Issues in UK Claims Management 2007

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Third party injury, escape of water and flood claims are driving up the claims bill
  • Insurers are piloting several programs that aim to reduce medical and repair claims costs
    • Recycled parts allow insurers to be green and lower the claims bill
    • Early rehabilitation lowers treatment costs and generates cost savings for insurers
  • Insurers have used supply chain management to curb the growth of claims bills
    • Procurement agreements have become standard mainly due to savings from economies of scale
  • Outsourcing has a number of advantages and disadvantages
    • Outsourcing can allow an insurance provider to quickly adopt the benefits of new technology without the cost
    • Cost saving continues to dominate the debate over the use of outsourcing, although attitudes are changing
  • Fraud continues to cost insurers up to £1.6 billion a year
    • While organized crime is behind some of the larger insurance fraud cases, opportunistic fraud accounts for the majority of fraud cases
    • Crash for cash schemes remain a significant source of fraudulent motor claims committed by organized crime
    • Opportunistic fraud remains difficult to detect, though widespread
  • Insurance providers have a number of techniques at their disposal to combat fraud
    • Measures that detect fraudulent cases early on are key in keeping fraud costs contained
  • Claims management has been impacted by a great deal of changes to the regulatory framework it operates in
    • New fire regulations may increase the cost of property insurance claims
    • New NHS Injury Costs Recovery Scheme regulations came into effect in January 2007
    • The DCA paper on damages has the potential to stoke claims inflation for personal injury cases
    • There may be changes to regulations surrounding third party capture and periodic payments
      • The FSA may move to regulate the use of third party capture by insurers
      • Periodic payments have failed to have the impact many feared, though can lead to higher claims costs
• Table of Contents
• Table of figures
• Table of tables
• Chapter 1 Introduction
  • What is this report about?
  • Who is the target reader?
• Chapter 2 Claims Costs
  • Introduction
  • Third party injury, escape of water and flood claims are driving up the claims bill
    • Each line has similar claims cost drivers
    • Third party injury remains the top driver behind claims costs
    • Property insurers are seeing an increase in escape of water and flood related claims
  • Insurers are piloting several programs that aim to reduce medical and repair claims costs
    • Recycled parts allow insurers to be green and lower the claims bill
    • Early rehabilitation lowers treatment costs and generates cost savings for insurers
      • Research indicates that rehabilitation can generate savings
      • More insurers are moving to early and standard rehabilitation
    • IT investments are key to realizing cost reductions and speeding up claims handling
      • The Lloyd' s market has set the target of December 2007 to have all claims handled electronically
      • Claims management software has proliferated with many specialized applications but insurers must be careful to not simply add more systems to the mix
      • Insurers do not always have to make the investments in IT themselves to benefit from improved claims management software
• Chapter 3 Supply Chain Management and Outsourcing
  • Introduction
  • Insurers have used supply chain management to curb the growth of claims bills
    • Procurement agreements have become standard mainly due to savings from economies of scale
      • Fraud can be reduced by the use of replacement-in-kind and store vouchers, while reputation increases
    • Supply agreements have their drawbacks as customer service can suffer if the relationship is not carefully managed
  • Outsourcing has a number of advantages and disadvantages
    • Outsourcing can allow an insurance provider to quickly adopt the benefits of new technology without the cost
    • Cost saving continues to dominate the debate over the use of outsourcing, although attitudes are changing
    • Outsourcing in the insurance sector is not as prominent as in other financial services markets, but is still a key part of many insurers' strategies
    • Lack of control over the claims process has kept some insurers from outsourcing any claims handling
    • The leaders in outsourced claims management have made strides in the market
      • Capita made a number of acquisitions and new business launches in 2006 and 2007
      • Cunningham Lindsay
      • Crawford and Company
• Chapter 4 Anti-Fraud Developments
  • Fraud continues to cost insurers up to £1.6 billion a year
    • While organized crime is behind some of the larger insurance fraud cases, opportunistic fraud accounts for the majority of fraud cases
    • Crash for cash schemes remain a significant source of fraudulent motor claims committed by organized crime
    • The IFB has been very active in the investigation of professional fraud over the year it has been in operation
    • Opportunistic fraud remains difficult to detect, though widespread
  • Insurance providers have a number of techniques at their disposal to combat fraud
    • Measures that detect fraudulent cases early on are key in keeping fraud costs contained
      • Rapid medical assessment can deter suspect claims from proceeding, as well as providing good customer service
      • Fraud detection systems can provide real time validation of claims, detecting the fraud early on
    • Investments in IT are crucial in obtaining savings on claims costs and can improve customer services
      • Even simple IT solutions can benefit insurers in their bid to contain fraud costs
      • There are a number of providers of more sophisticated anti-fraud measures operating in the market
    • Publicity can significantly improve the effectiveness of anti-fraud measures as well as provide its own deterrent
    • Follow up on the initial claims can often uncover and deter fraud claims
    • Insurance providers are identifying and preventing more fraud, suggesting anti-fraud efforts are producing dividends
• Chapter 5 Regulation and Law
  • Introduction
  • New fire regulations may increase the cost of property insurance claims
    • New fire regulations came into effect in October 2006
    • Total losses have increased, with insurers noticing more large fire losses in 2006
  • New NHS Injury Costs Recovery Scheme regulations came into effect in January 2007
    • The NHS expects to recover an additional £150 million a year through the new cost recovery scheme
    • Cost recovery limits have increased to £38,000
    • Insurers fear current limits could be scrapped altogether within the next five years, increasing claims inflation even more
  • The DCA paper on damages has the potential to stoke claims inflation for personal injury cases
    • New Ogden tables and changes in the drivers of claims inflation could cause significant increases in personal injury costs
    • The DCA paper also recommended that the number of people eligible to claim damage payments for care and dependency be increased
  • There may be changes to regulations surrounding third party capture and periodic payments
    • The FSA may move to regulate the use of third party capture by insurers
    • Periodic payments have failed to have the impact many feared, though can lead to higher claims costs
  • The Compensation Act proved to be a mixed bag for claims managers with both benefits and drawbacks
    • Joint and several liability for mesothelioma cases was established in the Compensation Act of 2006, returning the status quo
    • Rehabilitation may become more attractive as a means for controlling costs because of the apology clause
    • Claims management companies must now be registered and comply with the new Compensation Act
• APPENDIX
  • Further reading
  • Future reading
  • Ask the analyst
  • General insurance research and analysis team
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Estimated regional breakdown of ' crash for cash' scams since 1999, 2007
    • Table 2: Insurers contributing and subscribing to the CUE database, 2007
  • List of Figures
    • Figure 1: The Irish anti-fraud advertising campaign has been successful at reducing the incidence of fraud