Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Third party injury, escape of water and flood claims are driving up the claims bill 2
Insurers are piloting several programs that aim to reduce medical and repair claims costs 2
Recycled parts allow insurers to be green and lower the claims bill 2
Early rehabilitation lowers treatment costs and generates cost savings for insurers 2
Insurers have used supply chain management to curb the growth of claims bills 2
Procurement agreements have become standard mainly due to savings from economies of scale 2
Outsourcing has a number of advantages and disadvantages 3
Outsourcing can allow an insurance provider to quickly adopt the benefits of new technology without the cost 3
Cost saving continues to dominate the debate over the use of outsourcing, although attitudes are changing 3
Fraud continues to cost insurers up to £1.6 billion a year 3
While organized crime is behind some of the larger insurance fraud cases, opportunistic fraud accounts for the majority of fraud cases 3
Crash for cash schemes remain a significant source of fraudulent motor claims committed by organized crime 3
Opportunistic fraud remains difficult to detect, though widespread 4
Insurance providers have a number of techniques at their disposal to combat fraud 4
Measures that detect fraudulent cases early on are key in keeping fraud costs contained 4
Claims management has been impacted by a great deal of changes to the regulatory framework it operates in 4
New fire regulations may increase the cost of property insurance claims 4
New NHS Injury Costs Recovery Scheme regulations came into effect in January 2007 4
The DCA paper on damages has the potential to stoke claims inflation for personal injury cases 4
There may be changes to regulations surrounding third party capture and periodic payments 5
The FSA may move to regulate the use of third party capture by insurers 5
Periodic payments have failed to have the impact many feared, though can lead to higher claims costs 5
Table of figures 7
Table of tables 8
Chapter 1 Introduction 9
What is this report about? 9
Who is the target reader? 9
Chapter 2 Claims Costs 10
Introduction 10
Third party injury, escape of water and flood claims are driving up the claims bill 10
Each line has similar claims cost drivers 10
Third party injury remains the top driver behind claims costs 10
Property insurers are seeing an increase in escape of water and flood related claims 10
Insurers are piloting several programs that aim to reduce medical and repair claims costs 10
Recycled parts allow insurers to be green and lower the claims bill 10
Early rehabilitation lowers treatment costs and generates cost savings for insurers 11
Research indicates that rehabilitation can generate savings 11
More insurers are moving to early and standard rehabilitation 11
IT investments are key to realizing cost reductions and speeding up claims handling 12
The Lloyd's market has set the target of December 2007 to have all claims handled electronically 12
Claims management software has proliferated with many specialized applications but insurers must be careful to not simply add more systems to the mix 12
Insurers do not always have to make the investments in IT themselves to benefit from improved claims management software 13
Chapter 3 Supply Chain Management and Outsourcing 14
Introduction 14
Insurers have used supply chain management to curb the growth of claims bills 14
Procurement agreements have become standard mainly due to savings from economies of scale 14
Fraud can be reduced by the use of replacement-in-kind and store vouchers, while reputation increases 14
Supply agreements have their drawbacks as customer service can suffer if the relationship is not carefully managed 15
Outsourcing has a number of advantages and disadvantages 15
Outsourcing can allow an insurance provider to quickly adopt the benefits of new technology without the cost 15
Cost saving continues to dominate the debate over the use of outsourcing, although attitudes are changing 15
Outsourcing in the insurance sector is not as prominent as in other financial services markets, but is still a key part of many insurers' strategies 16
Lack of control over the claims process has kept some insurers from outsourcing any claims handling 16
The leaders in outsourced claims management have made strides in the market 16
Capita made a number of acquisitions and new business launches in 2006 and 2007 16
Cunningham Lindsay 17
Crawford and Company 18
Chapter 4 Anti-Fraud Developments 20
Fraud continues to cost insurers up to £1.6 billion a year 20
While organized crime is behind some of the larger insurance fraud cases, opportunistic fraud accounts for the majority of fraud cases 20
Crash for cash schemes remain a significant source of fraudulent motor claims committed by organized crime 20
The IFB has been very active in the investigation of professional fraud over the year it has been in operation 21
Opportunistic fraud remains difficult to detect, though widespread 22
Insurance providers have a number of techniques at their disposal to combat fraud 22
Measures that detect fraudulent cases early on are key in keeping fraud costs contained 22
Rapid medical assessment can deter suspect claims from proceeding, as well as providing good customer service 22
Fraud detection systems can provide real time validation of claims, detecting the fraud early on 22
Investments in IT are crucial in obtaining savings on claims costs and can improve customer services 23
Even simple IT solutions can benefit insurers in their bid to contain fraud costs 23
There are a number of providers of more sophisticated anti-fraud measures operating in the market 25
Publicity can significantly improve the effectiveness of anti-fraud measures as well as provide its own deterrent 25
Follow up on the initial claims can often uncover and deter fraud claims 26
Insurance providers are identifying and preventing more fraud, suggesting anti-fraud efforts are producing dividends 26
Chapter 5 Regulation and Law 27
Introduction 27
New fire regulations may increase the cost of property insurance claims 27
New fire regulations came into effect in October 2006 27
Total losses have increased, with insurers noticing more large fire losses in 2006 27
New NHS Injury Costs Recovery Scheme regulations came into effect in January 2007 27
The NHS expects to recover an additional £150 million a year through the new cost recovery scheme 27
Cost recovery limits have increased to £38,000 28
Insurers fear current limits could be scrapped altogether within the next five years, increasing claims inflation even more 28
The DCA paper on damages has the potential to stoke claims inflation for personal injury cases 28
New Ogden tables and changes in the drivers of claims inflation could cause significant increases in personal injury costs 28
The DCA paper also recommended that the number of people eligible to claim damage payments for care and dependency be increased 29
There may be changes to regulations surrounding third party capture and periodic payments 29
The FSA may move to regulate the use of third party capture by insurers 29
Periodic payments have failed to have the impact many feared, though can lead to higher claims costs 29
The Compensation Act proved to be a mixed bag for claims managers with both benefits and drawbacks 30
Joint and several liability for mesothelioma cases was established in the Compensation Act of 2006, returning the status quo 30
Rehabilitation may become more attractive as a means for controlling costs because of the apology clause 31
Claims management companies must now be registered and comply with the new Compensation Act 31
APPENDIX 32
Further reading 32
Future reading 32
Ask the analyst 32
General insurance research and analysis team 32
Datamonitor consulting 32
Disclaimer 33
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