Technology Strategies: CRM & Claims Management

The p&c insurance industry’s response to this lamentable “zero sum game” of writing unprofitable business continues to be predictable. Typical responses are, “it’s just a price issue…if only we could all rally round and push through a big enough rate increase that would stick…if only I had more information about my policyholders, I know we could sell them more coverage…maybe even another policy…if only we could get Internet technology in place, I just know we could make a big splash in the direct game…” The pursuit of these objectives for most carriers has tended to produce the same negative financial results. Why?

Firstly, increased executive management pressure on regulators to grant further price increases. The industry is well aware of how difficult and time consuming it is to make industry-wide price increases stick – particularly in Ontario – as well it should be. It is difficult and time consuming, because the public is becoming ever more skeptical about the industry’s ability to run its business effectively and efficiently and ever less willing to cave in to yet another price hike.

Secondly, increased underwriter attention on the development of “new” niche products. The industry is also aware of how difficult this can be given the commodity nature of the business. What this really translates into is finding ever smaller, more closely defined market segments into which insurers can sell ever more closely defined versions of existing products. After all, when was the last time a truly different, innovative product hit the market?

Thirdly, ever increasing technology spending on expensive Internet and customer relationship management (CRM) focused applications and on the services associated with the installation of these applications (usually to serve as a proxy for the client based transaction processing systems that they have decided, in many cases, not to buy yet). As was pointed out in a recent article in CU, it has become extremely difficult for the industry to point to how, in concrete terms, these investments have been generating an acceptable return on investment. This situation, I believe, has resulted as these investments are not being made in the development and delivery of those services that the consumer really cares about. With the insurance industry focused on securing rate increases, developing less “commoditized” products with a higher value content, and burrowing ever deeper into the arcane world of CRM applications and supporting technology, the way has been cleared for leading insurers to focus on what consumers really care about, namely: How did you look after me when I last had a claim? How will you look after me when I next have a claim?

Business model

Successful carriers have realized that they are not selling the consumer an insurance policy. Unlike most other retail businesses, the exchange of value between the buyer and the seller does not actually take place at the time the contract is struck. Rather, when a customer hands over his/her premium, he/she is merely buying an option to enjoy a claims settlement service at some future date, subject to certain events occurring and as determined by agreed coverage levels. The exchange of value from the consumer’s perspective takes place when he/she exercises this option.

As such, the key service criteria for any policyholder is not: How well does my insurer know me? Does my broker give me good advice? Did I really enjoy my policy buying experience? How easily can I look up my policy details on line?

The key service criterion, indeed, the “moment of truth” for any consumer is “how is my insurer managing my claim?” Only at this very specific time, does a consumer begin to take an interest in “getting to know” anyone on a personal level at his/her insurance company. Indeed, what do the vast majority of consumers want at this time? To be sympathized with. To be looked after. To be truly spoilt for service.

This is where relationships between consumers and insurers are forged, not when the policy is actually purchased. An insurer who gets this right wins the big prize: Increased consumer loyalty and higher retention levels.

The claims experience

Having an accident for most people is at least a bit of a shock. For many it can be almost a life-changing event. For an unfortunate few, it is. As the industry knows, the experience provided by most insurers to those of us who have accidents and make claims continues to be at best a rather cold experience and at worst, downright adversarial. Not the best way to generate either continued customer loyalty or repeat business. Certainly not the way to convince a policyholder to buy even more products from the carrier even if, through the use of new CRM applications and supporting analyses, they know how much money I as the consumer make, whether I like Coke or Pepsi or whether I am likely to have enough contents insurance on my house or not!

If carriers ever hope to drive out a meaningful return on the time, effort and money spent on product pricing and development activities or on the implementation of these new CRM applications and supporting technologies, they need to stick to their knitting, and focus on improving the claims experience first. Easier said than done right? Not really, at least it need not be.

Improving claims experience

Poor customer service track record. Manual. Time-consuming. Error prone. Hindered by the use of old technology. Limited (if any) workflow automation. No meaningful business intelligence tools. Minimal supply chain control. Efficiency rather than effectiveness focus. A “typical claims manager” at a “typical Canadian carrier” would be hard pressed to argue that these issues did not characterize the claims management process within the company. As such, perhaps it is no wonder that combined loss ratios for most carriers continue to exceed 100%. Maybe it is not just a “pricing issue” after all.

Leading carriers have finally begun to accept this. They have begun to see that these issues are not just intractable problems that will always define how the business will be. Rather, they have begun to see them as opportunities to improve consumer service and by doing so, to differentiate themselves from their competitors. They have also begun to accept that as the market continues to become ever more commoditized, the ability to expedite a customer’s claim quicker and more effectively than that of the competition may well become their key differentiator.

Enabling technologies

Leading carriers are beginning to use newly available, web-based, object-oriented technologies and tools to help them strike at the heart of these claims management issues, to strike at them quickly and to strike at them cost effectively.

These technologies are serving as a platform for the containment of claims leakage, aggressive supply chain management, and radical claims process transformation exercises designed to facilitate a proactive approach to the way in which claims are managed. Together with new web-based business intelligence tools, it is anticipated that these new technologies will deliver annual indemnity cost savings of well in excess of 10% annually, and major improvements in policyholder service levels at the same time.

Not only are policyholders benefiting from dramatically reduced claims settlement times, claims staff are able to sharpen their customer focus and deploy management skill in a more sophisticated way than the claims management process has allowed so far (having been freed from the burden of “run-of-the-mill” administration).

At the heart

In this way, leading carriers are beginning to get to the real heart of what managing their customer relationships is really about. They have also begun to refocus technology spending. Significant resources are being targeted to improving the claims management experience for consumers. Insurers have realized that only by delivering on their promise of providing excellent customer service in return for the premium that policyholders have paid, do they earn the right to ask policyholders to sp end any more on other products that they have to sell. Insurers have also realized that this increased focus is going to deliver a significant and measurable return on the investment they are making, as well as to ensure that they will likely be buyers rather than sellers in the continuing consolidation race.