A frigid and stormy 2013-2014 winter weather season bumped the P&C insurance industry’s to 97.0 for the first quarter of 2014, a 4.3 point deterioration from 2013’s 92.7. Losses related to extensive property damage from these winter storms and increased frequency of automobile accident and business interruption claims were the root causes of much of this decline in underwriting performance. But while much of this fluctuation in combined ratio is uncontrollable, the major contributors to costs are less so.
Incurred losses and loss adjustment expenses represent the lion’s share (approximately 80%) of a carrier’s costs, the majority of which is spent with claim supply chain partners -- including some 250,000 North American vendors, partners and professionals providing services as diverse as outsourced call center and claims management, collision and glass repair, rental cars, salvage management independent appraisal and adjustment, legal services, emergency restoration, and engineering and forensic consulting services. While many of these services are highly consolidated in the hands of large, national corporations, there is still a significant number of independent small businesses in the supply chain as well.
However, for reasons not completely clear, P&C insurers have still not invested in or focused on modern claim supply chain and vendor management. Now, for a variety of macro factors -- including ongoing anemic investment returns, fierce competition, price and product commoditization, shrinking policyholder retention rates and the strategic industry shift to a more customer-centric business alignment, and the proliferation of cost-effective data analytics tools -- that is about to change.
[Previously from Applebaum: The Digital Gold Rush in Insurance Software]
In fact, carriers are only just now beginning to realize that supply chain and vendor management represents not only a major opportunity to improve profitability but can also enable higher levels of customer service and satisfaction leading to better customer engagement and improved retention. This is more important than ever as better informed consumers become increasingly fickle, encouraged by a barrage of insurance advertising and promotion focused on price and claim service.
The numerous business applications of claim supply chain and vendor management offer both a compelling ROI and valuable customer service benefits for insurers, including:
- performance improvement through real-time reporting enables rating, ranking, and rewarding of vendors based on uniform performance metrics consistent with carrier’s specific business guidelines, philosophies and strategies
- improved vendor network management including appraisal and resource assignment based on vendor results and capabilities
- simplification of vendor onboarding, certification and the process of monitoring changes in vendor accreditation requirements (insurance coverage, financial position, technical certificates, bonding, etc.)
- better loss cost management, which means documented accountability, process cost-efficiencies and more effective vendor service pricing through aggregation and leveraging of claims volume
- higher levels of compliance around vendor selection and use and with claim guidelines and pricing agreements through automated, uniform, reliable audit processes
And finally improved customer service and satisfaction, from:
- matching service providers to individual policyholder preferences (location, amenities, hours of operation, skills, specialties, etc.)
- improved safety and security of policyholders interacting with service providers in their homes or at the vendors’ place of business
The good news for insurers is that there is a new generation of technology and software providers who have developed highly cost-effective solutions informed by their strong operational expertise in these supply chain segments. And with cloud-based delivery platforms, adoption and implementation has never been easier or less costly.
Plainly put, P&C insurers can no longer afford to continue to operate outdated, inefficient unfriendly claim operations while leaving profits on the table while their policyholders switch to more customer service oriented competitors.
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Stephen Applebaum is a subject matter expert and thought leader providing consulting, advisory and strategic M&A services to participants in the North American P&C insurance ecosystem covering insurance information technology, claims, innovation, supply chain, vendor and ... View Full Bio