Counting the Costs of claims service

A policyholder has just experienced a traumatic loss, a car accident, house fire, burglary. For an insurance company, settling this claim is not just about spending 70 of every premium dollar earned, it is the time to make or break customer relationships. In their efforts to cut costs and lower expense ratios, however, insurance companies are running the risk of losing customers and money by cutting corners on claims service.

That is the message claims managers brought to the Institute for International Research conference, “Containing Costs in Property and Casualty Claims Management”, held in Toronto last month. Claims service can not be the sacrificial lamb in the battle to reduce costs, or insurers will suffer the consequences when it comes to indemnity. In fact, by pushing superior claims service to the forefront and taking control of the supply chain, insurers can differentiate themselves in the market, retain existing customers and even reduce fraud.

Know your customers

“Companies are paying attention to the ‘life’ of their customers,” says Cam Shapansky, president of data management firm Optus Art and Logic. With insurance companies starting to invest money in technology, and looking seriously at the role the Internet will have in their business, Shapansky says they should be looking beyond the efficiencies of e-business to the customer service benefits. Using information collected from customers to make interactions more personal is necessary in today’s consumer market, where insurers are not just competing with each other, but also with the service levels consumers are used to seeing from other industries. And customers are willing to pay more for better service. “Price increasingly becomes less of an issue, it’s replaced by a relationship.”

Carol Jardine, vice president of claims for Royal & Sun Alliance, agrees that insurance companies are beginning to see customer service, rather than price, as a way to attract customers. With the influx of direct writers and mega-companies offering low-cost coverage, claims departments need to step forward and promote their value within companies. “You see the surveys, claims is becoming the big lever now. We [as claims managers] will step up and use that.” This was the basis for Royal’s new advertising campaign, featuring real-life stories promoting its claims service.

Fraud also becomes less of an issue, Jardine notes, when companies treat customers, who often view insurers as the enemy, with care. “If we ‘tickle pink’ our customers, they won’t want to rip us off,” she says.

It has taken a while for companies to realize the financial gains to be made from investing in claims service, says Gregory Somerville, senior vice president of claims for CGU. Companies only need to “look at the cost of handling claims in a vacuum and the effect on [their] indemnity” to see how claims service directly impacts the bottom-line.

And the number one area where investment needs to be made is in people, points out Sharon Bros, vice president of claims for The Co-operators Group. “You will not get good customer service from a claims department that is digging out of a mountain of snow with a teaspoon…If you overwork your staff, you’ll pay on the indemnity side.”

Supply chain control

Maintaining claims service levels is about controlling the supply chain, claims managers say. Brokers, adjusters, body shops, lawyers, are where the money is being spent, and represent the face of the company to claimants. Jack Zacharias, president of Manitoba Public Insurance, says auto insurers and body shops have historically had abrasive relationships, with this friction suffered by customers who deal with longer waits and poor service. “Not only is time wasted, but this is where you lose your customers.” By taking control of suppliers through service agreements and committing to financial incentives for accredited shops, MPI is saving money on the bottom-line, he says.

Other insurers are moving services in-house to control both cost and quality. Royal has moved much of its adjusting and legal counsel in-house, and has reaped the benefits, notes Jardine. CGU “knocked $20 million off the price tag” of adjusting services by bringing them in-house, and has internalized some legal operations. But internalization is not a panacea. Co-operators is pleased with its internal adjusting operations, says Bros, but, she adds, “I would not be in a hurry to go back to the days of in-house counsel,” which brought high overhead and low accountability. Smaller companies do not have the funds to internalize operations, and those big insurers who do will have extra management responsibility, not to mention legal liability to contend with.

E-service

As the insurance world moves online, claims managers hope to see customer service heightened, rather than diminished by electronic claims processing. “The Internet is not a cure-all,” notes Shapansky. But there is potential, by collecting and using customer information, to actually deal more personally with customers using technology. It is also an opportunity to keep clients up-to-date and give them some control over the claims experience because of the ready access to information the Internet allows. “Embrace the Internet as a tool,” he says, “but, more importantly, embrace the idea of treating your customers as people.”

Technology also allows for efficiency in handling claims, points out Roch Lacroix, vice president of Canadian sales and operations for Mitchell International. The ability to move images, estimates and approvals through cyberspace will be a key competitive advantage for those companies willing to make the investment, he says. “Everything is moving on the web.”