Is this the future?
Katie Hughes spoke to several different insurers to assess whether outsourcing travel insurance claims is the way forward for the industry
First published in ITIJ 107, December 2009
Katie Hughes spoke to several different insurers to assess whether outsourcing travel insurance claims is the way forward for the industry
It’s no secret that the rising cost of claims is hitting the travel insurance industry. Hard. Last year, according to the Association of British Insurers (ABI), claims in the UK cost the sector £392 million – up £40 million on the year before. The rising tide of fraud and the attendant disputes symptomatic of recession are also putting pressure on insurers. “The level of fraud in the UK generally has risen by about 24 per cent over the last two years,” says Malcolm Tarling of the ABI. “When times are tough, people look for easy money.” It seems, therefore, that the need for extended hours of claims operations, together with robust investment in technology and expertise has never been greater. But this is challenged by the financial constraints of the recession and the potential distraction from insurers’ core competencies.
So, how can the efficiency of claims handling be improved without compromising customer service? Many have turned to outsourcing for the answer. Business process outsourcing is a rapidly expanding sector with an addressable global worth of US$122 to $154 billion (last measured by the McKinsey Global Institute in 2006). Of this, between $25 and $35 billion could be attributed to the insurance industry as a whole. “The recession has meant that private and public organisations have been looking to reduce overheads and minimise any negative impact on the bottom line,” says Martyn Hart, chairman of the UK’s National Outsourcing Association (NOA), “outsourcing has therefore increased in popularity as a cost saving business strategy.”
Offshore or onshore?
But should customer service centres, such as those offering claims management, be sent offshore? Emma Holyer, speaking for LV= in the UK, thinks not: “We firmly believe that UK-based companies are best placed to offer a much higher standard of customer care than companies that are based outside of the UK.” Hart of the NOA agrees, arguing: “Using an outsourcing partner in the same country … means that cultural hurdles and language problems are avoided and legal and technical processes will all be familiar.”
And it’s not just customer service that compels companies to look onshore for their outsourcing solutions. The recession is creating a wave of patriotic outsourcing in the US, dubbed the Bangalore Backlash. This has seen businesses such as Sallie Mae ‘back shore’ jobs; citing “a desire to contribute economically to the communities in which the company operates.”
Why outsource?
The fee-for-service basis on which most outsourcing companies operate “helps a company respond to changes in required capacity and does not require them to invest in assets, thereby making the company more flexible,” says the US Journal of Management. With claims volumes that fluctuate in line with seasonal and economic events and round-the-clock operational requirements, could the travel claims industry benefit from such flexibility, particularly in a recession? “The outsourcing of claims management can offer clients the potential to transfer risk by giving them access to advanced technology, solid business continuity plans and highly skilled staff, whilst avoiding large capital expenditure on IT, training or HR,” says Rob Upton, director of sales and marketing for UK-based CEGA Group Services.
The recession is creating a wave of patriotic outsourcing in the US
And, says the UK Business Process Management Journal, outsourcing can be as much about saving opportunity costs as reducing financial outlay, through its potential to release key employees from non-core or administrative processes and allowing them to invest more time and energy in building the firm’s core business.
But what about customer service, the pivot on which effective claims handling turns? Julie Smith of Travel Claims Services maintains that customer service can be improved by using an onshore third party: “There can be a sense of complacency when companies use in-house resources, because there is very little comeback when service levels are not reached.” Holyer of LV= says: “We would tend to use an outsourcing company if they were in the best position to provide a good service to our customers – rather than specifically to cut costs and make financial savings.”
Niche services
“Outsourcing claims management is all about accessing specialist services from a pedigree company that does it for a living.” says Rick Ware, sales and marketing director for Axa Assistance in the UK.
“Currently we have delegated authority on a small number of specific programmes. By using specialists in their field we are able to concentrate on maintaining a high level of customer service and growing our business,” adds Monique van der Linden, UK & Ireland claims manager for Chubb Insurance Company of Europe.
Holyer from LV= supports this: “The overseas contacts that our UK supplier has means they are in a good position to assist our customers with a wide range of emergency situations they may find themselves in overseas. We would not have the internal resource or capability to do this.” Smith of Travel Claims Services adds: “A good claims management company will have a niche understanding of the diversity of a client’s product and this is particularly important in the travel sector. Without the expertise you won’t make the savings.”
CEGA’s Upton encourages clients to look beyond a supplier’s initial fee for savings: “Establish the ability of a claims administrator to manage and reduce the total claims spend, through the application of specialist systems and expertise to tackle issues such as fraud, recoveries and medical cost containment – and then judge the true value being provided within the context of this total spend.”
Without the expertise you won't make the savings
Aviva’s claims fraud manager Andrew Buck gives an example of this by illustrating the savings made by a third party fraud team, saying: “The value of fraud savings detected on travel claims has risen from £1.5 million in 2007, to £1.9 million in 2008, a rise of 27 per cent against a three-per-cent smaller volume of claims.”
Bespoke solutions
Tailor-made travel claims services may also include support for new products, business continuity plans and crisis management, but it is the ‘white labelling’ of a brand that draws most on the expertise of a third party administrator. “The ability to fully white-label a service on behalf of another brand is a highly skilled process that demands the seamless integration of expertise in technology, telephony, training, marketing and client management,” said Upton. “A bespoke claims service involves taking on the client’s culture and branding in every area – from medical screening to assistance,” adds Julie Smith of Travel Claims Services. Monique van der Linden of Chubb highlights the importance of this ability: “We work with a limited number of third party administrators, which are medium sized and are flexible enough to provide a bespoke service.”
Upton is an advocate of developing the tailor-made approach still further, at a strategic level. He urges clients to “take a holistic view of outsourcing by integrating the specialist service provider into the business process and product development cycle, so that it can complement and add value to core skills.”
Martyn Hart adds: “Many organisations have advanced their sourcing strategies to examine whether or not a supplier can actually complement their overall business strategy, rather than just reduce costs. It is this search for innovation and strategic partnership that has driven significant advances in outsourcing relationships.”
“We want to be seen as an integral partner and work with our clients strategically,” adds Rick Ware of Axa Assistance. “We also need to be mindful of our role as a supplier and our need to be innovative and competitive.”
The challenges of outsourcing
Is outsourcing always the right solution, though? “Whilst access to specialist skills may be one of its key advantages, firms need to assess the skills slippage that can result from outsourcing,” says Martyn Hart. “To retain core competencies in-house is vital, as employees’ skills are a factor that is crucial to a firm’s success.” But many organisations simply do not have the time or resources to take a holistic view of their operations and assess their outsourcing need. “An exploratory venture can avoid the need for major investment whilst drawing on the expertise and advice of a specialist third party”, says Rob Upton. This, he says, can be of particular benefit for new products or inherited schemes.
"Many organisations have advanced their sourcing strategies to examine whether or not a supplier can actually complement their overall business strategy"
A Financial Services Authority (FSA) spokesman highlights the importance of rigorous procedures when appointing a third party to handle claims, saying that outsourcing “may affect a firm's exposure to operational risk through reduced control over people, processes and systems.” Can a third party really avoid this risk? Rick Ware thinks so: “We would take on a client’s brand promise, agree service levels and have regular audits and training sessions. We have systems that measure what we deliver and our clients have free access to us. We’re completely transparent.” Holyer of LV= says: “The claims handling company should have a clear understanding of the culture of the company it is working for, so it is able to reflect and enhance the service it provides to their customers.”
Finding and working with the right third party
“Choose a company that can mirror the philosophies and standards of your own brand,” says Rob Upton. “Then agree on measures that are most important to the success of your business; be it customer satisfaction, analysis of claims spend, increased fraud detection rates, third party recoveries or management of large losses.”
Julie Smith added: “Talk to a number of companies to see if they fit your culture and have a proven record of achieving service level agreements. Third parties should work strictly to service level agreements that are agreed up front – and it is in their interest to get it right.” Rick Ware thinks that three main criteria set claims management companies apart from one another: “Speed – how quickly they settle claims, leakage – how effectively they control costs on behalf of the insurer and customer satisfaction – how fairly and efficiently customers are treated and paid for their claims.” Emma Holyer of LV= says: “We conduct a rigorous interview and tender process to ensure the company we choose to work with is able to offer the same high standards of customer care. Should this standard fall at any time we would review the contract.”
But how can service level agreements be structured to preserve such standards? “We would include telephone statistics, complaint levels and claims leakage targets, says Rick Ware, “we would also ensure that the insurance is fair to the customer.” “We work closely with the third party administrator to make sure that they handle the claims in line with our philosophy and we will do regular audits,” says Monique van der Linden of Chubb. Upton of CEGA agrees: “In our experience, the most successful relationships are built around trust and open communication. Agree the goals and meet regularly to track progress.” Monique van der Linden concludes: “Our selection is based on companies that are able to offer first class service and the required technical expertise for the programme.”