A stronger relationship

Whether they are local, national, international or part of a network, adding value to their relationship with policyholders is key to any broker's success. Many see the way they handle claims as a great opportunity to do this.

Securing delegated authority allows brokers to control the relationship they have with their customers. By delivering a tailored service, they can differentiate themselves from competitors and protect themselves from direct insurers that compete on price alone. However, to reap those benefits, they need to handle claims well.

Many brokers feel that such an important part of their business is best handled in-house. They may be happy to outsource non-core services like payroll, IT or legal but they wish to keep claims handling under their own control, so that their brand, culture and values can be displayed to maximum effect.

This attitude is understandable but there can be pitfalls. What if a policyholder suffers a fire at 6pm on a Friday, for instance? No broker's resources are unlimited and few have the manpower to offer a 24/7 claims service.

What if serious injuries or multiple third-party liabilities are involved? How well can an in-house claims team handle the complexities of such a case while empathising with a distraught customer? And if the claim is part of a catastrophe - a second Buncefield or Boscastle, perhaps - how will brokers' staff cope with the volume of claims?

Apart from staffing issues, there are the systems that support the claims process. Customers may expect to contact their broker by phone, e-mail, web form or fax - can their systems cope with this? Once a claim or follow-up communication is received, is it automatically processed by a state-of-the-art system, or is there a lot of manual processing and re-keying that slows down the claim and increases costs?

If customers want to check the status of their claim, do they have to telephone and take up even more of the claims handler's time, or can they get the information when it suits them, from a self-service website or an automated system that keeps them informed by e-mail or text message?

Even with all their claims processing and information under one roof, many brokers still do not have the full picture because often their systems cannot produce appropriate management information or exception reports. Trends may not be spotted, opportunities missed, and fraud may go unnoticed.

The bottom line is that few brokers can afford to recruit, train and retain large numbers of skilled, experienced and specialised claims handlers, or to develop sophisticated IT systems. As a result, they may find their service does not match their customers' expectations.

Potential problems

Some might feel the worst-case scenario is to lose the customer's goodwill and fall foul of the regulator. Fortunately, this nightmare is relatively rare. However, the creeping, day-to-day effects can be more insidious: unnecessary expense, depleted resources and, above all, unwelcome distraction from brokers' core business.

Compared with this catalogue of potential problems, outsourcing suddenly starts to seem less risky and a growing number of brokers are coming round to the idea.

An outsourcing service provider should have a track record of financial stability with ample numbers of staff to meet any claims workload. They should be able to offer any availability up to and including 24/7. A reputation for technical expertise is essential. All staff should have been trained to a high standard in claims handling and in empathising with stressed and worried policyholders. They will be able to process most desktop claims off their own bat, and specialist colleagues will be on hand to help with particularly complex cases, while loss adjusters, lawyers and other professionals will be on call when required.

In addition to its investment in staff, an outsourcing firm can afford the latest systems and processes to back them up. Claim data received by phone, fax, e-mail or online will be fed directly into a central system, verified against policy details and stored to produce a complete, up-to-date record, accessible at any time.

Classic benefits

Service providers can offer the latest technology enhancements, such as web-based claim forms, text message alerts for policyholders and voice recording of all calls. Many of these are expensive and complex, and few brokers have the expertise or the budget to be able to implement them.

This all adds up to one of the classic benefits of outsourcing - getting a better service by using experts whose main business is claims handling rather than trying to be a jack-of-all-trades and do it in-house. The result will be a better experience for the customer, who will be able to notify a claim more painlessly, track its progress more easily and receive settlement more quickly. It should also help brokers comply with Financial Services Authority regulations and, in particular, the guidelines on Treating Customers Fairly. It should also free up resources for them to cope with the rest of their regulatory burden.

There is a second 'classic' outsourcing benefit that should also be achieved - reducing cost. The precise saving varies from contract to contract. However, economies of scale, efficient IT and expertly-designed processes should enable outsourcing firms to do the job more cheaply than brokers could do it in-house, and make a fair profit at the same time - if they cannot, then they do not stay in business very long.

Outsourcing can also bring a third benefit, less well understood but potentially even more valuable. Because of their specialist skills and industry-wide perspective it's often possible for service providers to recommend, and help implement, improvements in their clients' internal processes, providing a beneficial legacy that may long outlast the actual outsourcing contract. This may not even relate directly to claims processing but to some other aspect of the service provider's expertise, such as risk assessment or fraud detection.

If they are willing to consider claims outsourcing, what precisely can brokers outsource? The answer is pretty much everything. With the appropriate delegated authority the service provider's staff can process the claim exactly as if they were the broker's own claims handlers, from receipt of claim notification, recording of details, policy validation, desktop claims handling, allocation of loss adjustment resources, identifying and pursuing recoveries, through to final payment or repudiation.

Alternatively brokers can choose to use the service provider for initial notification and then process the claim themselves, or process straightforward claims in-house and outsource the more complex ones.

If the broker has existing relationships that it wants to maintain - with other claims processors, specialist or overseas service providers, lawyers and loss adjusters - the service provider can 'triage' each claim and work out which partner is best placed to handle it, then monitor the claim's progress, just as the broker itself would have done.

Whatever the service mix, it is possible to set a referral limit above which claims are automatically referred to the broker or insurer, so the broker knows it will always be 'in the loop' on large claims. Management information can be consolidated to give the broker one complete picture of their position on all claims - whoever is handling them.

The best relationships are between partners who share the same philosophy and values. Claims handlers will receive training in the broker's culture and brand so that they deal with policyholders in the right way. It is common, though not mandatory, for the outsourced service to be branded to the broker so customers should never even realise they are dealing with a third party. This not only protects brokers' brands, it also means they can take the credit for the service provider's efficiency and service quality.

On top of the core service is a menu of further options from which brokers may select at will, including 24/7 availability and online tools for real-time claims tracking, available to both policyholder and broker. Another popular option is fraud checking. A service provider may be processing hundreds of thousands of claims a year. With the necessary investment in systems it can analyse this data for patterns of potential fraud that no individual broker would be able to spot. Service providers can also afford to train staff in special investigation techniques such as telephone interviewing. This impacts both service and cost - genuine claims get settled more quickly while fraudulent ones are detected and contained.

The service provider can also handle complaints to ensure compliance with the FSA, with any complaints that relate to the outsourced service itself being automatically referred back to the broker.

Claims outsourcing contracts typically run for two or three years and can be extended by mutual agreement. Brokers are usually charged per claim, according to an agreed scale of fees that reflects the complexity and amount of work involved. In order to plan staffing levels, the service provider will probably want to know how many claims the broker processed in the previous 12 months. The total outsourcing deal should ultimately work out cheaper than processing claims in-house.

Best practice

Various mechanisms exist for brokers to keep their service providers up to the mark. The FSA and the large insurance companies - that have traditionally taken to outsourcing more quickly than brokers - have defined standards of best practice that all reputable service providers should adhere to. Each contract should have a legally binding service level agreement containing measurable performance indicators, for example, 80% of first-party claims under £10,000 settled and paid within seven days.

The service provider will supply regular reports on performance and the number and value of claims being processed. Typically these are produced monthly but brokers can stipulate any frequency and level of detail they prefer. Regular meetings can help to iron out issues and keep things running smoothly.

It can be beneficial to integrate the IT systems of the broker and service provider, enabling instant checking of policy details and allowing the broker's own database to be automatically updated. Alternatively the two companies' systems may be left completely separate, with a 'data dump' supplied weekly or monthly. The service provider will need some way of verifying policy details on initial notification, including any changes and mid-term adjustments and this can be done in the same way.

For all these issues the choice really rests with brokers. They can pick and mix the features they want so they always stay in control - of their spend, of the way their brand is perceived but, above all, of the experience their customers get when they are at their most vulnerable. And if the service they get is quick, painless and sympathetic, they are not only more likely to continue their relationship with the broker, they are increasingly prepared to pay a premium for it.

- Mark Dobson, IT manager, UK, Cunningham Lindsey.