Evolution of Strategic Levers in Insurance Claims Management: An Industry Survey

• Author: Nils Mahlow,Joël Wagner
• DOI: http://doi.org/10.1111/rmir.12061
• Date: 01 September 2016
• Published date: 01 September 2016

Risk Management and Insurance Review

C

Risk Management and Insurance Review, 2016, Vol.19, No. 2, 197-223

DOI: 10.1111/rmir.12061

EVOLUTION OF STRATEGIC LEVERS IN INSURANCE CLAIMS

MANAGEMENT:ANINDUSTRY SURVEY

Nils Mahlow

Jo¨

el Wagner

ABSTRACT

This article discusses competing strategic goals and success factors in nonlife

insurers’ claims management using new and ad hoc empirical data. We struc-

ture the study of the companies’ aims along the three main conflicting goals:

(1) the minimization of claims volume, (2) the optimization of internal claims

processes, and (3) the maximization of customer satisfaction. We analyze the

insurance industry perspective through a qualitative survey carried out in Ger-

many and Switzerland. Findings on the current and expected importance of

selected topics are derived. The results shall lead to managerial implications

improving industry practice and serve as a starting point for further research.

Our findings are relevant for academics and practitioners beyond the two mar-

kets surveyed in the study.

INTRODUCTION

Claims management operations and their “best practices” are currently among the most

important strategic topics for the nonlife retail business of insurance companies in

Europe (see, e.g., EY, 2014; PricewaterhouseCoopers, 2014). In fact, macroeconomic

factors such as the recent financial crisis as well as changing buying patterns of in-

surance customers put significant pressure on insurers to maintain overall profitability

and establish excellent claims management. Considering that on average more than

60 percent of all expenses of property and liability insurers arise from claims costs, the

importance of solid claims management is apparent.1Historically, claims management

at insurance companies has often been treated as a necessary part of operations. The

potential competitive advantages, both in terms of customers and operational focus, that

can be gained through improved claims management have long been underestimated

(see, e.g., Dab et al., 2007). In fact, insurance companies often set as their primary goal

the reduction in claims volume, not realizing that customer satisfaction and processes

are complementary topics. To gain a better understanding of the dynamics of claims

Nils Mahlow is with the University of St. Gallen, Tannenstrasse19, 9000 St. Gallen, Switzerland;

e-mail: nils.mahlow@unisg.ch. Jo¨

el Wagneris with the Department of Actuarial Science, Univer-

sity of Lausanne, Extranef, 1015 Lausanne, Switzerland; e-mail: joel.wagner@unil.ch.

1See, for example, the German and Swiss insurance associations at http://www.gdv.de and

http://www.svv.ch, respectively.

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198 RISK MANAGEMENT AND INSURANCE REVIEW

management and its key topics with a focus on current and future challenges, we define

our research target as follows. First, we introduce a framework to structure the three

most relevant strategic topics in insurance claims management. Within this framework

and 13 selected underlying key topics, we discuss target conflicts. The identified topics

are of relevance in nonlife retail claims operations in many markets (cf. EY, 2014). Next,

we present survey results from insurance companies in Germany and Switzerland to

assess the key topics regarding their current and expected future importance. While our

results are directly applicable to the insurance industry in the two surveyed countries,

insights can be transferred to markets presenting similar levels of development and

when discussing issues from trends in dimensions like, for example, cost reduction,

sourcing, new technologies, and data analytics.

We introduce the main competing goals in strategic claims management along the core

dimensions of claims volume, claims administration costs, and customer satisfaction.

Each of these three elements is associated with specific targets, which often stand in

conflict to each other (see, e.g., Naujoks and Venohr, 1998; Schmidt, 2012). Theoretically

there is an optimal level of goal fulfillment in the three dimensions, which then leads

to an optimal aggregate level in the consolidated strategy of claims management. While

the concept is well accepted by practitioners, to the best of our knowledge, there have

been no academic discussions of the competing goals of insurance company claims

management (also see our literature review in the “Three Main Competing Goals in

Strategic Claims Management” section). On the basis of a threefold framework, we select

and discuss 13 topics that are of current relevance for the industry. The selection is based

on desk research and telephone interviews with C-level representatives. A survey tool is

set up to assess the current and future relevance of the chosen topics. The survey results

are based on responses from C-level executives from 22 nonlife insurance companies

in Germany and Switzerland representing 42 percent and 68 percent, respectively, of

market share in terms of premium volume. The setup also allows us to derive results

focusing on differences in the viewpoints of companies of differentsizes (small and large

companies) and in different geographical regions (Germany and Switzerland).

With regard to overall key results, we detect a strong trend of insurance companies

trying to gain more influence over the overall claims handling process. This goes along

with centralization efforts of insurers. Further, insurers seem to perceive customer de-

mand for increased service levels with regard to claims handling. This will be achieved

through technological improvements (e.g., the digitization of customer touch points)

hand in hand with the faster adjustment processes. A third core finding reveals that

insurance companies are not aiming to further outsource claims handling processes to

third-party providers. This finding is somewhat surprising because insurers have very

high claims administration costs and claims process outsourcing is still on a low level

when compared to other industries. When considering small and large insurance com-

panies separately,differences in their assessments regarding the importance of the topics

appear. It becomes apparent that large insurers are working on higher professionaliza-

tion levels than small insurers. A driver behind this is, among others, that large insurers

can make use of economies of scale. As a result, large insurers, for example, consider

alternative compensation methods to be more important than small insurance compa-

nies do (alternative compensation methods often require greater vertical integration of

repairing process activities outside insurance companies’ core value chain). Examin-

ing differences between insurers from Germany and Switzerland, the analysis shows