Lorega in the News
Publication: Brokers’ Monthly
Author: John Sims
Job Title: Chief Executive Officer
Date: 9 March 2009
The customer’s need for a champion.
There is much debate about how the credit crunch will affect our industry but the reality is it has already hit insurers hard and sadly an inevitable consequence is the customer will also suffer. The recent news that Royal & SunAlliance is to cut 1,200 jobs highlights the massive pressures insurers are under at the moment. Cost pressures have been building as the insurance cycle softened, but this has been compounded by falls in the stock market and the lowest interest rates in history, which, all combined, have had a punishing impact on insurer’s investment income.
The effects of the crunch have also been felt by insurers in the dramatic increase in claims costs due to rising fraud. Obviously fraud costs both the industry and policyholders and this pressure combined with others means insurers are looking with renewed focus on how to cut costs. However there is a limit to how much insurers can reduce costs by offshoring and cutting jobs. Insurers are looking at cost cutting across all areas and inevitably this involves the biggest area of expense which is the amount they pay out in claims. In the days when they could rely on investment income combined operating ratios of +100% were acceptable. However, as one senior member of a large insurer told me recently, in previous years a COR of between 98% - 102% was satisfactory but now many are targeting 92% - 94%.
The fact that insurers’ share prices are down and that the stock market will heavily penalise them if they produce poor results poor returns is focusing minds on ways to pay out as little as possible and as slowly as possible. It is even suggest by some that loss adjusters that work on behalf of some insurers are incentivised to reduce overall quantum, have a percentage target for repudiation and are actually paid a bonus for this and delaying any payment as much as possible.
All of which does not bode well for the service policyholders receive going forward. In the face of this, one could argue, there has never been a greater need for the customer to have a champion. Obviously brokers do a great job for their clients but, as I’ve mentioned before, this is not an activity brokers are paid for and the reality is it is a drain on their time. A complex business interruption claim or a £500,000 fire claim that goes horribly wrong can easily consume a vast amount of time for the broker and for the majority it is not their core skill to deal with claims like this.
Being brutally honest, for all the reasons mentioned, a broker would be swimming against a strong tide in the current climate in trying to influence this and other types of claim. In situations like this there comes a point where both the broker and client need the additional help and advice of an independent specialist. This is no reflection on brokers that do a great job for their clients but an honest acknowledgement that there comes a point where the mantle of customer champion needs to be passed to an expert in claims. This is where a chartered loss adjuster funded by loss recovery insurance can really make all the difference.
So, while I would challenge brokers to be realistic about where in a claim this point occurs for them, I would also in the same breath point out the many benefits of having a third party ensure their clients get a fair settlement. This is not only the advantages of commission on the sale and enhanced client retention but also that brokers will get the kudos for this as often clients perceive this is part of their service anyway. Brokers regardless of size can claim this as part of their service and certainly for smaller brokers this allows them to punch above their weight in terms of the service they can offer.
A chartered loss adjuster would very quickly know what is right and reasonable, according to the legal contact the client has with their insurer, and has the experience to push through a settlement that is fair. Given the considerable pressures on insurers to cut their claims spend, and the knock-on effect this will have on policyholders, I would argue there has never been a time where they are in need of a champion more than now and believe this is rightfully the broker with the assistance of a claims adjuster.
