The annual results round this month for UK insurance companies gave little cheer to hard-pressed chief executives, especially in personal lines. Admiral’s growth went into reverse for the first time ever, DLG’s £500m profits were flattered by c.£400m of reserve releases, Esure’s shares fell 7% after it announced profits falling 12.8% to £103.3m.
Performance at Aviva and RSA was flat. At both Plcs staff will surely be groaning yet again at the prospect of more job cuts, albeit for different reasons: RSA needs to strengthen its balance sheet, and Aviva is digesting Friends Life (and maybe strengthening its own balance sheet too in the process).
Intense competition, reducing investment returns, regulatory pressure and a permanently soft market, make the sunlit uplands of profitable growth seem as far away as ever. And to cap it all, customer demand for high quality service is increasing all the time, both on the sales side, and when they need to make a claim.
Rate increases are off the table, and de-risking books through smarter underwriting generally leads to shrinkage, rather than growth, so cost cutting has become the option du jour. It’s no surprise, therefore, to see that outsourcing has forced its way back onto management teams’ list of options. For sure, the ourtsourcing vs insourcing debate is as cyclical as… well… insurance itself, but this time around it could be different.
In 2015 any CEO worth his or her salt should be actively thinking about moving as much of their fixed cost to a variable cost basis. Not only will this give them expense flexibility, it will also give them access to vastly improved services.
Most of the recent investment in tech has come from companies that service insurers, especially on the claims end of the insurance lifecycle, rather than insurers themselves.
Moreover, in our digitised economy, customers expect their claim to be handled via smartphone in much the same way as they book travel tickets, or transfer money on a mobile banking app. None of the insurers – with their clapped out systems - are anywhere near providing this level of service. And, although insurers say their claims service is a point of difference, the real truth is that most claimants’ experience is mediocre at best if they go through their insurer.
The solution is to outsource their claims to people who do it a hell of a lot better than they do. Insurance claims providers have not only got the best kit, or the best fulfillment deals, they’ve also got highly trained staff and many are, crucially, fully FCA compliant.
One insurance services business told me it was called in to assist a major insurer process property claims after a surge during the bad weather in the winter of 2014. Not only did they settle all 10,000 claims in under three months, they smashed the SLA and made the internal claims team look like a bunch of schoolkids. The project not only saved the insurer significant cost, it also saved its reputation too.
An enlightened claims director should be talking to these businesses as a matter of course. There’s no reason why the services cannot continue to be white-labelled, supporting the retail brand. A customer won’t care whom they speak to at FNOL, for example, as long as they are properly looked after.
It is ridiculous for insurance claims directors to insist that only their staff are capable of managing the so-called ’moment of truth.’
Of course, there are a few insurance claims bosses who have seen the benefits a fully outsourced proposition can deliver, but there are many others who don’t. If these dinosaurs don’t wake up to the potential transformation in their business that outsourcing can deliver, their chief executives will.