Managing Claims Costs
By Aash Patel
Summer 2005
Winchester White has helped a number of organisations in the general insurance claims market. From outsourcers to insurers, from proposition development to system selection, we have identified that there are many ways to manage claims costs.
At a corporate level, claims costs form the largest spend in terms of a company’s combined operating ratio (a broad measure of the quality and efficiency in insurance companies). These costs are driven by genuine and fraudulent claims, legislative reforms and market expenses. The upward pressure on claim inflation is set to continue.
Over the last two years, insurers have been shielded from increasing claims costs through rising premium levels. A hardening market has meant that premiums have offset claims inflation, though in reality the underlying issues of continued claims inefficiencies still exist.
In an attempt to manage the overall claims spend, insurers have adopted different business strategies.
Claims transformation
Typically, the larger the investment released to the business, the more expansive the claims initiatives. Some insurers have undertaken large transformation programmes, rationalising branches, centralising claims units, outsourcing claims functions, offshoring back office processes and selecting new technology. This strategy is a highly visible corporate programme impacting the existing business structure and designed to return significant cost savings. However, such strategies can be risky to implement.
Whilst new technology can bring additional functional benefits, integration issues and interfaces to existing legacy applications and external databases will be complex. Similarly, offshoring back-end processes, whilst reducing the administration overheads needs to be balanced by the potential disruption to business and customer services.
More significantly, once these strategies have been adopted, finding areas for additional cost savings will be more difficult. In other words, there is only a certain amount of branches a company can close before service is severely impacted. Once a company offshores business processes, the scope for further savings is limited.
Process management
Process management is about continually looking for improvements in areas of claims management. Highly visible process improvement programmes currently include fraud management and rehabilitation, the latest buzz topics in the industry. Whilst suppliers of this service may seek to sell expensive solutions, the smarter insurers see this as a low cost strategy to improve areas of process rather than rely on this as a panacea for all ills. For example, an insurer we spoke to understood that they had a significant spend on low impact, low cost claims, which on a case-by-case basis slipped below the claims radar. However, by partnering with a health provider to proactively manage the injured party’s rehabilitation and in sharing the savings, they are able to target a significant claims saving. Successful projects do not necessarily need significant investments.
Data management
A key issue for nearly all insurance companies is data accessibility. Whether this is in accessing timely, relevant information or in collating accurate business information, extracting meaningful information is difficult. Unfortunately, there is a general acceptance that meaningful data extraction in relation to claims is poor; something we live with. However, this should not be the case. There are numerous, low cost technology applications in the market that can effectively extract information. More importantly, because data management is so poor, this represents the biggest area for saving on hidden costs. One supplier’s solution we recently assessed, for example, extracted meaningful reinsurance information enabling the company to reduce its overall premium contribution, something that they previously didn’t have the facility to do.
Winchester White has been involved in numerous claims initiatives over the last two years. Whilst large-scale projects will deliver value to the bottom line, it is the smaller more targeted initiatives that provide a quicker return on investment and which tackle the often ignored and ineffective claims processes that over the years have become ingrained in the organisational business model.