It’s time we got smart about commercial insurance claims

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I was intrigued by a recent press article which discussed disputed commercial insurance claims.

In a survey of UK businesses from mid-sized £50m turnover to the largest, 20% of these had suffered a ‘serious’ claim in recent years, and 45% of those claims had been disputed by the insurer.

The average settlement for disputed claims was just short of three years, (yes, THREE YEARS) and the sum paid out often wasn’t much more than half the original amount claimed.

Delays in claims settlement forced policyholders to have some degree of interim funding. In these days of relative austerity, companies do not hold adequate balance sheet surplus to fight for too long. Also the article said that banks are reluctant to bail them out by way of a loan until the insurance money eventually arrives. What this means is that the commercial policyholder is pushed towards or even into bankruptcy. At the very least, important B2B relationships can be severely affected, perhaps beyond repair.

Delays in claims settlement can occur for many reasons. Sometimes it’s as simple as a hugely optimistic view of their entitlement by the claimant. It can also be down to some issue of policy coverage. Independent observers say that the chips are stacked in favour of the insurer in terms of non-disclosure or breach of policy conditions.

Other times it might relate to the adequacy of insurance cover in place in terms of the sums insured, and the entitlement of insurers to apply proportionate reduction, a process which is known as ‘average’

Overall it’s a complex area, and there are moves to revisit UK  legislation  around this.

Seems to me that much of our insurance thinking at the moment centres on personal lines, but isn’t it time to spare a thought for the commercial insurance marketplace?

What might smarter commercial insurance look like?

Here’s some suggestions.

1. Asset management : The capability exists to have a clear understanding of physical values at risk, their geohazard (i.e. located in a flood zone) and the level of cover needed. In this day and age, there shouldn’t be any scope for argument about the amount insured. Proportionate reduction of the claim needn’t happen.
2. Telematics for commercial buildings: Use of sensors could be used in key locations to ensure that policy conditions are met. For example, firedoors are closed and stock is stored above ground level where appropriate.
3. New methods of calculation. Business Interruption scenarios could be modelled using financial performance management (FPM) analytics and predictive analytics – to create sandbox scenarios of worst case insurable events, ensuring that adequate Business Interruption cover is in place.
4. Operational risk management. Effective operational risk management introduced as a new policy condition – to ensure that cyber risk, supply chain risk, reputational risk and others are adequately mitigated.

From a claims point of view, perhaps there are also improvements to be made.

Here’s three suggestions.

1. Better collaboration : Claims adjustment carried out in a more open, collaborative way as opposed to confrontation, through the use of ‘claims portals’.
2. New ways of calculating Business Interruption : Increased use of Financial Performance Management tools rather than spreadsheet analysis, allowing quicker and more accurate calculation.
3. Embrace social media : Recognise the importance of using social media in a B2B context to retain customers and exploit this new technology. Who said ‘social’ was all about B2C?

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