The true cost of claims

We all know brokers want to provide a fantastic service to their clients. For many, supporting their customers through the claims process is a given. However, this comes at a price. Do brokers know the real cost of providing this service?

A recent survey has revealed that many brokers are unaware of the hidden, internal costs of managing a claim. The average time spent on a £40,000 property claim is 24 hours, or three days, of an account executive's time. For an executive earning £30,000 per annum, this equates to around £500 of time costs. Comparing this with the average commission earnings on a small commercial-risk premium of less than £2500, the mathematics reveal the true extent of the financial impact on the business. As one broker put it to me, I saw our account executive driving out of the car park to attend the first claim meeting with the insurer's adjuster and all our commission on that risk was following close behind.

There has been a clear shift over the past decade, with brokers passing the burden of claim responsibilities onto underwriters. The reasons for this can be found in reduced commissions and the increasingly time-consuming regulatory environment that reduces the amount of time brokers can spend looking after their clients. Brokers recognise that there are cost implications to providing a claims service. But are they truly sustainable when often these costs are greater than the earnings they receive?

The primary driver here is premium rates. The reality is that, unless the three stakeholders involved in the insurance process - the underwriter, the broker and the client - accept that cheap insurance leads to cheap service, the situation is unlikely to improve.

There has been a desire and shift in emphasis towards professionalism and the sector's constant likening to solicitors and accountants. It is time we recognised that, in the same way that not everybody wants a cheap lawyer or accountant, not everybody wants cheap insurance.

Perhaps it is time we started educating customers about what is available and what it costs and let them make an informed decision rather than relying on the 'my policy is cheaper than yours' mentality that, as an industry, we seem to have fallen into.