How to Improve your Insurance Claims Operation and Transform it into your Front Office
This week’s blog is about the supremely important topic of claims. If you recall from my introductory blog, one of the reasons why I wrote the Playbook was my frustration with many aspects of how the insurance industry is managed and my desire to help change things.
What’s the Claims Fuss all about? Is there an Issue?
Though it shouldn't come as a surprise to anyone that claims teams spend a lot more customer-facing time than any other team in an insurance company, including sales and underwriting, this basic fact seems to escape many.
The sale of a simple auto or home policy could take up to an hour or two whereas its claims settlement could take up to a couple of weeks. Similarly, the sales cycle of a D&O policy, especially for a first-time buyer, could be six months whereas it could take years to settle a complex D&O claim.
So, while conventional wisdom in the insurance industry is that underwriters and salespeople are its "face," customers actually believe that it's the claims folks. And we all know that the customer's always right!
This disconnect in perceptions is most acutely exhibited in how claims teams and departments are often treated, even by senior managers and executives. Here are my TOP 3 observations:
> Referred to as the “back office.”
> Considered a support function to “the business.”
> Often neglected and underpaid compared to their underwriting and sales colleagues.
Time for a Wake Up Call!
> “Back Office”: Let’s get one thing clear: Your claims department is THE front office. It is the ultimate customer-facing unit. The real measure of your insurance business’ success is how well your company does at the ultimate moment of truth and when your customers need you most: At the time of a claim.
> “Support function to ‘the business’”: Claims is THE product! Those who think that customers buy insurance for any other reason than claims servicing and payment are totally delusional. The one exception involves legally-mandated insurance covers such as auto/motor third-party liability or workers compensation.
> Unequal treatment: It is an open secret in the industry that claims staff are not as highly paid as they should be, especially when compared to their underwriting and sales colleagues. I find this to be baffling given that the claims folks are responsible for handling some 60-70% of a company’s combined ratio or up to $3.25 trillion of claims cost per year globally out of an estimated $4.641 trillion of written premiums (source for 2013 premium figures: Swiss Re Economic Research & Consulting).
Paradigm Shift #1
You as a leader should ask yourself why you are willing to pay an underwriter a significant bonus for putting $10 million in premiums on the books at a 95 percent combined ratio and not do the same for a four-member claims team unit that saves the company $2 million during the same period.
Your underwriter contributed $500,000 to the bottom line ($10m * 5%) whereas your claims team contributed the equivalent of $40 million of premiums ($2m / 0.05) thanks to their claims-saving efforts. Different perspectives lead to different answers. It is never too late to challenge conventional thinking and align remuneration with bottom line contribution across the entire organization: Claims, operations, finance, customer service, and so on.
Paradigm Shift #2
The first things you should do when you return to the office (yes, I am assuming that you’re not reading my blog or book on company time; if you are, either quit your job or give yourself a kick in the ass and get back to work) are to:
> Take a stroll down to the claims department, grab a loss adjustor or claims executive, give him or her a hug (if that is culturally appropriate), and say how much you value him or her and how important he or she is to your organization and your customers; and
> Start including your claims staff in deal and customer service celebratory moments, town halls, and outings.
Paradigm Shift #3
Start shifting your focus from form to substance. If your claims data suggests that there exists a 95 percent probability that you will pay every single broken windshield auto claim then just skip the claims form and save the customer the hassle. Pay the claim and let your algorithms and artificial intelligence sniff out the 5 percent potentially fraudulent, more complex, or questionable claims. This will allow you to 1) make your customers happy, 2) save money by becoming more operationally efficient, and 3) save a ton of trees!
Top Tips to Unlock Value from Claims to better Serve Customers and Shareholders:
1. Join the 21st century. Replace paper-based claims forms with apps!
2. Increase existing customer retention and new business acquisition through the claims’ team superior servicing.
3. Innovate product and service offerings through active engagement of your claims staff.
4. Bring a claims executive to sales calls. It is very impactful to have the person who matters most for clients at the ultimate moment of truth to be sitting at the sales table.
5. Organize for efficiency: not all claims are created equal. Establish Black Box, Fast Track, and Non-Fast Track claims handling units, systems, and processes.
6. Claims reserving can sometimes make astrology look respectable. Make sure your claims team as well as underwriters are as involved in the reserving process as your actuaries. We still hear of reserves strengthening or releases in the billions. The battle between art and science rages on in our industry.
7. Encourage cross-organizational learnings from claims file review sessions between claims, underwriting, and sales.
8. Incentivize your claims team on cost-saving campaigns. Cost savings and superior customer service are NOT mutually exclusive. Use Net Promoter Score to gauge customer satisfaction levels throughout the process.
9. Manage your vendors diligently. Big order go hand in hand with discounts. Make sure you pick vendors who you trust to deliver the best service to your customers.
10. Engage your risk engineers in loss prevention to offer added value to your customers and reduce the probability of loss.
11. Use push and pull techniques to improve efficiency, cut down on your vendors’ list, and improve customer service quality and turnaround time.
What's the Bottom Line?
Customers believe that the claims department is the face of our industry and its most important function.
Superior management of your claims organization is thus critical to the survival and success of your company. Show your appreciation to the claims team and be more inclusive of them in company events and celebratory moments. Align their remuneration with their contribution to the bottom line, and STOP referring to them as your back office or support staff.
It is worth repeating that cost savings and superior customer service are NOT mutually exclusive. Remember, you don’t just want to run a “me too” insurance company. Your ambition should be to service your customers exceptionally well and dominate your chosen market segments. Always.