boosting competitiveness at the intersection of insurance claims and procurement – accenture...
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Boosting competitiveness at the intersection of claims and procurementRob Fuhrmann, Kenneth Saldanha and Jonathan Wicksall
Claims Settlement Lifecycle
FNOL
Investigate & Evaluate
Closure & Feedback
Internal Process
Internal Process
Payment & Recovery
Indemnify & Ongoing
Claim Mgmt.
Reserve Mgmt.
Lit. Mgmt.
Fraud Mgmt.
Subrogation
Salvage
Attorney
Jury Consultants
Third Party Administrator
Private Investigators
Expert Services
Independent Adjuster
Accounting
Repair Shop
Medical Services
Construction Services
Rentals
Towing
Agent / Broker
Call-center
Figure 1. Products and services used across the entire claims lifecycle can have a material impact on insurer economics and the strategic positioning of Claims.
Distribution of claims spend on 3rd party categories
US Commercial Property Example
40%
25%
15%10%
10%
Independent AdjustersExpert Services (Engineering)AccountingExpert Services (Building Consultant)Others
Source: Accenture Strategy
CLIENT EXAMPLEInsurance Claims and Procurement departments are disjointed at best, antagonistic at worst. Claims organizations typically underutilize Procurement disciplines, while Procurement departments misconstrue what matters to Claims—both of which fuel a misguided turf war. And in the ensuing battles, everybody loses.
Accenture Strategy experience suggests that insurers that successfully execute at the intersection of Claims and Procurement can improve loss ratios by 1-3 percentage points, dropping millions of dollars to the bottom line. However, rather than winning at the crossroads where the two areas converge, insurers spend their time debating their respective areas of responsibility.
The cost of procured products and services from third-party vendors—e.g. auto body shops, attorneys, independent adjusters—heavily influences the economics of Claims, and Procurement is typically an uncomfortable partner in this process. Improving the strategic planning, sourcing and management of billions of dollars spent on products and services can strengthen Claims’ performance as a driver of competitive advantage for the insurer, leading to greater efficiency, more accurate loss ratios and enhanced customer engagement.
2 | Boosting competitiveness at the intersection of claims and procurement
Getting past the turf war to what matters: increased competitivenessClaims departments tend to view themselves as specialized, often believing that purchasing decisions require unique expertise and judgment (i.e. qualitative criteria). Instead of Claims sharing the reins—and the data—with Procurement, they hold them close, thereby creating a lack of core data. If this dynamic were to change and data could be augmented with the necessary claims context, and analyzed, it would allow better visibility into categories, vendors and performance.
Certainly there are differences in how the two groups operate and make decisions, but if both departments were to look beyond tactical practices to the common goal of increased competitiveness, they could make three critical improvements:
1. More strategic assessment of total cost of partnership
Claims departments struggle to create objective criteria and they are frustrated by their perception that Procurement obsesses over rate cards and volume. Volume for rates is a small element of what is negotiated. Claims and Procurement must collaborate to translate qualitative claims criteria into tangible procurement measures that enable objective selection and contractual terms.
These are some of the elements to consider for more strategic assessment:
Balanced scorecards. Organizations should pick the right vendor based on price, location and qualitative criteria that reflect claims context. A loss in Grand Rapids, Michigan should superficially be adjusted by an approved vendor nearby, unless the loss requires the specialized skills of a vendor who may be located across the country. Procurement needs to work with Claims to strike the right balance across expertise and location factors.
Services that create competitive advantage. Accurate and timely services are just table stakes. Vendors also should illustrate they are committed—and able—to create a claims experience and outcome that are a step beyond what other carriers deliver. Does the vendor create a differentiated level of service in exchange for favorable contractual terms? Commercial arrangements should be aligned to the vendor’s ability to support a claims execution that creates competitive advantage.
What’s the price of preferred relationships?When one insurer outlined its preferred relationships with five independent adjusters (IAs), payment data showed they did business with more than 100 different IAs. A fragmented supplier base within lines of business does not aggregate buying power. Instead, it results in redundant vendor programs often with the same vendor, and it adds compliance risk.
3 | Boosting competitiveness at the intersection of claims and procurement
Figure 2. Gaps occur when claims and procurement technology are not integrated.
Vendor risk mitigation. Risk management beyond the specific scope of services is an increasingly critical component of claims procurement. Vendors have access to a claimant’s property and private data, and in some cases they interact with the claimant’s family. Therefore, it is imperative to find out if the vendor has any violations cited on its record, and to conduct other due diligence to assess the level of risk.
2. Integrated technologyAntiquated processes and a lack of technology/automation hold insurers back from better claims efficiency and customer service—two areas that directly affect profitability. In current claims processes, preferred vendors are not enabled in procurement systems, vendor performance is not integrated and invoices are not triggered by service completion or matched against contract terms (see Figure 2).
Many technology innovations (digital, self-service, analytics-driven decision making, robotics, etc.) are occurring in the procurement space, but they are yet to reach claims. By coming together on the strategic use of technology across claims and procurement value chains, insurers can achieve innovation and unlock the value currently lost due to conflicting tactical approaches.
Antiquated processes and lack of technology/automation hold insurers back from better claims efficiency and customer service, two areas that directly affect profitability.
Source to Pay Process
Claims Process* *Only represents salient steps, relative to the Source to Pay process.
Preferred vendors under contract are not enabled in the claims system. Selection is manual.
Vendor performance is not reported from claims system to be tracked/managed.
Invoices are not triggered by completion of services and matched against contract, selection terms, performance.
HIGH LEVEL SOURCING / CLAIMS VALUE CHAIN
1
2
3
Technology Integration Gaps
FNOLClaim
Settlement/ Indemnification
Vendor Selection
Claim Evaluation
Category Planning
Invoice ReviewSourcing Invoice
ApprovalContracting PaymentVendor Management
1 23
Source: Accenture Strategy
4 | Boosting competitiveness at the intersection of claims and procurement
3. Globally consistent, locally optimized practices
In most global insurers, there is an asymmetry between the level of standardization of procurement practices (typically quite high) and the standardization of claims practices (typically quite low). Unfortunately, this results in procurement trying to use a one-size-fits-all model in the face of claims resistance.
Global claims procurement programs need local optimization because regulatory and procurement practices across countries affect strategic priorities and economic realities. Value levers may be different according to the geography, so claims and procurement practices must be customized for each country to bolster competitiveness for the insurer.
Seizing the opportunitiesIn order to drive sustainable value and continuous improvement over time, Claims and Procurement need to reset their mindsets and together build a model that coordinates their operating principles from a strategic perspective. Decision-making, governance, process ownership and performance management—among other factors—should all be unified.
These actions, sustained through operating model changes, will help insurers actively move toward seizing a potential 1-3 percentage points improved loss ratio. In the case of one carrier, such measures resulted in over $100M reduction in loss.
Win at the intersectionThere are opportunities for improvement across the end-to-end claims procurement lifecycle. Start by looking at roles, responsibilities and accountability. For some insurers, Procurement does it all. In other businesses, there is overlap and duplication. Design a future state where Claims and Procurement work together to select, manage and pay vendors. Each side brings its own biases and experiences, so use that to your advantage to boost competitiveness.
Balance the inherent biases toward contractual risk vs. relationship in Procurement and Claims. Risk management is critical given the nature of claims work. Claims organizations value long-term relationships and the associated expertise and competitive pricing. Both groups are tied to performance outcomes. Coordinating at the intersection will help both to achieve their desired outcomes.
Procurement tries to use a one-size-fits-all model in the face of Claims resistance.
5 | Boosting competitiveness at the intersection of claims and procurement
Key questions to ask to improve outcomes might include:
• What data do both sides care about? Procurement should partner with Claims to agree on types of data to mine and analyze (loss, expense, contract, compliance, performance and more).
• What is the data telling us about adherence to contracts? Is a contract expiring? Are rates out of compliance? Is performance good? These questions should initiate actions. Some might be handled by Claims, some by Procurement. Collaboration is the key.
• Are the right checks and balances in place between Procurement and Claims? Does Claims validate decisions, given it owns the budget and the wallet?
Go digitalClaims procurement technology is in its adolescence. Insurers should work with technology providers to design and build a digital ecosystem that connects Claims and Procurement. It is essential that all systems touching claims activity (e.g. Claims Management System, Source to Invoice, Accounts Payable, Legal Exchange) are synchronized and share data.
Digital improvements might include:
Enhancing underlying data—from intake to outcome. Enhanced intake data can support more complex rule sets for vendor selection. Outcome data fed back into the digital ecosystem creates a virtuous cycle for ongoing improvement of outcomes.
Managing vendors digitally. Insurers are not using technology to manage vendors throughout the claim. A vendor portal would enable all communication and document upload to occur electronically, removing the need for manual entry. This exists for indirect vendors; why not leverage a similar principle for claims vendors?
6 | Boosting competitiveness at the intersection of claims and procurement
Integrating for outcomesWinning at the intersection is possible when the right steps are put into action to fuel competitiveness.
For example, one global multi-line insurer wanted to reduce its loss by $100 million through claims vendor management. The business started by capturing transactional data across more than 25 countries and conducting global top-down spend analysis on total paid loss. Using a “follow the spend” heat map, it identified initial areas of focus based on the loss profiles by country, product line and third party spend. The following sample of claims vendor management levers were then identified, validated and applied to help the insurer realize loss improvement well above the $100 million target:
• Implementing a vendor management program across all major third-party spend categories to monitor performance and cost.
• Rationalizing and restructuring independent property adjuster relationships to be focused on value.
• Insourcing of certain commercial property services (e.g. third-party administrators, forensic accounting).
• Rationalizing auto body shops and the customer interaction process in one Asia-Pacific country from 1,300 to 115, taking out costs and creating stricter performance and customer service requirements for those shops.
When Claims and Procurement work together, insurers create competitive differentiation and drive economic value. In tandem, the strongest vendor relationships are rewarded and strengthened, and customers experience an improved and more engaging claims process. With benefits such as these being there for the taking, why not start your first steps toward change today?
7 | Boosting competitiveness at the intersection of claims and procurement
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Contact the AuthorsRob Fuhrmann [email protected]
Kenneth Saldanha [email protected]
Jonathan Wicksall [email protected]
About AccentureAccenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 375,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.
About Accenture StrategyAccenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow @AccentureStrat or visit www.accenture.com/strategy.