Handle with care

The number of brokers that handle claims on behalf of insurers is currently relatively low and the practice tends to be restricted to schemes and specialist areas. Insurers also continue to be rather cautious regarding the level and type of claim they are prepared to outsource to brokers. However, as brokers search for new ways to differentiate their own service, could an ability to handle claims prove invaluable in the future?

It is widely agreed that brokers that operate specialist schemes business are well placed to handle the claims process. Mike Rogers, head of business development for Broker Network, agrees: "It is normally something that is attached to schemes - if you have a particular specialism in an area and you are dealing with a particular type of business over and over again then you build up an increasing level of understanding and you also start to see similar types of claims coming through."

There are some innovative approaches to claims handling emerging from some brokers. At PMI Health Group, for example, the claims management division is run as a distinct team and is staffed by nurses that have had training in claims handling. Operations director Rachel Floyd explains that this means they can approach the claims management from a medical viewpoint and help clients through the various stages of their medical treatment.

Marsh launched a forensic accounting and claims services practice in September 2005 for Europe and the Middle East, having first introduced the concept in the US. Ian Peters, a senior claims consultant with FACS, summarises: "What we are effectively doing is offering to our clients and to non-Marsh clients, a high-end-claims consulting service."

Although relatively few brokers handle claims, there is widespread enthusiasm for the benefits this approach can bring to both the broker and the end customer. There is also agreement that the main advantage lies in the impact on customer retention and service, rather than in the extra revenue that can be earned through handling claims.

Delivering the promise

Tim Ablett, a general insurance consultant with Project Consulting Partners, believes the overriding benefit is that the insurance broker is helping to deliver to the customer the promise made when the client bought the policy. Ablett adds: "If the broker helps the customer through the claims process, keeping him informed about the progress of his claim, then the broker's reputation and thus his brand is improved. This, in turn, promotes trust, which leads to new business flows."

The provision of a claims service can also serve as a valuable differentiator for brokers in attracting new clients and retaining existing customers. "It certainly helps to strengthen the client relationship and enables us to stand out from other brokers," asserts Floyd. Peters observes that the provision of a claims service is both an added value service to the client and a revenue generator, adding that Marsh is aiming to grow this part of the business.

One of the key questions for brokers looking to handle claims is whether the provision of this facility will in any way dilute their core service offering. Rogers observes that it is an additional service tool, rather than one which detracts from the service proposition. "There is so much competition that brokers are trying to find niches and ways to expand their service proposition that offer the customer something they can't get from the broker down the road," explains Rogers. "Of course, it does involve investing in additional resource but you would negotiate additional commission to cover that."

Floyd agrees that it is all about enhancing service and not diluting it, adding that the claims management arm within PMI Health Group operates as a distinct team. This sentiment is echoed by Peters, who emphasises that the claims consulting and the transactional broking arms work as separate entities.

There are also advantages to be gained for insurers willing to outsource certain claims to brokers. Again, they can benefit from the experience of brokers who specialise in certain areas. Peter Staddon, head of technical services for the British Insurance Brokers' Association, points to further advantages such as the fact that outsourcing claims means that the business can concentrate on other areas of revenue streams. "Using a third party to administer claims would also allow the business to manage the conflicts of interest between the underwriting team and the claims team. Any outsourcing would have a direct affect on the cost ratio of a business when taking into account the personnel, employment rates, office space, and so forth," adds Staddon

However, Rob Smale, claims director for Fortis, says the advantages to insurers have to be weighed very closely against issues such as the insurer becoming one step further away from the customer, and also losing control of the consistency of claims. Smale adds that while Fortis would not rule out outsourcing claims to a broker where appropriate: "We have put a lot of investment into our own claims processes and systems and we believe very much that it is one of our core roles."

Monitoring the process

The level of involvement insurers demand in the claims process, once they have outsourced it to a broker, differs from one insurer to another. Floyd outlines her experience: "With some, we do everything, so we'll take the initial phone calls and do the claims pre-authorisation. The nurses will also take the client through all the steps of the treatment and the invoices will come to us. With some insurers, we have the authority to then make the payments while with others, at that point, we'll pass it on to the insurer for the payment to be made."

Staddon explains that the insurer would need to monitor the process, monitor the claim settlements and monitor the claims pool from which these claims are being paid. "In addition, the insurer would need to monitor that the claim is being addressed appropriately and not being held back or repudiated due to an increasing claims ratio which could effect the income the broker earns from this process."

Most insurers do tend to be cautious about the level of claim they will authorise a broker to pay out on. As Rogers observes: "They would give some very strict parameters about what the broker can and can't do. For example, with motor, they would normally agree a maximum labour cost and if a garage is quoting more than a certain amount, they would take that claim back in house."

Ablett points out that delegation does not mean abrogation of responsibility, adding: "It must be remembered that the claim process is an integral part of an insurers' activity. It is they that are financially responsible for the settlement of the insurance contract both legally, morally and from a regulatory perspective." According to Ablett, there should be a detailed outsourcing agreement between insurer and broker, setting out with clarity where responsibility lies and what levels of authority are being delegated. The insurer then has a duty to 'police' this activity during the life of the agreement.

Those brokers that want to get involved in the claims process do need to be able to invest the relevant time and resources into the area. Tim Rankin, managing director at outsourcing provider WNS Assistance, points out that it is vital to employ specialist claims handling staff, and to ensure that employees are experienced enough to detect issues such as fraud and to speak knowledgably to the client.

In addition to training and recruiting claims personnel, claims handling itself is becoming more complex. Increased onus is being placed on claims handlers to be able to detect fraud and keep the lid on leakage costs. In addition, the claimant is proving more demanding, with customers expecting to be able to track the progress of their claim at every stage.

Rankin asserts: "Brokers are at the stage now where if they are currently carrying out claims handling internally, they need to decide whether it is a really core competence of theirs and if it is, they need to invest in the relevant technology. Otherwise they are going to get left behind by the rest of the industry, which is currently investing quite heavily."

There is certainly some significant competition in the claims outsourcing arena, and brokers offering to manage the claims process will have to measure up to other claims handlers such as dedicated claims management companies. Again, Rankin emphasises that the ability to invest in technology will be vital and will be a key differentiator.

Another potential issue for brokers is what would happen if the claims handling process backfired - that is if the customer was not happy with the outcome or the handling of the claim. Is there a danger that rather than attracting new clients, the broker could end up losing loyal customers instead? Most brokers are in fact confident that this is an unlikely scenario, particularly where the claims and the more traditional broking services are seen as separate parts of the business.

The fear of losing customers

Many agree that fear of losing customers is not a good reason to decide against handling claims. In fact, there is also a view that a dissatisfied customer may walk away from a broker even where the insurer rather than the broker themselves had handled the claim. As Smale observes: "The broker may be tarred with the same brush as the insurer who had failed to provide adequate service on a claim."

Smale points out that it in any case, it is difficult to anticipate customer response to service, observing: "Sometimes you can give the best service in the world and they still swap to another insurer for £50 cashback!"

Rogers adds that problems may arise because of other suppliers rather than because of the actual settlement of the claim. And if a job, such as property or car repair, is not carried out to a customer's satisfaction, then they are more likely to complain about the supplier than the broker.

Whether or not the numbers of brokers looking to handle claims will increase significantly in the future is uncertain. Most do recognise the benefits, particularly where service differentiation is concerned. Those brokers that already have claims handling facilities appear keen to grow this part of their business. However, while insurers remain cautious about which claims they will outsource, and as investment in people and technology becomes increasingly necessary, there are still some obstacles to overcome.