Advanced Claims: ABC Insurance Company Limited

Introduction

            Insurance companies are under pressure to enhance their customer service in claims handling process. At the same time, companies are striving to make claims operations cost effective. Historically, claims comprise about 75% of insurance company’s net premium. Therefore, it is one of the most important components of insurance companies. Therefore, the paper focuses on claims operations by looking at ABC’s claims approaches and the challenges and benefits of outsourcing claims operations.

Context of ABC Insurance

            The paper will focus on ABC Insurance Company Limited (ABC). ABC is a general insurance company that specializes in underwriting businesses that are located in rural areas and other small towns in the UK. The company is relatively large because it has an annual turnover of £1 billion. The company has been in operation for decades and has helped many thousands of clients to claim back their money. ABC is distributing its products through its own insurance brokers who are under obligation to support its brand values and company practices. For the past few years, the company has been experiencing slow growth. However, after investing £30 with the aim of improving its internal system, the future of the country is promising because it has started to underwrite more business. Apart from underwriting more businesses, the improvement of internal system has helped the company to adhere to compliance requirements and improved the quality of its services. The company underwrites personal line businesses, including small firms that are located in rural and urban areas.

            The company has effective and efficient distribution methods. It mainly sells its product through network of brokers who are based in small towns and other parts of rural areas. Independent brokers are supported by well-trained and experienced ABC staff. Therefore, independent brokers and company employees work together to ensure that they reach many customers while offering timely and quality services. The company has split its business into four main classes that include private cars, small commercial vehicles, households, and retail or offices.  The company targets a variety of customers that are based on different parts of the UK.

ABC Approach to Claims Handling

            ABC has different and unique claim management in comparison to other insurance companies that offer the same services in the market. Its claims operation is based on “No Win No Fee” while at the same time it does not charge up-front administration fee (ABC, 2015). It claims services are also faster because they take between six and eight weeks. However, sometime a claim can take months, depending on the complexity of the circumstances and the approaches taken by banks or lenders when handling claims. In addition, the company has experienced team of employees who handle claims who also work on behalf of customers.

            The main people who handle claims in the company are Claims Executive. Clients always reach Claims Executives through the phone, but they can also visit their offices to have a direct contact with the officers (ABC, 2015). Claim Executives assess clients’ circumstances and they advise the customer, whether the claim is valid or not. The experienced ex executives have the ability to determine the chances of whether a client might have miss sold payment protection insurance. Besides, the Claims Executives guide the clients on how they can help them claim back potentially mis sold PPI. After the guidance and advice, the client has the right to accept or refuse to pursue the claim. In the case that the client accepts to pursue the claim, Claims Executives send him or her completed paperwork to sign and return.

            The completed paperwork is then transferred to PPI claims handlers who investigates the claim and regularly update the client on the status of his claim. Claims Handlers collect supportive evidence to ensure that the claim is assessed correctly and the client gets the correct or fair compensation. In many cases, Claims Handlers take about six weeks before giving final feedback to the client. The company charges no fee in the case that the claim is unsuccessful. However, it charges 29.5% on the amount that is recovered when the claim is successful (ABC, 2015).

            In terms of outsourcing of its operations, ABC uses a network of brokers that operates in different rural areas and towns in different parts of the UK. The company has widely dispersed brokers in order to minimize geographical overlap, which may create competition for clients in the same geographical areas. Generally, the company has about 100 independent brokers. Brokers work closely with the company’s internal staff to offer quality claims services to clients in different parts of the country. Brokers earn commission on the successful businesses that they handle and they are not allowed to charge any extra fee, unless approved by ABC top management. The commission and other handling cost that is associated with brokers are in proportion to business written. The administration or compliance cost of every broker is estimated to be £10,000 annually, which is relatively less compared to when it is using its internal employees to run all its operations, including claims services.

            The company has been having a long-standing and successful relationship with its brokers. Consequently, it is one of the successful insurance companies in the UK and it is has the potential of enjoying faster growth. However, even though the company is interested in increasing the number of its brokers, it finds this difficult due to the challenge of acquiring committed and trusted brokers who can offer quality services to its customers.

Benefits and Challenges of Outsourcing Aspects of Claims Handling Operations

            Not all insurance companies have the ability to provide timely and appropriate responses to all kinds of claims. Consequently, they have forced to outsource some parts of their functions. Generally, outsourcing is the process of allocating some business functionality or processes to an external service provider. Limited resources and desire to gain competitive advantage in the market are some of the main reasons that force businesses to outsource their operations. In addition, outsourcing allows a firm to focus on its core business. Besides, some businesses outsource in order to reduce the cost of operations. However, despite its many benefits, outsourcing claims handling operations also have disadvantages that can affect the operations of a business and the quality of services or products.

Benefits of Outsourcing

            Cost saving is the main benefit of outsourcing. Outsourcing enables a company to reduce cost of operations. Studies have shown that claim cost is about 80% of the insurance industry total cost of operations. Consequently, in order to maximize the profit, insurance companies outsource some of their operations to minimize the cost. Studies have shown that outsourcing can reduce the cost of claims operations by 20 to 30%, which is a significant reduction. Outsourcing helps in reducing the number of employees that are required in the company, leading to a reduction in the cost of labor (Kremic, Icmeli Tukel & Rom, 2006). At the same time, outsourcing enables a company to reduce the cost of office space expenses and other cost that is linked with work space. In addition, outsourcing helps a company to allocate its limited resources to other important uses that help it gain a competitive advantage in the market. Therefore, outsourcing is a tool that can be used to reduce the cost of claim operations in a company.

            Outsourced providers help in increasing business volume. Brokers enable ABC to increase its business volume while at the same time reducing the risk that are associated with over-relying on a number of agencies. The experienced and skilled brokers are able to successfully file claims, which increase sales volume of a company. Brokers are also able to use their local knowledge and experience to attract and retain customers. Therefore, brokers can enhance the business volume and profitability of ABC. With increased profits and business volume, ABC will be able to come up with cost-effective ways of processing claims. In addition, the company can use the reputation of brokers or outsourced individuals to attract new customers. Some outsourced companies have a good public reputation than the contracting company. Therefore, ABC can capitalize on their reputation to get more business.

            Outsourcing also enables a company to offer quality services to customers during claim process. Brokers handling claim process are able to provide customer services without sacrificing control over claim processes. Many insurance brokers are able to handle all aspects of claims, which ensure quality services to clients. Outsourcing also gives a company an opportunity to offer consistent services to customers. Consistent services enable a company go gain trust and loyalty of its clients (Kremic, Icmeli Tukel & Rom, 2006). In addition, many outsourcing companies or individuals have years of experience, which they can use to ensure quality services to customers. Besides, outsourcing makes claims services available to many customers. Outsourcing also helps in achieving a faster claims settlement that helps in enhancing customer satisfaction. As a result, outsourcing claims operation helps in improving the quality of services while at the same time enhancing customer satisfaction.

            Outsourcing can also help an insurance company to reduce the information technology cost. Outsourcing helps in reducing the journey, the journey to becoming digital insurer, as it relieves the company from lengthy and expensive IT projects (Iqbal & Dad, 2013). Outsourcing providers always act as strategic partners because it enables insurance company to gain flexibility that can enable it to adapt to the volatile customer’s demand without spending a lot in the technology. Through outsourcing, a company is able to gain a range of expertise and technology, as outsourcing companies or individuals always use the latest technologies in the claims operations. In addition, outsourcing helps a company in lowering in lowering infrastructural investment such as customer service call center and technical helpdesks.

            Another benefit of outsourcing is increased focus. Outsourcing helps in the elimination of distraction and helps a company to concentrate on their core competencies. A company can have a lot of functions that it has to achieve that can hinder it from paying attention to claims operations. However, through outsourcing, a company is able to delegate claims operations to outsourcing providers who pay much attention to the claims. Consequently, a company can pay attention to other important functions of a business such as sales and marketing. Therefore, outsourcing is beneficial it makes a company to focus on claims operations or delegate claims management to outsourcing partners.

            Claim management requires skilled and experienced individuals. Therefore, through outsourcing, a company is able to acquire people who have a lot of experience and skills in claims operations. In addition, the company will not have to spend a lot of money in training and developing employees with claims operations. A number of claims brokers have been in the insurance industry for years and they have adequate skills and experience that they can use to ensure successful claims. Consequently, a company will be able to gain more revenue and profits. At the same time, insurance companies are able to overcome talent shortage, which can affect the quality of services.

Challenges of Outsourcing

            Loss of control is the challenge that is associated with outsourcing claims operations. There is always a difference in motivation, attitudes and behaviors between internal employees and outsourced employees (Axelrod, 2004). At the same time, there are differences in terms of skills and experience, which may interfere with the smooth operations of a company with regard to claims management. A company is also likely to experience customer suspicion on the quality of services that are offered by third parties and not internal employees. Therefore, a company may lose control over its claims management. A bad match between internal employees and outsources can lead to customer dissatisfaction, which may negatively affect the process of claims management.

            Through outsourcing, a company turns the management and control of its claims functions to another company. Even though companies may still control the operation, the outsourcing company takes the managerial control of the claims process. However, the main challenge is that the outsourcing company may not have the same standards and missions as the company seeking outsourcing services. The outsourcing companies also have the objective of making profit, which may lead to conflict of interest in the claims process. The desire of making profits by the outsourcing company can also interfere with the quality of the services to clients. In many cases, the contract fixes the prices that should be charged and the standard to be met in claims operations. Therefore, the only way in which outsourcing company can make additional profit is to decrease expenses, which may end up affecting the efficiency and effectiveness of the claims process. In addition, outsourced companies may engage in illegal methods to make profits because of lack of room to leverage the price or cost of the claims process. Therefore, outsourcing can also be termed as quality problems in the claims process.

            Cultural difference is also associated with loss or control. There are always a conflict or problems when the contracting company and outsourced companies have different organizational cultures (Ben-Shahar & Logue, 2012). For instance, low-context cultures that are found in many American companies, mainly focus on figure and closing deals while high-context cultures that are majorly found in Asia are based on value politeness and respect. Therefore, outsourcing from countries that have different cultures can affect claims process. At the same time, companies have different norms, structures, and authority, which may be challenging in the case of claims operations. As a result, cultural difference is another challenge that is associated with outsourcing claims operations.

            Outsourcing can also lead to confidentiality and security threats (Tayauova, 2012). Even though the terms and conditions of security and confidentiality are always spelt out when outsourcing, companies find it difficult to monitor and audit the violations of the term. It is possible for the outsource provider to access some confidential information. However, some outsourced service providers may misuse the confidential information against the company or the client during the claims process. Therefore, it is challenging to protect confidential information when a company is engaged in outsourcing. Companies find it difficult to ensure that outsourced companies or individuals adhere to the terms and conditions with regard to information confidentiality. Outsourcing also poses threat to intellectual property of the contracting company. Outsourced service providers are able to access company’s strategies and patent, which they can use against the contracting company.  

            Another challenge is finding the right and committed broker. In many cases, brokers are working for more than one company, which reduces their commitment to claims operations of a single company (Axelrod, 2004). As a result, the claims process may take longer time than when it is handled by internal employees who is dedicated to the company. Even though there may be many outsourced companies that handle claims operations, only a few can be dedicated to their work because they handle different clients for different companies. According to the report that was published by Gambit Corporate Finance, the number of insurance brokers is declining. The report also stated that the number of Insurance brokers in the UK has reduced to 3,500. Therefore, ABC may find it difficult to identify suitable brokers, especially due to networking and consolidation that has reduced their numbers. It is cheaper to work with individual brokers that consolidated brokers, as the former may demand lesser commission than the latter.

            There is also the challenge of conflict of interest, especially among the outsourced individuals or companies. It is possible for brokers who work in a given geographical area to compete for customers during the claim process. At the same time, brokers can compete for businesses the company is already holding. As a result, conflict of interest and competition can reduce unit profitability. The conflict of interest and competition among brokers, therefore, may force a company to limit the number of brokers to solve the problems.

            Outsourcing can also lead to an increase in the administration cost. ABC Company may be forced to spend a lot of resources supervising brokers to ensure that they comply with the company rules and standards. To maintain consistency, quality, and compliance with rules and regulations, the company has to spend a lot of resources in supervising the outsourced companies or individuals. Therefore, it is possible for outsourcing to increase the cost of claims operations.

Recommendations

  1. ABC should Increase the Number of brokers

The company currently depends on 100 independent brokers. However, the number may not be enough to exploit the existing market. ABC should increase the number of its brokers by ten, which will increase the cost of operation by £100,000 annually since it spends £10,000 every year on each broker. £100,000 is a worthwhile investment that can generate more revenue for the company. In addition, increasing the number of brokers will enhance customer satisfaction because brokers will not be overburdened with many claims. Consequently, there will an increase in the quality of claims services that are offered by the company.

  1. ABC should Increase the Number of Claims Executives and Claims Handlers

Claims Executives are the first employees in the company to interact with the clients and asses the viability of the claim. However, there is the possibility of the company receiving many claims that Claims Executives can handle. As a result, this may affect customer service and assessing the viability of claims and the company may end up refusing a viable claim or accepting claims that are not viable. In addition, employing more Claims Handlers will ensure that thorough investigation is done and concrete evidence obtained to make claims successful. Therefore, the company can enhance its customer services and enhance its profitability by employing more Claims Executives ad Claims Handlers.

  1. Automation of Claims Management

ABC should use the modern information technology to enhance the efficiency and effectiveness of its claims operations. The company should reduce paper-intensive and error-prone file processes that consumes a lot of time and leads to a lot of errors. It can develop new technologies that can automatically take action according to claim information that is given by the client. At the same time, the company should ensure that the new technology can organize and manage complex claims information across various departments that handle claims. In addition, the automation of the claims process will help in breaking down claim processes into sub-claim units, which helps in quick decision making. The company can improve its claims process by automating claims operations.

Conclusion

            ABC highly depends on brokers to help in undertaking its operational functions. It uses network of brokers to reach its clients in various rural and small towns in UK. The company has one of the effective claims handling methods that it uses to gain a competitive advantage in the market. Even though outsourcing has many benefits, it also comes with numerous challenges that can affect claims operations. It is recommendable for ABC to increase the number of brokers, employ more Claims Executives and Claims Handlers, and automates its claims operations to enhance the efficiency and effectiveness of its claims management.

References

ABC. (2015). The Claim Process. Retrieved from  http://www.abc-inc.co.uk/claims-process/

Axelrod, C. W. (2004). Outsourcing information security. Artech house.

Ben-Shahar, O., & Logue, K. D. (2012). Outsourcing Regulation: How Insurance Reduces Moral             Hazard. Michigan Law Review, 197-248.

Iqbal, Z., & Dad, A. M. (2013). Outsourcing: A Review of Trends, Winners & Losers and Future    Directions. International Journal of Business and Social Science, 4(8).

Kremic, T., Icmeli Tukel, O., & Rom, W. O. (2006). Outsourcing decision support: a survey of      benefits, risks, and decision factors. Supply Chain Management: an international journal,          11(6), 467-482.

Tayauova, G. (2012). Advantages and disadvantages of outsourcing: analysis of outsourcing       practices of Kazakhstan banks. Procedia-Social and Behavioral Sciences, 41, 188-195.

 

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