry.
For years, the financial services and insurance industry has been blighted by the scourge of PPI mis-selling. Billions of pounds worth of unnecessary premiums being returned to the public secured originally by deceit, and driven by greed for tainted profits, has served as a constant reminder that insurers are never to be trusted.
Is there a common theme here?
Amanda Blanc, the newly appointed CEO of Aviva, has proclaimed that the biggest risk to insurers in 2021 is their reputation. Or rather, a reputation that is so poor in the eyes of our policyholders that they feel fully justified in retaliating wherever they can.
Exaggerate a claim by, say, 10%. Why not? It’s only those dreadful insurers who suffer and they deserve everything they get.
Make a claim for a non-existent personal injury? Let’s give it a go. Get a few quid back from my premiums which, in any case, are way too high.
Game the system when making an application so that the premiums are lower? Who cares?
Thankfully, not everyone thinks or acts this way, but we all know that insurance sits somewhere below journalism and in the same category as estate agents when it comes to public trust and, in truth, that’s a reputation that we have forged for ourselves. No-one is born hating the insurance industry. Instead, we provide every excuse the public needs to justify the unjustifiable and take their revenge on what is perceived as a self-centred and selfish industry.
Of course, this perception of our industry isn’t accurate. We know that our products and services deliver extraordinary benefits to millions of claimants exactly when they need it. We know that we deliver real value to shareholders, staff, and thousands of suppliers. We know that we treat (most) customers fairly.
However, like no other period in history, we live in an age of instant and ‘always on’ communication. Reputations can be made and lost in an instant. Twenty years ago, you might have had to read the financial pages to be aware of the problems with Business Interruption claims. Nowadays, the power of the internet and social media makes it front page news on every screen, every mobile, and in every business boardroom.
So, if ever there was a time to drive our industry forward with new standards of integrity, trust, and honesty, then that time is now. Every penny of hard-earned profit is richly deserved and should be celebrated, but that profit cannot be earned at the expense of our policyholders. It is only because of those policyholders that we even exist.
It’s possible that some readers will think me an idealist, a dreamer, or even a little bit foolish to embark upon this crusade for a restoration of standards in our industry.
Guilty as charged.
‘This article first appeared in Modern Insurance Magazine’.
The post pandemic claims world needs a new vision.
I am not one of these ill-informed and often ignorant headline writers who argues that insurers should pay out on all claims at any time, simply because the paying public ‘deserves’ settlement. Pandemic or not, every honest claimant has the same sense of entitlement at the time of their claim and woe betide the finances of an insurer who bows to policyholder pressure and is too lenient in managing claims ratios and costs. To adopt the stance regularly demanded of us by those who should know better is the road to financial ruin.
However, at the time of writing, it is the failure of insurers to pay out on Business Interruption claims that is making the news, and not just in the more obscure financial pages. Just a few days ago, the FCA largely won its argument in the courts against a representative sample of insurers and policy wordings, although, no doubt, the army of lawyers involved will be girding their loins for the appeal process. At some stage, the deserving policyholders will receive the monies they have always been due whilst many more will remain disappointed and, no doubt, the dust will eventually settle.
Whatever the eventual financial outcome for insurers and policyholders alike, you can bet that the popular perception of the insurance industry as money-grabbing claims refuseniks will have been reinforced by this whole sorry process. Once more, we will be painted as the villains of the piece, and it seems to me that we have only ourselves to blame.
Firstly, we write policies and sell them to the unsuspecting public with little clarity on exactly what is covered and what isn’t. Nor do I restrict my comments to the BI space. My successful application for private health insurance ran to 73 pages of incomprehensible nonsense, which fell at the first hurdle when I tried to make a simple claim for referral to a medical specialist, and even the claims handler misunderstood the policy coverage!
Secondly, in almost every single claims department I have consulted with (and there have been a lot over the years!), one of the key measures of success is the ‘repudiation rate,’ followed closely by ‘cancellation/withdrawal’ ratios.
In other words, we measure a part of our success on what proportion of initial claims we manage to avoid paying! I have never, ever seen a monthly KPI that reports the other side of the coin – the percentage of claims that we actually do pay. This usually only features in the annual reports of insurers when it suddenly becomes important to play the game of being a customer-centric organisation.
Thirdly, we have allowed ourselves to become a largely pricedriven commoditised industry in which notions of value, service, and fairness are too often left at the door when we arrive at the office. Why it should ever take a regulatory body to establish the imperative to ‘Treat Customers Fairly’ and to protect vulnerable customers is surely worthy of a Ph.D., thesis in self-inflicted pain.
Don’t misunderstand me. Those whom I have worked with over the years know that I have little tolerance for the ‘softly softly’ school of claims management. But to me it is beyond comprehension that in our race to the bottom of the pricing ladder we somehow seem to have lost our core values of integrity, honesty, and fairness along the way.
If the pandemic achieves nothing else, let it be a time to pause, reflect, and consider a better way to establish our true value as an industry and as a claims profession amongst our policyholders and the public at large.
I recently bought a new toaster. Bright, shiny, plenty of buttons to press and an ejection mechanism that launches the toasted slice of bread into the air at a speed to rival the best efforts of a North Korean missile test.
Only one problem.
A standard sized slice of white loaf is too large for the toaster.
There is an annoying inch or so at the top of the slice that sticks out above the machine – never to be grilled to a crisp and juicy pale brown where butter will melt and marmalade will play lasciviously with my taste buds.
Always destined to be pale and limp this annoying and now very distracting sliver of bread is fit only for the bin or the birds. Admittedly, it makes for happy pigeons, but I didn’t honestly buy the toaster for them – I bought it for me!
So I have to ask myself, why is my toaster too small? Or perhaps (as any good consultant must consider) the bread is too large? In a world that is dominated by talk of everything being ‘customercentric’, it is clear that something has gone seriously wrong. The manufacturer has failed to consider the size requirements of the standard white loaf as sold in Tesco (and other leading stores) whilst no doubt proclaiming to all those willing to listen that the ‘customer is at the heart of everything that we do’.
Sadly for them, this particular customer does not want extraordinary service, I do not especially want competitive pricing (within reason), or a branding campaign to make me marvel at the creativity of the TV advertising. The after-sales product guarantee proffered by the store salesforce, desperate to earn commission, falls on deaf ears, and the so-called ‘free’ delivery options had I bought it online fail to win my undying loyalty as a customer.
What I want is a product that does the job it is designed to do – brown the entire slice of my slice of bread, on both sides. A product that is lovingly crafted by purpose-built machinery that never goes wrong. A product that sits nicely in the corner of my kitchen, often forgotten but always there when I need it. A product that sings with joy at the opportunity to perform the task for which it was designed.
You may be wondering why it matters so much and, in truth, with a local pigeon population destined to grow fat on the discarded remains of my breakfast repast perhaps I should be grateful for this unexpected functionality.
However, as I wander around the insurance claims and supply chain sectors where I choose to ply my trade, I often hear the phrase ‘customer centricity’ peppering the conversation. Demands for a customer-centric approach dominate the agenda and to such an extent that people who should know better lose sight of the main goal – which is surely to deliver a core service that meets real and genuine customer need.
So my advice to any claims or supply chain manager out there that
is looking to improve their operation is actually very simple (and, in
this instance only, completely free of charge).
Make sure the toaster fits the bread!
As I write this article the Labour leadership election is underway, President Trump has opened a new front in his war with Iran, and the bush fires continue their devastating assault upon millions of hectares of land in Australia.
Even this brief scan of current headlines serves to remind us that the course of events can change rapidly with major consequences for the economic, social, and structural platforms on which we seek to predict the future. So as I look ahead to the coming 12 months, my key concepts for the claims environment in 2020 eschew the more usual focus on technology trends, customer ‘centricity’ (whatever that means), and the new digital claims journey – all of which are rapidly becoming ‘business as usual’ for the modern claims department – and look instead at three fundamental issues that I feel should shape the coming months.
A frustrated insurer client tells me of a recent low-level claims project which required an investment of £15k from within existing budgets. The proposal, review, and approval process took a total of 6 months and involved around 10 different people! In that time the claims department had managed thousands of claims with £millions of indemnity spend.
Alternatively, a recent supply chain project I am aware of managed to review supplier performance and reform the entire supplier base of c50 members in a period of less than 9 weeks.
I could make a good guess as to which business is more likely to thrive and prosper in 2020 and beyond. The modern claims department lives in an ultra-fast world that demands rapid reaction to changing events and opportunities. Essential longterm planning and strategic development must not be allowed to strangle the ultra-fast deployment of new solutions and calculated experimentation.
The burgeoning world of InsurTech has often been described as a ‘threat’ to traditional insurance models and working methodologies. This can lead to something of a siege mentality in which the ramparts of resistance to change and development are fortified to repel the invading hordes! It is a massive disappointment to read commentary which suggests that the InsurTech movement has somehow ‘failed’ in its mission to drive substantial change, and the more traditional approaches have ‘won’ this somewhat artificial war.
To paraphrase Gordon Gekko from the film Wall Street – ‘change is good’. Change drives better business, new opportunities, and greater freedoms from the drudgery of some aspects of claims management.
The year 2020 should be characterised by a surge in the effort from the claims department to seek and embrace constructive change.
Speed and change demands of the claims department an approach characterised by ultra-adaptability. This, in turn, requires greater breadth and depth of knowledge at all levels, a constantly evolving and shifting internal structure built around flexible and multitalented teams, and a leadership function that shifts their focus from the issues of today to the opportunities of tomorrow.
This type of environment does not happen by accident.
Ultra-adaptability is a result of serious investment in people, systems, structures, and a willingness to embrace new thinking, ideas and methods of working. Equally, we must raise expectations of what we expect from our employees. Too often we equate working hard with working intelligently, but nothing could be further from the truth. The claims department of 2020 must grasp the essential difference between the two and demand of its people and leaders a new commitment to insight rather than process.
Ultra-adaptability coupled with speed of action and a willingness to change drives great performance and in 2020 we should all be seeking to raise our game!
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As the government seeks to implement long anticipated changes in the whiplash and broader PI claims environment there will inevitably be two categories of response from the legal community. Continue reading
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