Are we failing our clients on Claims?

Thinking man and question mark

At the recent conference reflecting on the relevance and importance of Utmost Good Faith 250 years on from Carter v Boehm (1766) I questioned the wisdom of focusing on the cost of handling claims, including loss adjusters, lawyers and the like rather than the benefit achieved by good claims handling in mitigating loss not to mention enhancing the premium paying customer’s experience on their insurance program when it really matters, at the time of a claim. I  was surprised just how much positive support the topic generated, particularly from people I did not think it would.

I read the following article, Better for Who? published by ANZIIF where the author of the piece is likewise questioning a current trend:

BETTER FOR WHO?

Are current models with builders paid set fees for repair beneficial for the industry?

For illustration, a builder is paid $2,700 for claims between $1 and $7,500 regardless of the actual repair cost. Additionally, these Insurers have reduced their panels.

Smaller panels require larger builders. Larger builders require greater margins due to higher operating costs. That $2,700 job has to be done for $2,000. The sub-contractor then has $1,600 and their $1,200 to actually complete it. Imagine a lower cost job.
So, who benefits – the customer, the builder or the insurer?

Builders won’t operate at a loss so what are the Top 5 Risks:

  1.  Increase in cash settlements: if repair value is over the fixed fee, builders will have reasons why repairs can’t be completed (eg, maintenance and design issues). The customer will be left to arrange quotes and facilitate repair which is something they would expect their Insurer to do.
  2. Increase in declinatures: any reason to decline the entire claim or a good part thereof where value is over that fixed fee. This will lead to an increase in complaints, brand damage and retention issues. We have already seen a rise in FOS complaints.
  3. Increase in claim costs: where the actual cost is near that threshold (say, $5,000 to $6,000) costs will be inflated or scopes increased to move it into the next level.
  4. Increase in lower value claims accepted: claims under the fixed fee that might be declined will be accepted and under/near excess claims will see customers convinced to make that low value claim.
  5. Decrease in quality: to maximise profit on lower value claims and subsidise tighter margins of more expensive claims, trades engaged will have tight margins to work with leading to the use of general handymen and unlicensed trades. Repairs will be minimised, repair methods compromised.

Insurance already suffers a perception issue over value and customer service. Do these models help or hinder or do they focus on internal targets? What would the media make of this practice?

Insurers and claims managers talk about being customer centric but then develop models that drive supplier behaviour counter-intuitive to that.

So, who are these models better for?

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I hope articles like this start to generate the discussion and debate that the current approach demands.

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