Halting the Tide of Motor Claims Inflation

3 minute read  |  February 26, 2020

MSL MD, Glen Eastwood shares his opinions on claims inflation…

We have seen financial results from many insurers over the past few weeks. One thing they all seem to have in common is an increase in claims inflation.

This isn’t a new phenomenon. Claims, particularly Third Party claims, have been inflating at higher levels for several years now.

There are a number of factors driving this inflation.

The Discount Rate was moved last year to -0.25%, which was actually a positive move, following on from the preceding -0.75%. However, given that the rate was widely expected to move to 0 – 1% and bearing in mind many large loss cases were settling based on those expected figures prior to the rate change, the move to -0.25% has actually been a negative for insurers.

Technological advancements in vehicles have made them more expensive to repair, various safety features are now standard and the availability and costs of imported parts and the loss of some of the repair workforce due to concerns around Brexit will also have impacted upon repair costs.

Third Party claims never seem to become cheaper, although some insurers will be hoping that the introduction of the whiplash element of the Civil Liability Act will dampen claims costs in this area. Third Party Damage and Credit Hire costs continue to rise.

An increase in the number of theft and fraud claims also presents challenges.

What Can Be Done?

This isn’t the first time and won’t be the last that insurers have faced rising claims costs. They will be dusting off previous project plans to look for answers.

The starting point in these exercises is to identify the key issues and then to explore those areas in detail, looking for efficiencies and strategies to improve overall handling and consequently costs.

Proactivity is key. Claims very rarely get cheaper with time and making an early assessment of liability and quantum and thereafter presenting offers and concluding claims speedily can have a huge impact.

Spending time with trusted advisors, industry peers and suppliers also helps to form strategy and improve performance. Two heads are nearly always better than one.

The one thing that continues to reap the greatest rewards in motor claims is proper investment in intervention services, either in your own team or outsourcing to a high performing TPA.

The Benefits of Third Party Intervention

When intervention is done well, the benefits can be significant; savings of between £2,000 – £3,000 are achievable per Third Party. Hitting a good intervention rate, whilst servicing the claims properly with excellent customer service is the only way to operate and the benefits of this approach multiplied across the motor book will positively impact the loss ratio.

Key Features of Good Intervention

  • Intervention is most effective when done quickly following notification of the claim by the customer. The longer the gap between notification and the call to the Third Party, the less chance there is of success. It’s also essential that customers are in some way encouraged or incentivised to report claims quickly, as delays in reporting lead to lost opportunities.
  • Claims Handlers must build up a good rapport with the Third Party. Time should be taken to listen to any issues or concerns and then to address these with clear explanations of entitlement and next steps. It is important to build trust and show empathy for their situation.
  • Your team must be skilled in offering the right services, overcoming objections and reaching a fair settlement of the claim (property/vehicle damage, replacement vehicle, personal injury as appropriate).
  • Claims Handlers must deliver upon promises made! If you have agreed to deliver a replacement car or to book a vehicle in for repairs at a certain time, make sure you do so.
  • Caseloads need to be kept at levels which allow proactivity across the claims journey to ensure you can give the Third Party the service they need and are expecting. If the service is poor, the Third Party will seek an alternative route to pursue their case.
  • There must be good levels of communication throughout the claim. Keeping the Third Party informed as to what is going to happen next, when and how are key features of good quality handling.

I’m not for one minute suggesting that intervention is the ‘silver bullet’ when it comes to dealing with overall claims inflation. Clearly there are a number of issues to be addressed and this requires multiple solutions. Intervention is, however, the most effective approach to dealing with Third Party claims inflation. Done well, it will go a long way to dampening claims costs and improving the loss ratio.

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