Claims process and business agility silver bullets for insurers after the crash

Insurance companies worldwide are faced with the challenge of meeting their financial obligations in a difficult economic climate. Jean Lassignardie discusses the most recent research in this area which shows business agility and the right focus on the claims process could be a silver bullet for resourceful.

By the second half of 2009, the improving global economy alleviated a portion of the strain on insurers caused by the financial crash. In spite of this, many insurance companies are still faced with the challenges of meeting their financial obligations despite losses in investment income, increases in premiums and other less than ideal operating conditions. It is in this context that the financial crisis was, and remains, a stark reminder to insurers that relying solely on investment income alone is not a reliable or sustainable way of achieving growth and delivering results.

Faced with this knowledge, and combined with changing customer preferences and regulatory environments, the insurance industry has, according to the World Insurance Report 2011, started to re-focus on the benefits that improvements in operational efficiencies and business agility can bring. Drawing on research insights from 14 countries - including Canada, France, Germany, India, the UK and US - the report examines both non-life (including health) and life insurance segments, in addition to providing recommendations for ways insurers can dissect their business to identify opportunities that will make fundamental and lasting improvements to their core operations.

Optimising claims processes
One key area that non-life insurers are looking at to improve operational efficiencies is claims, where costs are rising fast. In fact, from 2006 to 2009, the claims ratio - claims payable as a percentage of premium income - rose in nearly every country (except the Netherlands).

Inefficiencies - stemming from environmental, technical and organisational factors - are all driving the imperative to transform claims processing. While the potential for driving efficiency varies by firm strategy, country and service segment, within claims, three areas can have immediate impact on achieving efficiency. These are stabilising claims platforms, managing indemnity expenses and claims data for enterprise-level decision making.

Stabilising claims
Stabilising reliable claims processing platforms is integral to driving efficiencies. Insurers should implement and stabilise a reliable claims platform that leverages technology to enable integrated claims processing, enhance process efficiency and cost effectiveness, reduce cycle times, and allow performance measurement. By closing process gaps, insurers should, therefore, be able to reduce existing loss-adjustment expenses and drive continued improvements.

While much attention is paid to the cost of paying and administering claims, there is also a significant need for insurers to tackle contingent liabilities, for example, overpayments in vendor transactions or suboptimal recovery practices. Insurers should optimise fraud management to reduce costs and ultimately improve combined ratios by making sure fraud is detected quickly and effectively, but without undermining customer satisfaction or unduly raising litigation costs or creating net new costs.

Supporting business decisions
For an insurer the ideal business information system makes efficient use of enterprise-wide data to support business decisions. Insurers need to leverage the full value of claims data by making sure the right data is captured and used to support business decisions, delivering benefits in terms of profitability, efficiency, strategic planning and regulatory compliance.

In addition to cost savings, it's also striking that one in five customers switch insurance providers due to a less-than-satisfactory claims experience. In an intensely competitive insurance market, differentiation through innovative claims management practices will become the most important and effective way to maintain market share and profitability.

Transformational promises
Claims transformation enables insurers to deliver on their brand promise and enhance brand value for the long term. It can help drive top-line and bottom-line growth by improving client acquisition, client retention, procedural efficiency and effectiveness, and risk management. Without it, insurers will struggle to differentiate themselves and maintain and evolve their market position.

It is clear general insurers will need to focus on enhancing efficiency and effectiveness in claims but to achieve this most will need a more reliable, integrated claims system to deliver services in the customer's hour of need and to support day-to-day activities.

Business agility
Based on the report's findings, it is also clear that business agility must be a clear focus for insurance companies seeking to thrive in the long term. Customers are now willing and able to research coverage and switch providers easily, and their expectations are high. Given these realities, insurers must be sure they can adapt to shifting conditions quickly and effectively if they are to solidify customer relationships and achieve sustained results. This adaptability takes different forms at different firms, but essentially refers to the ability of insurers to rapidly and cost efficiently make significant changes in their business environment to gain competitive advantage.

So how agile are insurers? Using our own model we deduced that although agility depends in part on a firm's business line, insurers can be successful by targeting agility in a few key areas. For example, claims agility is most relevant to non-life insurers, while front-office activities are equally pertinent to life, health, and non-life businesses. The model also showed a pattern linking the scale, region, line of business, business strategy and corporate structure of a firm to the maturity of claims agility, as well as other areas of the value chain such as front-office agility.

Quality challenge
In summary many firms now acknowledge they need to reduce operational and acquisition costs to assure sustainable growth and profits, however the challenge is how to do so without impairing quality of service. The key learnings from this year's World Insurance Report pinpoint optimising the claims process as a way for insurers to not only capture operational efficiency gains, but also, to use it as a brand platform to fulfill customer commitments and lower switching rates.

Secondly, although business agility is an important attribute for insurers seeking to differentiate themselves and outmaneuver the competition, they can be successful by targeting agility in just a few critical areas. The key for insurers is understanding the pivotal elements in a changing landscape and deciding when and how to increase their responsiveness.

Jean Lassignardie is the chief sales and marketing officer for Cap Gemini's financial services global business unit