Looking from the Outside In
Global trends are coming to the U.S. insurance market.
The impact of globalization on the insurance industry and economy became clear during the current financial crisis, as governments rescued large, multinational insurers such as AIG and Fortis to mitigate the fallout that would have been felt worldwide if those carriers had shut down. Linkages among insurers, reinsurers and claims administrators reach across multiple geographic borders; when one fails, the chain breaks and others are jeopardized. Insurance has truly become part of the DNA of global commerce.
The state of the international economy has many implications for the insurance industry, and global insurers and their providers need to be ever more innovative in their quest for profitability. In such an interconnected world, the United States, as the world’s largest non-life insurance market, will travel with them on that quest. The domestic insurance industry will both feel the impact of global insurers as they search for ways to grow their businesses and draw lessons from others, particularly the London market, to improve its own operations and performance. Developments in the U.S. include:
- The implementation of claims hubs as an outsourcing solution to global insurers
- Line of business, industry and adjuster specialization among insurers and claims administrators
- Targeted runoff claims strategies to eliminate unprofitable business
- Greater use of field technology to improve adjuster performance, data analytics and claim operations.
As more insurers and reinsurers from across the globe move into the U.S. market, claims hubs will play an increasingly important role. Many of today’s articles and studies focus on the globalization of emerging insurance markets in such regions as Latin America, central and eastern Europe, and Asia and tend to ignore or minimize global issues in the U.S. market. It’s true that recession, soft market conditions, and efforts to disallow tax deductions for reinsurance premiums might slow down the advance of global insurers and reinsurers into the U.S. But given the value of the U.S. market, current business conditions will only dampen, not extinguish, their appetite.
One of the many considerations when insurers enter the U.S. (or any other) market is determining how they will administer claims. Complying with complicated and evolving regulations and creating a client experience that promotes acquisition and retention are two of their chief concerns. For insurers reaching into markets that are new to them, compliance and customer service issues present potential problems, and building an effective claims structure specific to a state or country takes time, money and local expertise. As a result, more and more global insurers will be looking to partner with U.S. companies that understand regulatory issues and can provide full business-process outsourcing solutions in claims hubs.
Claims hubs provide a comprehensive suite of local claims services to brokers, insurers and policyholders. Services are tailored to different accounts and can include policy information, claims notification, desktop handling and claims adjusting. Employees of both the insurer and the claims administrator typically are present in a hub to assist in management and ensure that key decisions are made quickly and effectively. Providing a local service backed by a global platform can improve all aspects of the claims process, reducing processing times, creating a more efficient payment system and giving better access to more accurate management information and data.
Line of Business, Industry and Adjuster Specialization
As a global center for the insurance industry, the London market has long been an incubator of new products and best practices. It is also a harbinger of things to come in the U.S., where domestic insurers have largely focused on domestic business (thanks in great part to the sheer size of the U.S. market).
With insurance practices and regulations varying widely from country to country, it has become necessary to understand non-domestic markets and, more important, to develop complex, overarching programs that meet the mandate of global clients. As a result, insurers and claims administrators operating in the U.K. have been required to implement global programs for a longer period of time than insurers based in other markets.
In particular, the importance of data in managing and evaluating insurance programs was recognized there earlier than in other markets, thanks to the greater complexity of global programs. Chief risk officers—a C-level title that has existed for only a few years and indicates the elevation of concern about enterprise exposures—and risk managers are looking for much more granular evidence of an organization’s ability to manage claims effectively.
One of the byproducts of a focus on cost and performance has been increased specialization in lines of business or industries by insurers, claims administrators and adjusters themselves. With current industry conditions, similar trends will come to the U.S.
- Line of business specialization.
British insurers and businesses are turning more frequently to companies that can offer specialized loss adjusting that they believe is more aligned with their needs and better able to provide results. Large claims administrators are developing and marketing services in increasingly smaller and more defined specialty segments to compete with a growing number of niche providers. Appropriate licensing in the U.S. is a particular issue when it comes to handling more specialized claims.
- Industry specialization.
Specific industry knowledge, particularly on major losses, is a growing requirement. For example, in 2007 some of the world’s largest losses occurred in the mining industry. Losses in the mining world are complex and very specific to the industry. Those factors reaffirm the need for insurers and claims administrators to develop targeted industry knowledge that helps them settle claims effectively and mitigate business interruption.
- Adjuster specialization.
With line of business and industry specialization, adjusters, too, are going to be hard-pressed to remain as generalists. Focused experience in a particular category of claims will become ever more important, as will familiarity with specific industry segments and their types of losses.
Targeted Runoff Claims Strategies
Another segment is the runoff claims market. Since the 1970s, long-tail liabilities such as asbestos, environmental and pollution claims have been placed in the London market for runoff. Continental Europe also has a well developed runoff market, though typically runoff claims have been handled there as part of normal business processes, an approach that might be changing, according to a March 2009 PricewaterhouseCoopers survey of discontinued insurance business in Europe. In the British market, a number of specialized firms that offer services for runoffs—venture capitalists, consulting companies and loss adjusters among them—have emerged.
In contrast, the U.S. runoff market has been synonymous with large-carrier insolvencies, liquidations or complete market withdrawals, and runoffs are often managed in-house. However, given the upheaval in the U.S. insurance industry and economy in general, the runoff market appears to be changing. Though government bailouts may prevent full-scale business shutdowns, to remain viable in the post-recession world, U.S. insurers will need to ruthlessly evaluate their lines of business and consider slashing all that are unprofitable in order to protect capital and surplus.
This is no different from insurers deciding to withdraw from the Florida homeowners market in response to profit-draining risk in the coastal U.S. But faced with reduced investment income and a generally soft market, carriers are beginning to voluntarily withdraw from certain lines of business in local geographic areas.
With that development, the U.S. runoff market will become more like the British market. Greater activity and the rise of specialists or specialty practices within larger firms will cater to the needs of runoff business: efficient file and data takeover, files review to identify potential issues such as under-reserving, assertive but fair claims handling to resolve exposures, and more frequent or more scrutinized reporting to insurers.
Greater Use of Field Technology
Not surprising in a day when cost control is paramount, work automation and process efficiency are major issues in the industry. New technology that can optimize adjuster scheduling, capture information, and streamline claim operations has been introduced in the London market and is being implemented more often in the States.
Handheld mobile applications can support field visits by capturing data, documenting instructions and producing estimates. Applications that include the diaries, skills and workloads of adjusters and that estimate travel times between appointments can improve the claims handling process. Software apps for handheld technology also allow clients to directly book adjusters during the first notification of loss, further facilitating the claims process.
Where’s It All Going?
Insurance carriers are looking for strategic solutions to improve operational efficiency, data transparency and cost-effectiveness. Business-process outsourcing, specialization, and runoff strategies that use technology will go a long way towards helping them, but those and other strategies aren’t enough. Insurers say they also need partners with proven abilities to help them create more efficient organizations. Globalization of the industry and economy will increasingly demand a global approach to solutions.
Jeffrey T. Bowman
is president and CEO of Crawford & Company
, the world’s largest independent provider of claims management solutions with more than $1 billion in revenues and 9,000 employees based in 63 countries. He can be reached at firstname.lastname@example.org