Is it time to rethink how we handle claims?

I read with great interest an article from Macquarie Research that property claims have increased by around 4% in a non cat year.

I keep coming back to the point that we are being penny wise and pound foolish when it comes to claims handling.

When I started as a loss adjuster, we were taught to identify if the loss was covered and if so to work with the insured to mitigate the loss and get them back to where they were as quickly as possible. We were trained on how to prepare a scope of works and we kept a close eye on the bigger picture of the material damage and the business interruption reserves and worked to get an equitable result. The first lesson we learned was the longer a claim went on, the more it was likely to cost. We also made several inspections to ensure that the Insured and insurer got value for money from the builders and other providers.

Then, in came the procurement officers who treated loss adjusters, investigators, and legal advisers as if these professions were the same as white goods or television sets. There was no consideration given to the benefit you brought to the table on meaningful customer service, reduction of claims leakage, loss mitigation, retention rates of clients etc. The entire focus for too many was on screwing down the price of the loss adjusting, investigation or legal service.

Remembering that the cost of handling the claim is only a small percentage of the total cost of the claim, the focus was, to me, completely back to front. As a result, less time was spent with the client, roles traditionally carried out by the adjuster were outsourced to others. We also see the average claim cost go up, upset customers, frustrated brokers and old school claims officers lamenting their loss of their ability to appoint the right service provider to the right claim.

You do not need to be an actuary to know that if you save $50 of a $500 adjusters fee, but the amount paid for the claim goes up by $55 because the job is now rushed and other reasons, the Insurer is worse off. If it goes up $550, or in some large claims more, the false logic of the current procurement process in too many companies needs a rethink.

We have also seen property claims being outsourced to people with no insurance training whatsoever, no training on how to read and interpret a policy let alone any understanding about principles such as utmost good faith, indemnity, subrogation, contribution, insurable interest or proximate cause.

The complete lack of common sense where a client with tens of thousands of dollars in premium is screwed around over a nonsense issue which leads to both the insurer and broker losing the client is common place.

The number of claims that get referred to my colleagues and I at LMI Group and LMI Legal where the broker is pulling their hair out is growing daily. The trouble is that it is hard to get people to change once they have their mind made up, albeit on poor information and or bad advice. Even some insurers are referring claims to us to get them back on the rails.

One of my colleagues is working on a cyclone claim at the moment as the claims preparer. The principal builder on the job has put in a variation for $500,000 which has been rubber stamped by the project manager and loss adjuster. He then learned from the sub-contractor he was allowed $100,000 to do the actual work. This is just one example of many that keeps getting fed back to me unsolicited.

It is not just loss adjusters that are being marginalised. We work with an investigator, a small one city operator. He and his team are first rate and he has saved his clients millions upon millions of dollars each year but this track record is ignored, it is again back to how much he is prepared to charge. He would rather walk away than not be paid enough to do the job properly. Interestingly, long standing claims officers ring him up and appoint him despite not being on their panel as they know they can trust him and because they are sick of getting the cookie cutter meaningless reports from some national but cheap suppliers.

The issue remains, you get what you pay for.

Some are starting to get it and are prepared to invest in quality adjusting services. We saw this with one Insurer who had a scheme which was running at a terrible loss ratio. Rather than throw the account out they asked LMI to handle the claims and within the first 4 we discovered a scam going on that was costing insurers a great deal. We terminated the supplier arrangement and along with a couple of other changes had the account back where it should be without upsetting the broker or honest insured’s in the program. The small amount extra we charged to do it right was more than made up for in the improved results for the Insurer and Insured.

While this has prompted us to launch a separate niche loss adjusting practice, Aequum Adjusters, and beef up our Third Party Administration business, Claims Management International, I am asking senior insurance personnel to look at their current practices and see if it is really working as they thought, or has the promised savings materialised.

This extends to ensure that there are well trained people in claims that can make informed decisions on policy response, and the best way to manage individual claims. With this in mind, I am working with the Financial Services School to develop a quality training course for claims personnel.

Rather than keep on the same path of screwing down the cost of claims services with existing suppliers and seeing average claims costs go up and customer trust and satisfaction go down, invest in this important part of the insurance promise.