Service Disruption: Next Stop for Claims - Paper - Page 15
Claims inflation has a direct and immediate impact on
the bottom line and the simplest and most obvious
way out of this is to increase prices, o昀琀en triggering
a hard market. While this may solve an insurer’s
short term pro昀椀tability concerns, the problem is
merely shi昀琀ed towards the customer which starts to
challenge the regulator’s demand for good outcomes.
Insurers must act but they must do so by striking a
昀椀ne balance between protecting their pro昀椀tability
and meeting the rapidly changing needs of today’s
customer, while managing the internal challenge
of competing change activities, where budgets
inevitably tighten.
This is no easy task as many of the factors outlined
above are beyond the control of the claims manager.
Nevertheless, there is an imperative for insurers to
review existing claims operating models, including
areas of indemnity spend which can be sharpened,
such as fraud management, to reduce the overall cost
of claims for the bene昀椀t of the customer.
However they choose to manage it, insurers are
struggling to balance pro昀椀tability with their customers’
ability to absorb sharp price increases at a time when
the cost of living crisis continues to bite at people’s
昀椀nances from almost every conceivable angle.
While insurers are not in control of the cause of this
crisis, they are in control of their response to it.
Price increases may solve a temporary problem, but
all the signs indicate that much of the inflation we
have witnessed over the last 18 months is now 昀椀rmly
embedded into the economy.
Claims costs are unlikely to decrease markedly in the
medium term, placing the onus upon insurers to 昀椀nd
better, more e昀케cient and longer term solutions to a
recurring problem. Technology of course plays a key
role in this future but wholesale change across the
entire claims operating model, more than anything
else, will make the real di昀昀erence for customer and
insurer alike.
Getting on board with the Consumer Duty
As insurers scramble to meet changing customer
demand, the regulator has been busy issuing
guidance in an e昀昀ort to drive better customer
outcomes. As outlined in the previous chapter,
The impact of inflation on the industry
One analysis of the motor market predicts that
premiums will increase by 16%8 (an average of £74
per policy) in 2023 and by a further 11% (£59 per
policy) in the following year. The motor warranty
market is also showing the impact of claims
inflation with analysis by Intelligent Motoring9
showing that the average cost of warranty claims
had risen by 37% between July and December
2022 on the back of rocketing repair costs.
It’s not all doom and gloom though with some
the FCA has introduced various new regulations over
the last decade or so with its latest, the Consumer
Duty, billed by the regulator as a ‘paradigm shi昀琀’ in its
expectations of insurers operating in retail markets.
However, our DigitalBar research7 has shown that much
of the digital investment and innovation in insurance
to date has been focused on the distribution and sales
side of the coin with claims being something of an
a昀琀erthought for many. But the regulator’s focus is clear –
innovation and digitisation in the interests of e昀케ciency
and customer experience are to be encouraged, but this
must be applied across the board, particularly when
delivering on that crucial promise to pay.
To stay onside with the regulator’s new demands,
insurers need to look at their existing claims
processes and consider where there is potential harm
to customers, answering the questions below:
• Where are delays in claims processing occurring,
what is their impact and why are they occurring?
• Are the digital developments being undertaken
creating more, rather than less, confusion and
complexity for customers?
• Are external suppliers and partners aligned with
the claims philosophy and processes to ensure that
every customer touchpoint meets the regulator’s
expectations?
“As with much regulation, the
language is designed to be
interpreted and tailored by
individual 昀椀rms but in general
terms, the regulator expects
insurers to deliver a claims
experience that is of the same
standard and as easy to navigate
and understand as the process for
buying a policy is.”
Kirsty Priddle,
Altus Consulting
insurers seemingly able to work their way through
it. Admiral Insurance boasted a 4% increase in
pro昀椀ts10 at the halfway point of 2023 despite losing
380,000 customers on the back of price increases
of up to 20%.
Elsewhere, Aviva grew its share of the general
insurance market with more moderate price
increases, with analysis suggesting that Aviva’s
quick pricing response to claims inflation has le昀琀
them in a more stable position than some of its
peers, but a favourable investment environment
may have had a more telling impact11.
7
www.digital-bar.co.uk
https://www.ey.com/en_uk/news/2023/06/ey-uk-motor-insurance-results-analysis
https://www.intelligentmotoring.com/press/3Qzvh6ID37rgx8NztKhzIa
10
https://www.bbc.co.uk/news/business-66521490
11
https://www.insuranceage.co.uk/insurer/7953539/successful-together-aviva-ukgi-boss-winslow-vows-broker-support-amid-solid-2023-results
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