Spend Matters welcomes this guest post by Ian Cotter of GEP.
The Claims department is the heartbeat of every insurance company, but it also is the largest expense. It is normal for up to 80% of total premiums collected to be spent on claims payments and the costs associated with settling these claims. If an Insurance company can reduce their claims costs, it can provide them an excellent competitive advantage over the competition. However, there’s a fine line between reducing your claims expense and ensuring that your policyholders have a positive claims experience. In addition to this, claims management can be a highly complex activity with multiple processes potentially going on concurrently. If a claim is handled unprofessionally by the insurance company, it can leave a bad taste in the mouth of the policyholder, which could ultimately result in non-renewal of policies. However, if the claim is handled well, it can lead to increase retention rates and customer satisfaction levels.
The level of procurement maturity within the insurance industry has normally lagged significantly behind other industries such as manufacturing, consumer packaged goods and energy & utilities. As insurance carriers have come under increasing financial pressures, they have started looking for ways to reduce their costs. As a result of this, the procurement department has moved to the forefront of their thoughts. There are numerous challenges, though, with putting in place an effective procurement strategy for the claims department. The suppliers are normally deeply embedded within the insurance carriers core processes so it can be difficult to switch suppliers.
However, a comprehensive procurement program can literally transform how an insurance company does business. Not only is there a vast improvement in procurement functioning and excellent savings, there can also be revenue enhancement and ROI benefits. It is imperative that the procurement department looks at the claims department’s vendor spend in a holistic manner, keeping in mind business requirements and functioning while crafting any strategy.
For example, a Supplier Relationship Management (SRM) approach can have major advantages such as gaining early or exclusive access to innovative supplier technology, joint efforts to develop innovative products/features and improved management of risk. Since 20% of claims normally drive an estimated 80% of losses and expenses, it is vital for insurers to be able to identify which claims are going to be the most costly as soon as possible. Insurers should be constantly looking to the supply market to identify cutting edge vendors that can assist them with this predictive modelling to enable them to reduce their overall loss and expense.
The building blocks of a successful Supplier Management program within the claims department are as follows:
- Executive sponsorship: The claims leadership team must be fully bought into the program and should champion the initiative throughout the organization.
- Cross-functional teams: Procurement and the claims stakeholders should take joint ownership of cost reduction goals.
- Data driven factual decision-making approach: Suppliers within the claims department can be deeply embedded within the organization and in a lot of instances have long standing personal and professional relationships with the claims stakeholders. By adopting a data driven factual decision making approach, it helps reduce the inherent politics associated with these long standing relationships.
An effective claims supplier management program will not only help Insurance companies reduce costs, it can also increase customer service since many claims suppliers engage directly with the policyholders and they play a critical part in the overall claims experience. In doing so, insurance companies cannot only reap the benefit of a reduced bottom line but also expect to see some top-line growth.
For more interesting thinking on procurement, visit the GEP Knowledge Bank.