Claims trends - Summing it up

Every year, insurers must negotiate costs with their third-party suppliers, offer relevant products to their customers and maintain or improve their position in the marketplace. But how is this possible when so many companies only look inwards at their own claims data?

Independent market data allows claims managers to judge whether third-party suppliers are really offering the best deal, enables strategists to plot their place in the market, and keeps product developers informed about trends. And for companies to really understand how they are performing relative to others, they need a regular flow of this information. The more up-to-date it is, the better.

Motor claims

For example, there seems to be an accepted market consensus that motor premiums need to increase to keep pace with the cost of claims. Independent commentators have recently said that insurers need to see their rates rise by 5% per annum just to keep pace with claims, and insurers themselves in their results statements have made observations to the effect that there is a claims inflation factor of about 5%.

However, insurers are speaking to a wide range of different parties when they make their comments: shareholders, brokers, potential affinity partners, competitors, and of course customers. Interestingly, recent reports have stated that car thefts have halved in the last 10 years, but is that solely due to improved vehicle security, or are there economic and social factors supporting the trend?

Information held by MPCI based on figures received from insurers appears to echo what is being said by insurers and commentators. For example, data shows that average motor claims costs were 3% higher in the second half of 2004 than in the first half. However, some care is needed with this result, as seasonality factors will affect not only the frequency but also the severity of claims.

Claims frequency data shows a drop in frequency during 2004 but a rise in the first half of 2005 compared with the last six months of 2004. Again, there are seasonal variations, but you can build a picture of underlying trends over time (see graph below).

Of course, knowing claims costs or frequency at a global level tells you very little. What insurers need is to understand what is driving the figures - apart from ever-increasing bodily injury settlements. What is also helpful is to understand what is being done to control these costs and how internal costs compare.

Recoveries are an area of growing interest. Many insurers have set up their own specialist teams. No doubt they all cover their costs, but is your team doing as well as others? How many insurers' claims costs - and consequently their premiums - are being inflated by not getting their fair share of recoveries?

Monitoring standards

Incidentally, in terms of insurers' service standards, what we have found appears to run contrary to some opinions expressed in the last few months in postmagazine.co.uk's Claims Corner. One commonly expressed complaint by brokers is that they can never get through. In reality, most companies' answer times consistently average less than one minute - and that includes any interactive voice response messages. Perhaps the problem revolves more around time of day - Monday mornings especially are best avoided.

Home and contents

Household insurance receives a much smaller press when it comes to results. According to MPCI figures, claims inflation is less of an issue than for motor, but this is a continually developing market. Approved builders, fraud detection and use of adjusters are all hot topics in this arena.

Replacement goods are also an interesting area. We have all seen the adverts where the insurer swoops in to put everything right following a claim, but just how high is the uptake for this service? Our data shows that little more than 25% of customers are keen to take up this offer. There are some companies doing better than that, but there are customers at the end of the process who, because they are individuals, have this habit of being unpredictable. Add to this the way such schemes are sometimes communicated to the claimant and the low number taking advantage of such proposals is not so surprising.

Findings like this are key to the insurance industry. No company acts in isolation, and often trends and problems can only be spotted when bringing all the market data together. Insurers can struggle along on their own but surely working to interpret how they are changing vis-a-vis the market, and using easily accessible information to develop a relevant service offering for their clients, is the way forward.

- Martin Pitt is the managing director at MPCI Market Intelligence.