Specialty lines' boutPosted On: Nov. 19, 2006 12:00 AM CST
A new battlefront is opening up in the competition for U.S. casualty business, and particularly for the complex management liability and professional liability risks often known as specialty lines. The front is claims management.
This is scarcely surprising. After all, an insurance policy is a promise to pay a sum of money in prescribed circumstances. Given this, the real surprise is that claims management has been so long neglected as a source of competitive advantage.
For decades it was treated as the poor relation of underwriting. Insurers that wished to redress the balance sometimes found it hard to recruit the best talent to their claims departments. But at last, this is now beginning to change and a healthy debate is occurring, within and among companies, on how the claims function should be resourced and structured. This is welcome.
I came to this industry from management consulting, having spent six years at McKinsey, including spending time helping Lloyd's of London explore the scope for gains from enhanced claims management. Management consultants are used to complexity, but the intricacies of many of the claims that I see fully compare with the most challenging assignments I confronted in my previous career.
At the risk of gross generalization, there are two broad approaches to claims management in commercial lines, the champions of which are commonly but not always divided by the Atlantic Ocean.
Historically, the London market has been perceived as more flexible and responsive or more unstructured, with lean in-house claims teams and considerable authority being delegated to U.S. third-party administrators or counsel.
By contrast, the approach preferred by many U.S. domestic carriers has been perceived as more structured and tightly controlled or more bureaucratic, with much of the work being done by large in-house teams.
Third Approach NEeded
Which is better? I believe this is a false choice. A third approach, neither under- nor over-engineered, is needed.
My area of focus at Beazley, specialty lines, is particularly well-suited to this quest. By specialty lines, we mean a broad spread of management and professional liability risks. All told, we write about £280 million ($525.8 million) of such business annually. The scale and complexity of claims in this arena can be enormous.
Typically they involve multiple plaintiffs and defendants, tens of millions of dollars of potential damages, various layers of coverage with multiple carriers on each layer, and real uncertainty around both liability and damages. There is little of any significance that happens in corporate America that does not end up with someone suing for professional or management malpractice.
We have no wish to make the resolution of such claims more challenging than it need be. That is why we pair claims managers with underwriters at the beginning of the insurance process, to tailor coverage that will respond unequivocally in the event of potential claim scenarios.
To a visitor from Mars, it might seem obvious that underwriting and claims professionals should partner in this way. But despite the logic, this has not been commonplace in the insurance industry.
I believe high-quality claims service is the product of three things:
1) A claims team possessing both depth and breadth of experience: In important respects, a medical malpractice claim is not like an architects' errors and omissions claim, which in turn is very different from a political risks claim. The specialization which has become deeply ingrained in underwriting is now increasingly being mirrored in claims. At the same time, diverse perspectives can be helpful. Our preferred approach is specialized but not siloed.
Breadth and depth of experience in a claims management team are therefore both essential. We have team members who have earned their spurs working in claims management, law, actuarial science, management consulting and insurance broking. And in a single team with members on both sides of the Atlantic, we have professionals schooled in very different market environments--U.S. domestic carriers; the Lloyd's and London-company markets; the runoff business in the form of Lloyd's runoff vehicle, Equitas; and professional service firms. Our senior claims managers have an average 15 years' experience developing their various areas of expertise.
Having access to first-rate legal counsel is critical, as counsel forms an important part of our claims management proposition. Together we are able to work effectively with our insureds and their brokers in their role as claims advocates in resolving claims in a fair and appropriate manner. Thus, we commit real effort to identifying counsel with experience and expertise in the relevant areas and managing these relationships.
2) The right framework: Smart, experienced people need the freedom to exercise their intelligence and creativity. That said, some structure and support are needed to get the full value of these individuals' experience and enable them to be empowered, decisive and responsive. There is much here that insurers can learn from other businesses--particularly professional services businesses such as law firms--in providing claims teams with the right level of structure, process and support to perform to the peak of their ability.
This includes having a claims system where all the key information is easily accessed and is integrated with underwriting systems. Working practices also are critical. Internal consensus on the best approach to large or complex claims can be fostered by assigning two claims managers to significant claims, where the second claims manager acts as a sounding board, or by holding roundtable discussions on complex and potentially contentious claims, thereby tapping the full breadth of the team's experience.
3) The right metrics: Claims management has a variety of objectives affecting numerous constituencies: clients, brokers, investors, reinsurers. In many important respects, it is not a zero-sum game and all parties can benefit from faster, more efficient claims resolution that pleases clients and brokers; ensures transparency and predictability for reinsurers; and, over time, builds a more valuable franchise for investors.
In addition to the traditional metrics widely employed by insurers to track total claims costs, numbers of claims and average claims size, the performance of claims personnel can also be assessed against other criteria that have not been so widely applied--including problem-solving skills, customer focus and teamwork using 360-degree feedback.
Improved claims management can add enormous value to the business of an insurance company. In specialty lines, savings can be generated for both insureds and their insurers by working together to achieve better outcomes. But the ultimate prize is greater still. Well-managed claims cement client relationships; poorly managed claims do the opposite. Ours is a relationship business. The battle for excellence in claims management has just begun.
David Marock is claims team leader at Beazley Group P.L.C. in London.