Claims performance brought into the spotlight

Underwriting performance has been the centre of attention at Lloyd’s ever since the formation of the performance directorate under Rolf Tolle and now managed by Tom Bolt.

But at the same time as Lloyd’s has sharpened the focus on underwriting performance in the market, it has been pursuing a quiet revolution in claims performance as well. Under the guidance of Kent Chaplin, head of claims, that revolution is being taken to a new level.

Claims revolution

“We’ve been on a journey since 2004 when we first carried out a strategic review of the claims function,” Chaplin explains. “Five years on we have successfully implemented an operating model that has helped the market manage claims more effectively than ever before.”

The strategic review resulted in a claims management performance framework that provided market oversight of claims and minimum standards that encompassed use of the Xchanging Claims Services (XCS) company (formed in 2001) and the Electronic Claims File (ECF) introduced in 2006.

Managing agents’ claims performance can be measured and benchmarked against standards set out under eight claims management principles - to do with reserves, processes and documentation for example.

But now that market participants have made the necessary investment to improve their claims management, Lloyd’s is getting ready to provide for the changes managing agents and brokers want to see in return.

Need to recognise that market has moved on

“Five years on from the original review we asked ourselves if that model is still valid,” Chaplin says. “We found that it is sound but that in some ways the market has moved on and we want to recognise and accommodate some of those changes.”

As part of the recently announced Claims Transformation Project, Chaplin formed a claims business requirements group to identify the needs of the market. “What we found was that brokers and policyholders want claims to be paid quickly.” Chaplin explains. “And managing agents wants to benefit from their investment in the claims process through better choice and increased flexibility.”

Managing agents believe they can satisfy both objectives by choosing whether or not they outsource claims to XCS, depending on whether they are leaders or followers on business. Similarly, many said they want choose to “insource” particularly complex or high value claims.

“The move to insource claims could cost managing agents more initially,” Chaplin points out. “But the market believes that insourcing could help managing agents significantly influence claims resolution and the quality of claims adjustment and in the end provide a better service to their clients.”

So, to test the market’s assumptions and the appetite for change a pilot is to be run by Lloyd’s claims team. It should also confirm that the customer’s experience will be improved, as Chaplin explains. “This is all about improving speed, fairness and communication. Our research tells us that customers want a shorter claims cycle, fewer touch points and better certainty of payment,” he stresses.

New claims pilot process

To this end Lloyd’s will pilot a brand new claims agreement process for subscription claims through 2010, beginning with marine classes, property direct and facultative and casualty treaty.

The pilot involves three segmented tranches of claims: standard (£0 to £100,000), mid (£100,000 to £5m) and complex claims (above £5m).

In the standard tranche, which represents nearly three-quarters of all subscription claims by volume at Lloyd’s but only 5% of reserve value, claims agreement will be cut to one party – the leader - instead of two as is currently the case. The aim is to effectively halve the claims agreement cycle.

In the mid tranche, which represents almost one quarter of all subscription claims by volume yet 58% of reserve value, claims agreement will be leader plus the second underwriter as an alternative to XCS. Of course, all managing agents still have the choice to outsource their claims agreement role to XCS if they so wish..

The third tranche, which is only 1% of Lloyd’s business by volume but 37% by reserve value, will again be leader plus one but with a formal complex claims protocol to allow followers to get involved if required.

More effective use of Managing Agents resources

“Managing agents will be able to apply their resources more effectively by using this segmented model. The majority of claims will be dealt with more quickly and with fewer parties involved it should also mean there will be more effective communication with customers,” Chaplin predicts. “In other words, rather than continue putting all claims through the same sausage machine we’re going to take the sausage machine apart!”

Brokers and customers are set to benefit from the flexibility brought by the proposed new way of working, Chaplin believes. “Brokers have told us that they want ideally to have the ability to notify claims direct, for example, or receive payment directly,” he says. “We believe we can deliver that kind of flexibility in time.”

The claims transformation pilot will help Chaplin’s team further refine the business requirements of the market. The next step will be to design and deliver the systems needed.

“We will be looking for systems that provide an international platform with wide access but fewer touch points, better linkage with customers and more management information,” Chaplin concludes. “But first we want the pilot to prove that we are heading in the right direction.”

Claims performance is a competitive advantage

An important part of the claims transformation project will be governance. Lloyd’s wants to place claims performance on a par with underwriting and at the same time acknowledge that claims performance represents a competitive advantage for Lloyd’s insurers.

“So an important part of the programme for my team is strengthening our central oversight, validating and testing new processes,” Chaplin stresses. “That’s vital where we move to a model that involved greater choice and flexibility, not only to ensure we are providing an improved service for customers but also to protect the ‘follow’ market.”