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Why insurers must do better on claims
by Tom Jenkins

At its simplest, insurance is a promise from insurers to put things right for their customers when the worst happens.

This means that the claims process is the shop window through which policyholders see their insurers, and it is often the only interaction they will have with their provider between taking out a policy and when it comes up for renewal.

Sadly, the view through this window is not always the prettiest.

For too long the insurance industry has suffered from a poor reputation when it comes to paying out on claims promptly and fairly.

While it is patently not true that insurers routinely refuse to pay out on valid claims, it is still the case that more can be done to improve the situation.

Closing the Expectation Gap

Analysis from market intelligence firm Insurance DataLab found that some business lines in the UK, like buildings insurance, had as many as a third of claims denied last year, according to the latest data from the FCA.

Indeed, almost one in five business lines covered by the FCA value measures had more than 20% of claims denied over the course of 2022.

It's a similar story in the US. Analysis by KFF found health insurers deny almost one in five claims, on average.

This does not, however, mean that these denied claims are actually valid – in fact a large proportion of these claims will not be covered under a typical policy – and instead the problem largely lies with the onboarding process.

This is a problem known as the expectation gap. The difference in understanding between what a policyholder thinks is covered by their insurance, and what is actually covered by the policy.

The problem here is that customers think much more is covered by a policy than is actually the case, leading them to attempt to make a claim that is always going to be repudiated.

Not only does this lead to a poor customer experience and reputational damage for the industry as a whole, it also costs individual insurers time and money.

After all, they have to pay the staff who are handling these unwanted and unnecessary calls.

To combat this, insurers need to do a much better job of explaining their policy at point-of-quote, slowing down the onboarding process to create a more valuable experience that properly explains the benefits – and limitations – of a policy.

By cutting out the jargon and taking the time to explain the various aspects of their policy wordings, insurers can improve this understanding, improve the customer experience, and drive down complaints volumes.

There is also more that insurers can do to improve the customer experience after the onboarding process is complete, by continuing to be a supportive presence in their policyholders lives.

This can be particularly beneficial in areas such as buildings insurance where there are often preventable loss situations that may not be covered by a policy, such as storm damage for fences and gates.

Technology can be a great enabler here, allowing insurers to create communication campaigns that are tailored to the circumstances of individual policyholders and sent out with advice to help prevent damage or loss events, such as in advance of an oncoming storm.

Not only does this help improve customer outcomes that can boost loyalty, it can also drive down costs.

Whether that be in the form of fewer or less severe claims, or a reduced volume of claim requests that are ultimately denied (and the resultant influx of complaints), the result is a win-win for everyone.

Improving Customer Service

But even when claims are valid and the insurer pays out on a policy, there are still a number of common issues that are harming the claims process and damaging the overall customer experience. In the US, 68% of complaints are related to the claims process.

Meanwhile, Insurance DataLab’s analysis of complaints data from the UK's Financial Ombudsman Service (FOS) found that there have been more than 200,000 complaints about general insurance products over the past five years, with some 79% of these relating to the claims process.

And while complaints overall have been on the rise, it is claims complaints that have been the biggest driver of the growing number of cases being referred to the ombudsman.

Not only does paying valid claims promptly make for a good customer experience, it also makes good business sense as it helps to reduce the costs associated with managing a claim.

Capturing the first notification of loss (FNOL) is therefore vital, as it allows insurers to take control of the claims process and, importantly, manage the expectations of the policyholder.

By appropriately managing expectations over how long a claim will take to resolve, as well as what any settlement amount may be, through carefully planned messages and communications, insurers can ensure that customers are kept informed and help to reduce the need for any complaints about delays.

This messaging can also help to speed up the process by providing quick and easy ways for policyholders to reply with any additional information that may be needed to support a claim.

Claims: A regulatory priority

The problem of claims damaging the overall customer experience of insurance became even more of an issue for the UK industry at the beginning of 2022 when the General Insurance Pricing Practices – or GIPP – came into force.

The impact of these new regulations effectively banned insurers from offering cheaper policies to new customers than they do to renewing customers, a practice known as price walking that led to the majority of customers switching their insurance provider at renewal.

Since GIPP was introduced, however, shop around rates have plummeted, with many more customers sticking by their current provider when their policy comes up for renewal.

If they’ve had a good experience, that is.

Given that making a claim is often the only contact a policyholder will have with their insurer before renewing, this means that the claims process has become that much more important to retaining loyal customers.

It is also becoming a much more important regulatory priority too, with the FCA now actively monitoring customer outcomes as part of its new Fair Value and Consumer Duty regulations.

There has been a similar shift in the US, too. The 'Best Interest Standard regime' is now bedded in at state and federal levels, arming regulators with more methods to protect consumers. 

In such a landscape, it is those insurers that are putting their customers front and centre of their strategy and are investing in the claims journey that are setting themselves up for long-term sustainable success.

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