Direct Line cools new business over claims inflation concerns, Mike Daly

Direct Line suffered a fall in revenue in the first quarter as it cut back marketing efforts in its core motor and home insurance markets, warning that intensifying inflation in the cost of claims was not being reflected in market prices.

This article discusses those costs and how insurers can demand technology partners to make cost savings elsewhere to counter these inflationary pressures.

DLG suffered a 2% year-on-year fall in gross written premiums to £734mn in the first quarter. In motor, premiums declined 5 per cent, with 10% in home, while its smaller commercial insurance business NIG grew at double-digits partially offsetting the GI trend.

Insurers have been impacted by rising second-hand car prices, supply chain disruption that has resulted in rising costs of components, materials and labour across both motor and home insurance.

ERS recently described a similar situation and added in the war in Ukraine and the impact of Brexit as further complications.

Manufacturing problems due to the escalating crisis in Ukraine, are taking their toll on a repair industry already stretched to capacity by supply chain issues – creating new challenges for motor insurers, brokers and customers alike. The entire industry is affected.

The industry’s reliance on overseas parts is putting massive pressure on garages, car manufacturers, and the customers , who are having to wait longer than usual for their cars to be fixed.

One reason for this is that two-thirds of vehicle parts are manufactured in the Middle East and China, where Covid-19 continues to affect production. And with Ukraine and Russia both critical for the production of semi-conductors, global manufacturing issues won’t be resolved any time soon.

Parts delivery delays:

The average UK parts dealer holds just 1.5 days’ worth of stock, with the industry operating to just-in-time supply lines from the EU. These parts are taking longer to come through from the dealer network due to Covid-19 backlogs, sickness leave, and the general shortage of HGV drivers across Europe.

According to the National Body Repair Association (NBRA), the number of parts available with short lead times has dropped by 30%, with almost one quarter of all jobs now taking over a week for parts to arrive – delays that are only anticipated to get longer.

Repairer constraints, capacity issues and rising prices:

The NBRA estimates that approximately 100,000 damaged vehicles are waiting to be brought in for repairs, while driveable vehicles are taking five weeks longer to get booked in than pre-pandemic.

Inevitably, parts costs have increased due to a combination of supply chain problems, import-related and pandemic-induced delays, dealers holding less stock, and new car parts production being prioritised over parts for existing vehicles. We have seen some bodyshop consolidation in the market and it’s reasonable to assume that there will be further reductions in repair capacity as a consequence.

Labour shortages:

Like many other industries, bodyshops have seen reductions in their workforce as people make different lifestyle and career decision following Brexit and Covid. At the same time, the pandemic had reduced the overall pool of talent available. The industry is taking steps to produce a more sustainable pipeline of talent, but in the short term there will be a shortage of people to undertake the work.

This is not just a UK issue of course. LexisNexis recently talked of a perfect storm of converging forces in the US.

"There’s a perfect storm brewing in the auto insurance industry, with the potential to create havoc in the industry as a whole and the claims function in particular. This could result in long-lasting negative impacts for your business—including increased costs, reduced margins and most of all unhappy customers. What has triggered this perfect storm?

Rapid inflation of up to 7.5% is driving up costs and threatening margins for claims filed under policies priced at lower inflation levels.
The Great Resignation is creating churn in the workforce. Claims call centers are losing as many as 30-35% of their employees. Body shops are impacted, as well.
Supply chain issues are driving up average days to repair

Whilst insurers cannot change supply chain disruption or rising costs of components and materials they can leverage technology to reduce the costs of waste time and materials resulting from poor triage and orchestration of supply chain participants. This would go a long way to tackling the claims inflation factors described above. LexisNexis proposed the following strategies to help achieve this. .

Offer simple, seamless experiences enabled by customer-friendly digital interactions. User-friendly, self-service applications make it easy for your customers to file a simple claim and see it through to conclusion, while freeing adjusters to focus on more complex claims.
Accelerate processing with data prefill. You can shave days off of processing time, improve accuracy and keep your customers happy using solutions that auto-populate claims forms with the rich data now available in the insurance ecosystem.
Automate to streamline the workflow. When you embed data and analytics into your workflows, you can confidently automate as much as 90% of your simple, non-injury claims—speeding up settlement, freeing up resources and pleasing customers.
Provide the human touch when needed. Your customers appreciate the convenience and time-savings of digital interactions, but sometimes they want to talk to a real person. The more strategically you use automation, the more you can free up agents for more critical tasks, such as providing human interaction when that’s what your customers want.

Your customers want their claims settled easily, promptly and accurately—no excuses. You want to delight your customers and for your business to be profitable. To achieve these goals, you must face the perfect storm head on with data-driven automated solutions.

However; despite the many pronouncements of end-to-end digital transformation of claims by both technology providers and some insurers the reality tends to lag behind. It is not easy to choose the right mix of platforms and point solutions to deliver the optimal outcomes for both insured customers and claims handlers (adjusters).

It also takes time; Progressive introduced its first telematics driven products back in 2014, learnt a great deal over the years with various technology partners and plenty of customer feedback. It is arguably only now that mature ( and innovative) products have ben delivered to and accepted by the market.

Much the same can be said about claims management technology. Read the media and company websites and you might be forgiven for believing that virtual inspections, straight-though-processing and touchless claims were de rigueur in both auto and property claims.

However, just in the case of Progressive, insurers have been experimenting with solution providers like Tractable, Solera, CCC, Mitchell, Control€xpert and others. The fruits of these experiments are ripening. STP is technically possible for simpler claims but even when so some insurers prefer to pass to a claims adjuster for a "final check". Culture and confidence are as important as technology. And confidence only comes when partnership build trust between insurers and technology providers.

Some claims platforms still lack practical and customer satisfying front ends i.e. eNOL/FNOL to allow insureds to notify loss and accidents by any channel they want. Some have effective eNOL/FNOL but are poorer when offering the rich API connections appetite to support the ideal integration and mix of third-party software.

Now these third-party software products are proven, deployable, and essential to deliver that must be a vital consideration when choosing the ideal digital claims platforms. Isn't it best to choose platforms that support automated real-time interrogation and data exchange with policy admin systems, damage repair and cost estimation software, automated house contents replacement cost, payments solutions .......

Digital Claims Management Platforms

It is telling that whilst all core technology platforms feature a claims module most customers license a separate digital claims platform. With circa 70% of an insurer’s cashflow tied up in claims operations and claims a key determinate of customer satisfaction and retention you can draw your own lesson.

Options including Claims Ecosystems Providers e.g. Verisk, CoreLogic, LexisNexis and what you might term Claims CoreTech i.e., modern architecture, cloud native, public hosted, micro-services and API architected with low-code/zero-code standard. Examples include RightIndem and Snapsheet.

Some technology partners specialise e.g., CoreLogic and Synergy with property, home and contents whilst others cover multiple lines of business e.g. Verisk, 360Globalnet and RightIndem.

Do you put all your trust in a cloud-native, micro-services and API driven platform that has a limited number of customers, scaled only to modest claims volumes and may have shown focus in only one or two lines of business?

Or do you choose a proven new legacy option that has scaled across many large Tier 1 and Tier 2 insurers but has an amount of technical debt hidden in the various modules and tends to be expensive, more complex to deploy and require major upgrades every three/four years?

Luckily a number of digital claim management platforms have scaled up and can offer proven ability to deal with millions of claims per annum. And scale up from just thousands of claims to high volume at a rate to match your own capabilities. That makes it easier to prove the technology in one line of business and once the technology and relationship is trusted expand over the whole business.

You will require assurance that each platform can integrate with core third party software to build out the functionality, digital UX and claims journey required for all lines of business. Many vendors talk of their API documentation and ability to integrate but some lack the stamina and inhouse resources to fulfil the promise. You will need these third-party applications, so it is best to validate the capabilities of the vendor before committing to trials or POCs. Ask how many native connectors they have to third-party software and platforms. Do they really support the technology ecosystem you need to rely on or will they have to code and build to fill gaps?

There are pros and cons for either choice and key is the trust you feel you can place in the people involved and relationships with each vendor. Geoffrey Moore is an outstanding advisor on the technology adoption lifecycle and on technology start-ups achieving scale. He emphasises that founders and managers of start-ups are often not the ones suitable to take innovators beyond the first few customers.

A recent research project by Sonr in partnership with EY rates Insurtechs by a number of characteristics including the capabilities of the people involved. The result is the Insurtech 100 Report ( see Further Reading at end of the article).

What range of options do you have? ( all in alphabetical order)

Ecosystem Claims Management Platforms

CoreLogic for property
Verisk for property and auto

New Claims CoreTech Platforms

360SiteView
Claims Genius
Claim Technology
RightIndem
Salesforce Industries (Insurance)
Snapsheet
Synergy Cloud

No one platform will have everything an insurer, broker, MGA requires. You will need to add third-party solutions to deliver all the requirements an insurer, broker, MGA will demand. Whilst all vendors claim to have large API libraries and integration capabilities many will lack the resources and commitment to be able to connect the required mix of third-party apps and data sources.

When prices are changing so rapidly over the claims journey as a result of the factors described above it is vital to adopt platforms that can update costs in near real-time. Start reserving at FNOL and enhance this with the estimating software below and feed through variations as they happen which requires the very best triage and orchestration of supply chain participants

Point Solution Software

Policy Admin, Claims Validation and Triage

Iotatach
Sprout.ai

Claims Damage and Cost Estimation (often combinations of these)

Be Valued
CCC
Claims Genius
ClickIns
LexisNexis
Mitchell
SLVRCD
Solera/Audatex
Symbility (CoreLogic)
Tractable
Value Checker
Verisk
Xtract360

Liability Assessment

BAIL

Counter Fraud

360Retrieve
BAE NetReveal
Friss
Shift

The experimental phase has ended and there is increasing evidence that insurers are moving beyond trialling software and demanding proven, innovative and cloud-native claims platforms.

Where all customers are on the same, current version so that those time-consuming and costly upgrades are a thing of the past.
Platforms suitable for all lines of business delivering customised claims journeys.
That speed up FNOL and policy/coverage validation
That can cope with the rapid claims inflation discussed above updating variations in near real-time
That triage claims to the right claims teams and supply chain participants earlier
That integrate with and automatically initiate third-party apps, data flows and processes in real-time
That deliver STP and augment claims adjusters in parallel
That allow insurers, brokers and MGAs to integrate with any point solutions they specify
That are affordable and scalable up and down

That is not too much to ask for is it?